20200731Palfreyman Direct.pdf

RECEIVED
2020 July il, PM 3:16
TDAHO PUBLIC
UTILITIES COMMISSIONPreston N. Carter (ISB No. 8462)
Charlie S. Baser (ISB No. 10884)
Givens Pursley LLP
601 W. Bannock St.
Boise, ID 83702
Telephone: [phone]
Facsimile: [phone]
[e-mail]
charliebaser@ givensourslev. com
Attorneys for Falls Water Co., Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
A?PLICATION OF FALLS WATER
CO., INC. FORAPPROVAL OF
ACQUISITION OF THE ASSETS OF
MORNING VIEW WATER COMPANY
CaseNo. FI-s-ti-2b .c+
DIRECT TESTIMONY OF JUSTIN PALFREYMAN
ON BEHALF OF FALLS WATER CO., INC.
July 31,2020
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BACKGROUND
a. Please state your name and title.
A. Justin Palfreyman, President of Falls Water Co., Inc. ("Falls Water"). I also serve as
President of NW Natural Water of Idaho, LLC ("NW Natural Water of Idaho") and NW Natural
Water Company, LLC ("NW Natural Water").
a. Please summarize your professional experience and educational background.
A. I have worked for 17 years in strategy, finance, and corporate development functions. I most
recently worked as a Director in Lazard's Power, Energy, and Infrastructure Group in New York,
where I provided skategic and financial advice to corporations, institutional investors, private
equity fimds, and government clients. My advisory assignments related to general strategic advice,
mergers, acquisitions, divestitures, raising capital, restructurings, corporate preparednesVtakeover
defense, and capital structure optimization. Prior to lazard, I worked in the lnfrastrucrure
Investment Banking Group at Goldman Sachs in New York. I also previously held various positions
in finance, strategy, and business development at both Apex Leaming and Accenture in Seattle,
Washington.
I hold an MBA from the University of Chicago Booth School of Business, a Master's of
Public Policy from The University ofChicago kving B. Harris School ofPublic Policy, and a
Bachelor's of Business Administration from Pacific Lutheran Universitv.
a. What is the purpose of your testimony?
A. My testimony is offered to provide the Idaho Public Utilities Commission (the
"Commission") and Commission Staff with information regarding Falls Water's proposed
acquisition (the "Transaction") of the assets of the Water Business of Moming View Water
Company ("Moming View") (the "Water Business Assets").
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O. What do you mean by the term "Water Business?"
A. Moming View owns and operates a water supply and distribution system. In this testimony,
I use the term "Water Business" to describe Moming View's water supply and distribution system,
consistent with how the term "Business" is defined in the Asset Purchase Agreement
("Agreement"), which is attached hereto as Exhibit l.r
O. Please describe NW Natural Water, and the relationship among Falls Water' NW
Natural Water of Ideho, and NW Natural Water.
A. NW Natural Water is a wholly owned subsidiary of NW Natural Holding Company ("NW
Natural Holdings"). NW Natural Holdings, which is headquartered in Portland, Oregon, is a
publicly owned company with a maxket cap of approximately $1.7 billion. It has revolving credit
facilities aggregating to approximately $100 million. NW Natural Holdings' Form l0-K for 2019
filed with the Securities and Exchange Commission is aftached hereto as Exhibit 2.
NW Natural Water was created to own and operate water utilities, through subsidiaries, in
Oregon, Washington, and Idaho. NW Natural Water also has significant financial assets. It
currently owns and operates seven water utilities, including Gem State Water (through NW Natural
Water of Idaho) and Falls Water Co., Inc., which operates in the area around Idaho Falls, ldaho.
Falls Water is currently a subsidiary of NW Natural Water, though NW Natural Water
intends to make Falls Water a subsidiary of NW Natural Water of Idaho. Falls Water has access to
the financial resources and the utility expertise of NW Natural, NW Natural Water, NW Natural
Holdings, and their affiliates.
An organizational chart illustrating NW Natural Holdings' corporate structure is attached
hereto as Exhibit 3. The chart has been designated "Confidential" per Commission rules.
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I The Assel Purchase Agreement is filed as "Confidential" pursuant to the Commission's rules,
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1 Q. Please describe NW Natural Water's interest in, and recent acquisitions in, the water
2 sector.
A. In recent years, leadership ofthe NW Natural family ofbusinesses undertook a
comprehensive strategic review process to identify and evaluate potential growth opportunities that,
among other criteria, would offer a risk profile consistent with our core utility business and a long-
term opportunity to grow beyond our existing business. The outcome of the strategic review
process was a strategy and plan to pursue opporturdties in the water utility and infrastructure sector,
in addition to the ongoing focus on our 162 year old gas utility, storage, and infrastructure business.
We believe that a water strategy is a compelling fit for NW Natural because it would build on our
core competencies ofconstructing, operating, and maintaining infrastructure, providing best-in-
class customer service, ensuring safety and reliability, and effectively managing a regulated utility.
NW Natural Water has been actively pursuing this strategy. NW Natural Water recently
acquired, and is currently operating, seven water companies through direct or indirect subsidiaries,
including Gem State Water, which recently acquired the assets of Spirit Lake East Water Company,
Lynnwood Water, Diamond Bar Estates, LLC, Bar Circle "S" Water, lnc, Bitterroot Water Co.,
lnc., and Happy Valley Water System Inc. Other water utilities acquired by NW Natural Water
through direct or indirect subsidiaries include Falls Water; Cascadia Water, LLC and Suncadia
Water Company, LLC, in Washingtory Salmon Valley Water Company, Sunstone Water, LLC, and
Sunriver Water LLC in Oregon. By owning and operating these water utilities, NW Natural Water
has gained valuable experience in the water sector. NW Natural Water will bring this experience to
the Moming View Water Business customers.
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a. Do NW Natural Water and Falls Water intend to make any changes to Morning View
employees as a result of its acquisition of the Morning View Water Business Assets?
A. Yes. Currently, Morning View employs Nolan Gneiting and Dawn Gneiting (the
"Gneitings") and contracts with an outside bookkeeper. If the Transaction is approved, Falls Water
employees wilI assume the roles previously undertaken by Moming View's current employees.
Tony Wise, the liceflsed water system operator for Falls Water, will serve as the licensed water
system operator for the assets of Moming View's Water Business. Mr. Wise holds Iicense number
DWD3-21515 (Class 3), and his business address is 2180 N. Deborah Drive, Idaho Falls, ID 83401.
The experience of Falls Water's employees will complement NW Natural Water and its affiliates'
financial resources and utility expertise.
THE TRANSACTION
a. Please describe Morning View.
A. Morning View is a regulated water utility that serves approximately 1 18 residential
customers in and around Jefferson County, Idaho under CPCN No. 314. The area cunently served
by Moming View is in the same vicinity as the territory served by Falls Water.
a. Why are NW Noturil Wster and Falls Water interested in acquiring ttre Morning
View's Business Assets?
A. Acquiring these assets fits into NW Natural Water's continued growth in the water sector.
Like many small water utilities, Morning View's Water Business system is in need of capital
investment to support system growth and maintain system integrity. While Falls Water has not
identified any specific capital projects, it preliminarily notes that the third well likely needs an
immediate upgrade and that a water conservation plan needs to be implemented or additional water
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1 rights obtained. Falls Water intends to incorporate Moming View's Water Business in future
iterations of Falls Water's Water Master Plan.
In addition, NW Natural Water and Falls Water will provide the professional expertise
needed to provide high-quality water services to customers in the long term. The pmximity of
Moming View to Falls Water's service territory means that Falls Water's employees can provide a
local presence and seamless transition to the customers of Moming View.
O. Please describe the proposed Transaction to acquire Morning View's Water Business
Assets.
A. On July 2, 2020 Moming View and Falls Water entered into the Agreement. Under the
Agreement, if approved by the Commission, Falls Water will acquire the Water Business Assets of
Moming View. As stated above, if Falls Water's acquisition of Morning View is approved,
employees of Falls Water will operate Morning View's water systems. Tony Wise, the licensed
water system operator for Falls Water, will serve as the licensed water system operator for the assets
of Moming View's Water Business. Mr. Wise holds license number DWD3-21515 (Class 3), and
his business address is 2180 N Deborah Drive, Idaho Falls, ID 83401.
a. Does Falls Water seek to change rates ttrrough this Transaction?
A. No. Falls Water is not seeking to change rates, rate structure, or other charges lor customers
of Moming View or for Falls Water customers through the Transaction. Falls Water proposes that
the current rate structure, rates, and other charges remain the same for each customer group. I
understand that Idaho law authorizes the Commission to provide for acquisition adjustrnents in
certain circumstances for entities acquiring water utilities in the State, but Falls Water does not seek
an acquisition adjustment with this particular Transaction, and Falls Water will not seek any
increase to rates as part of this Transaction. Any future rate increases would be related to prudent
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capital inveshents or other increased expenses, and would need to be justified at that time.
Transaction-related costs have been incurred by NW Natural Holdings, not by Falls Water. The
costs will not be passed to Falls Water and will not be included in any rate case filing. Transaction-
related costs include activities related to due diligance, environmental consultants, legal costs, travel
costs, and other costs related to negotiations.
If the Commission approves the Transaction, Falls Water will work with Commission Staff
to file updated tariffs reflecting the approved rates and charges. Ifthe Commission approves the
Transaction, Falls Water will also work with Commission Staff before and during future rate
proceedings to consider consolidation ofrates, rate structufe, and other charges as reasonable and
appropriate for current Falls Water and curent Moming View customers.
a. Does Falls Water request any other action from the Commission?
A. Yes. Moming View currently holds CPCN No. 314. Falls Water requests that CPCN No'
314 be transferred to Falls Water. This will enable Falls Water to provide service to the current
customers of Morning View.
In addition, Falls Water requests that the Cornmission treat prudently incurred expenditures
in Moming View's Water Business as 100% equity until Morning View's Water Business achieves
^ 5}yol5}yo debt and equity capital structure. This teatment is necessary to make the acquisition of
Moming View, which I would consider a distressed small r ater utility, viable from an economic
perspective.
O. Does Falls Water have additional information for the Commission?
A. Yes. Through its recent acquisitions, and through its interactions with Commission Staff,
Falls Water has identified additional information that may prove useful to the Commission in
evaluating the proposed transaction. Information regarding Morning View's Water Business
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1 System, including maps, well logs, information regarding water production and usage, and
information regarding water rights, is included in the Small Water System Plan attached hereto as
Exhibit 4.
Meters are currently read on a monthly basis throughout the year, and customers are
currently billed on a monthly basis. Falls Water intends to maintain this schedule for the foreseeable
future.
Falls Water provides 24-hour response to repairs or water quality issues. Customer can call
the Falls Water office phone number, [phone], and the call will be forwarded to an
answering service if the line cannot be answered.
Ifthe Tfansaction is approved, accounting, financial, and customer records will be kept in
the local office of Falls Water,2180N. Deborah Drive, Idaho Falls, ID83401. Falls Water's local
office also will be the location for former Moming View customers to pay bills, make requests, and
otherwise corespond with Falls Water.
Moming View does not currently provide fire protection.
Based on inlormation provided by Moming View, the area within Moming View's current
CPCN contains approximately 150 platted lots. In addition, the area around Moming View but not
within the current CPCN boundary has some potential for additional development and associated
new customefs.
O. Does this conclude your testimony?
A. Yes.
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EXHIBIT 1
FALLS WATER CO., rNC.
- This Exhibit contains trade secret or confidential
material and is filed separately -
EXHIBIT 2
FALLS WATER C0., INC.
NW Natural Holdings' Form l0-K for 2019
(22e PAGES)
UNITED STATES
SECURITIES AND EXCHANGE CO]UIMISSION
Wlthlngton, D.C. 20540
FORM 1O.KB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For tho fircalllrar endsd Deccmbrr 31, 2019
ORD TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANCE ACT OF 1934
For the transltion perlod tom _ to_
comrnission fl6 numb€r 1-38681
,1,HIY )loturolr{0LDtI0s*<fr *t, Noturol'
Commission lile number 1-15973
NORTHWEST NATURAL GAS COTIPANY
YestrNoB
NORTHWEST NATURAL HOLDING COMPA'iIY
(Exacl name of rggbtant 6s sp€cifi€d in its chadar)
Or.glon 82{710680
(Stai6 or oth.rjurisdicti{ro of (l.R.S. Employ€.
lncoryoletion or orgEnizelion) ld€ntification No-)
250 S.W. Trylor Strret
Pord.nd O.lgon gf204
(Address of pdncipsl €xocutive offices) (Zp Code)
RegistrEnl's tolophone numb€r: (503) Zt6-all1
(Exact namo of Egistrant as spocmed ln its charteo
oFgor 94425672:2
(State orothcrjurisdidion of (l.R-S. Employor
IncolporaUon or org6ntsElion) ldEntilication No.)
250 S.W. Trylor Stsrct
Poruand Orcgpn ll2l,,.
(Add,e.r of p.incjpal cx.crrtivo offico8) (zip codo)
Roglstranl's tglephono numbor: (5031 226{2tl
Reoislrant
No.thw€6t Natural Holdlng Company
Northw66t Natu6l Ga6 Co.npany
Socrrritigs rogbtcred pursuant to Soctlon l2(g) of th€ A.i Non6.
fi{6 of€ach clsss
Common Stock
None
TEdino Svmbol
NWN
Nooo
Ham€ of ea6h exchange
on rvhidl reoisle.€d
i,lcv, York Stock Exchange
Soorritiss regblerod puBuaht to Soction 12(b) of th€ Ad:
lndicate by check malk if the registranl is a w€ll-l(nown soasonod issu€r, as dofn€d in Rule 405 of lhe Seq./dlies Act.
NORTHWEST NATUMI HOLDING COMPANY YOS 8 NO tr NORTHWEST NATURAL GAS COMPAMY
lndicate by check malk if tta regislrant is not Equked to frle lEports pulsuani to Soclioo 13 or S€ction 15(d) of tho Ad.
NORTHWEST NATURAL HOLDING COMPANY Yes tr NO B NORTHWEST NATUML GAS COMPAI'IY trNoB
th€ p..ceding
d.ys.
8No!
lrdicat€ by check ma $h6th€r tte regisbant ('l) ha6 filod ell r€po.ls r.quir€d io b€ frled by S6.llon 13 or 15(d) of th. Securitios Exch.nge Acl of 1934 during
'12 monlhs (or for auch shonor podod thsl the regisfanl wEs requked to fle such reports), end (2) hat b6an subject to slrafi illng Bqulronbnts for lhe past 90
NORTHWEST NATURAI. HOLDING COMPANY YO6 E NO tr NORTHWEST NATURAI GAS COMPAMY YES
lrdicats by chock malk wholller the regi6kEnt hss submitted eioctronk lly o\,€ry lnteradlvs Data Fll€ roqukod to b€ suknittod po.suant to Rule 405 of Regulslion S-T
(S232.40S oI f 6 dapte.) during flo pEceding 12 rnonths (or for such short€r po.bd that tho r€gisfsnt was r€quir€d to 3ubmil 6uch fil€s).
NORTHWEST NATURAL HOLDING COMPANY YO6 E NO tr NORTHMST NATUML GAS COMPAI{Y VEg 8 NO E
lndiaatc by chcck mark wiathar tha rogbtrant is a hrgE acaalerat€d filer, an accel,erat€d fl€r, a non-acc6l6rEt d ihr, a rmalLr rapoatlno compalry, or an em9tging growth
NORTHWEST NATURAL HOLDING COMPANY
LrE6 Accelorated Filor
AccEl€rrted Flar
Non-accel6retod Fller
Smsll6r R€pordng Company
Emerging Gdv,lh Company
NORTHWEST NATURAL GAS COi,IPANY
l-Erg6 Accslsratod Fil6r
Accolorat€d Fil6r
Non-acc€l€rslod Fil6r
Small6r R€porting Company
Em6Eing Growth Company
tr
tr
B
tr
tr
E
tr
o
tr
D
lf sn €merging growth company, indicsls by ch6ck mark it tho roglslranl has oloctsd not lo uBe lhe €xtended lransition p€riod for complylng wllh sny naw or r€vised financiel
eccounting slendadG provid€d pursuant to S€ction 13(a) of th€ ExchEnge Ad. E
lndicste by ch€ck msrk whelher lhe registrant is e shell company (ss dofinod in Rule 1 2b-2 of th€ Exchang€ Aot).
NORTHWEST NATURAL HOLDING COMPANY Y€S tr NO 8 NORTHWEST NATURAL GAS COMPANY YES E NO E
As of the ond ol the socond quart€r of 2019, the aggregat6 market value of lhe shsrqs of Common Stock of Northwesl Natural Holding Company (based upon
the closing price of those sharss on the New York Stock Exchango on Jun€ 28, 2019) held by non-af,iliat$ was $2,088,8&,E19.
At February 24, 2020, 30,484,008 shares ot Northw€st Natural Holding Company's Common Stock (th€ only class of Common Stock) were oulstanding. All
shares of Northwest Natural Gas Compgnys Common Stock (the only class of Common Stock) outstanding were held by Norlhwest Nalural Holdlng Company.
This combinod Form 1O.K is separately tlled by Nonhnest Natural Holdino Company and Northwost Natu.alGas Company. lnformation conlaln€d in this
dgcument relating to Northwest Natural Gas Company is filed by Northwest Nshr,al Holding Company and separately by Nofiwest Natural Gas Company.
Norihw€st Natural Gas Company makes no representation as to information relating tg No.lhwsst Natural Holding Company or ils subsidiarieslToxcept as it may
.elate to Northwest Natural Gas company and its 6ubsldiari6s.
PALFREY|\.|AN. Dt
FALLS WATER CO,, INC,
Page 1 of 229
NorlhwBst Natural Gas Company moBt6 th6 condltlons sat torth ln Gsnoral lnslructlon (lxlxa) and O) of Fom io-K and ls [16r€10rB fflhg this roport with tho
reduc€d disclosure b]mat.
OOCUMEN'I} INGORP,ORATED BY REFEREXCE
Portions ot Northyv6t Naiural Holding Company's Proxy Stalement, to bs filod ih conneclicn with the 20m Annual Mcsting of Shdr6hold6rs, are lncoDorated by
refoi€nco ln Pad lll.
EXHIBIT 2
PALFREYMAN, OI
FALLg WATER CO., INC.
Pqge? ot 229
TABLE OF CONTENTS
llem Pase
Glossarv of Tarmg
Forward-Lookino Statemenls
EIgTslE
Overview
Business Modd
Natural Gas Distribution
oOrar
Environmental Matters
Empbvces
lnformation About Our Executive Oflicers
ArglbhlellelEr0oo
Risk Factors
lNEsdxsl$bfi.S@sr6
Prooerties
L6oel Procsadinos
Mine Saletv Disclosures
Markot to Roolskenfs Co.tmon Eoulty. Related Slockholdsr Mettors and lEsusr
Purchases of Eouitv Secu lies
S.bclad Flnandal Datr
Manaoement's Discussion and Analvsis of Financial Condition and Results of Ooerations
@
Financial Slatements and Supolementaru Data
Chanoos ln and Dlsao.oomenta wl'th Arcountrants on Accountlno and Flnanclel Disclo6ure
Contols and Prccedures
Olher lnbrmaton
Directors. Executive Officers and Corcorate Governance
Erocuti\re Comoensalioa
Securitv Ownerchio ot Certain Benelicial Owners and Manaoement and Rolated Slockholder Matters
Cortaln Rel6ion8hlos and Relatod Trama.,lions. and Olrecio. lnd€o€ndenc€
Pnncioal Accountanl Fees and Services
3
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PART I
lbm t.
PART II
Item lA.
lbm tB.
ItBm 2.
luri 3.
It m4.
a
e
s
c
1!
L0
16
Ls
17
&
a
30
t1
!a
79
r:E
139
1!|t
140
JrZ
142
v2
143
lr3
143
llt
150
f,.In 5.
lirm 6.
It€rn 7.
lcm 7 .
Item 8,
It6n 9.
It6m 9A.
It iD 98.
PART III
Item '10.
ItuD I l.
It6m 12.
Itlm t3.
It6m 14.
PART IV
lblr 15, Edliblts ahd Finandal Sldtemont scheduleB
Item 16. Form 10-K Summarv
EXHIE1LINDE5
SIGNATURES
2
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 3 of 229
Table of Contents
GLOSSANY OF TERI'S AND ABBREVIATIONS
AFUDC
AOC| / AOCL
ASC
ASU
Avsrag6 Woahsr
Bcl
CNG
CODM
Allowancs for Fund8 Ussd Ouring Constuctbn
Accumulated Other Comprehensive lncome {Loss)
Accounting St ndards Codification
Accounting Standards Update as issuod by th€ FASB
Th6 z$y.a. ev..ego of hoatlng dogrrc d€ys basrd on tomporatJras 6tabllsh6d in our last Or6gon gonsftil rats cas€
Billion cublc feet, a volumclric m€asure of nstural gEs, whero one Bcf is roughly equslto 10 million therms
Compfls6rd Natural Ga8
Chief Op€rating Decision Maker, which for accounting purposas is defined as an individual or gmup of individuals rosponsiblo
for the allocation of resources 6nd assessing lhe pedormenc€ of ttl€ 6nlity'E blsingss units
R€sldontial, cqnm6.clal, and Indu8trial culbmall r€csiving fim 6oMce from ho N6tulal G63 Distributlon boslness.
Th6 dolivorod co6t of naturalgas sold to customers, inqluding lhe cost gfgas purchased or withdrawn/producod from storage
inventory or resorvgs, gains and losses ftom gas commodity hedg6s, pipsline dsmand costs, seasonal demand cost balancing
adjustments, and regulatory ga6 cost defenals
Csltfo.nla Publlc Udlltlcs Commls8lon, th6 6ntity thet regulates our California gas storsga buslnsss at th€ Gill Ranch facillty with
respod to r.t6B and t6rms ot s.ruh€, among other mattors
A natural gas billing rato mochanism, 6lso rclo[ed lo as a conservation tariff, which is d6sign6d to allow E utility lo encourage
industrial and small commo.cial custoolers lo conseNe eneagy whil6 not adversely afiecting the ullity's Gamlngs du€ to
roductions in salgE volumgs
A cornporEnt ln NGD c{Stomer rat6r rgprgsonting ths oost of BsqJring fi]m pip€lins capscity, wh.th6r lh. capacity i6 us.d or
not
Eamings before interest, taxes, dopreciatlon and amorlkation, a non-GAAP flnancial measure
Engln66dng Evaluadon / Co6t AnalyEl6
Encana Oil & Gas (USA) lnc.
Northwost Encroy Corporation, a wtrdly-owned subsidlary of Nonhwcat N8tural Gas Compsny
Environmental Protoction Agency
Eamings p€r shars
Environmontal Cost R6covory Mechanlsm, a billing rat6 mochani8m for recovering prud€ntly incunod environmgnt€l site
rem€diation costs allocable to Washington customers through NGO customer billings
Flnanclal Accountiog Standards Board
Federal Energy Regulalory Commission;the entity rogulating int6rstat6 storago sorvices offorod by the Mlst gas storag€ facility
Natural ga6 Servic€ offeEd lo customera under oonbscts or late schedules lhsl will not be di8rupt6d to m6ot tha nseds ot other
ouslorners
First Mortgage Bonds
A pododic iling w i stat€ or lodoral regulators to esbblish billng ratss tor utility qrstomsrs
Greenhouse gases
Gill Ranch Storagc, LLC, a wholly-own€d subsidisry of NW NshIsl G6s Storag6, LLC
Undergmund naturalga6 slorage facility near Fresno, Califomia, with 75% owned by Gill Ranch and 25% owned by PG&E
Gas Transmlsslon Northwo8t, LLC whlch onms s lranemlsslon plpelins ssMng Cslhoria and th€ Padfic Northwest
Units of measure roneding t€mperature-sgnsitive consumption ot natural gas, calculatad by subtmctinq lh6 averago of a day's
high and low temperaturos ftom 59 deorees Fahronhelt
Naturalgas sarvica offarod lo customoG (usually larg6 comm6rci6l or lnduBbisl uso6) under contrects or rats schsdules that
allo, ,or intenuptions whgn no@ssary to m66t the n6.ds of firm sgrylc. cuatomu6
Tho portion ofthe Mist g€s storage facility not usod to sorve NGD customors, inst€ad sorving utillti6s, ga6 mark€l€6, el.ctric
generators, and larqe indushlal usgrs
Publlc Utlllty Commlsslon of ldaho; the entity thst regulstes NW Holdings' rsgulated water busln$sos with raspoct lo rat6s ard
ierms of s€rviro, among othff mattors
Core NGD custonss
Cost of Gas
CPUC
Ogc,oupling
Damerd Co6t
EEITDA
EgCA
Encsna
Engrgy corp
EPA
EPS
ECRM
FASB
FERC
Firm Servlco
FMBs
Gglleral RatB C6se
GHG
Gill Ran.tr
Gill Ranch Facility
GTN
Heating D€gre6 Days
lntonuptible Service
lntsrstate Storage Sorvices
3
IPUC
EXHIBIT 2
PALFREYI'AN, DI
FALLS WATER CO,, INC,
Page 4 of 229
Table of Conlents
IRP
KB
LNG
MAP-2.I
Moody's
NAV
NGD
NGO Margin
NNG Financial
NOL
NRD
NW Holdings
NW Nstural
NwN Energy
NWN Gas Reserves
NWN Gas Storago
ooEo
OPEIU
OPUC
lnlograled Resource Plan
K6l8o-B.av6r Pipdine, ol wilch I 0% is c vn€d by KB Plpolino Company, € subsldlary of NNG Flnsnclal Corporetion
Liqueli€d Natural Gas. the cryogenic laquid form oI natural gas. To reach a liquid lgrm al atmospheric pressure, natural gas
must be coolod to approximately negativo 260 degregs Fahronhslt
A fodoral ponsioo dan funding law callod th€ Moving Ah€ad for Pmgress ln lho 218t Csntury Act July 2012
Moody's lnvestors Seryice, lnc., credit rating agency
Nel A!8et Valuo
Natu.al Gas Distdbution, a segment of NW Natural Holding Company and NW Natural Gas Company that provid€s rBgulated
natural gas distribution seNices to residenlial, commercial, and industdal customers in Oregon and Southwest Washington
A fnanclal m.asur6 used by NW Naturgts CODM consigling ot NGD op€rallng r9vonu66 1668 tho as8odated cosl of gas,
franohisg taxgE, and onvimnmontal r€covr.hs
NNG Financial Corporation, a wholly-o\rrned subsidiary of NW Holdings
Not Oporating Loe6
Natural Resource Damag€s
Nor$wast Naural tloldirE Company
Northw.st Natural Gas Company, a wholly-ownod subsidiary ot NW Holding$
ttw Natural Energy, LLC, a wholly-ownod subsidhry of NW Holdings
NWN Gas Reserves LLC, a wholly-owned subsidiary of Energy Corp
NW Natural GsE Storage, LLC, a whollyovnBd subsldiary ol NWN Ensrgy
Oregon Departmenl of Environmenlal Quality
Offics and Profsesional Employo€s lntomatioml Unlon Local No- I l, AFL4|O, th6 Union which r€p,gssnb NW Natu.al!
baEaining unlt employE€3
Publjc Utility Commlssion of Oregon: the entity that regulates our Oregon natural gas and regulated water buEinesses with
rosp€ct to rirtos and terms of servico, among other matlers; lhe OPUC also rogulates the Mist gas storago facility's intrastate
stomge sorvioes
Ponsion Bonofii Guarsnty Corporatioo
Pacific Gas & Electric Company; 25% owner of the Gill Ranch Facility
Purchasod Gas Adjustrngnt, € rsgul8tory mechanism primarily usod to adjusl natural gas cusbm.r tatas lo l€f,ect ctEngss in
th6 for€casted co8t of g6s and dlfb1anco6 botween torDcasl6d and aclual ga8 costs ftom tle ptlor yoor
Portland General Electric; primary cuslomer of lhe North Mist gas storage facility
U.S. Dopartmont of Tranepodalion's Pipolino and Hazardou3 Matorlals Salrty Admlnlshation
Potentially Responsible PErties
Remodial lnvBstigation / Fea6ibility Study
Ren6wablo Natural Gas, a Bourc€ of natural gas derived hom organic malorials whlch may bo captured, refin€d, and distributed
on natural gas pip€lino systems
Rocord of Decision
Retum on Equity, a measure of corporate protitability, calculat€d as nel incom€ or loss divided by avarage common
equity, Authorized ROE refo6 to the equity rate approved by a regulatory agency for use in determining utility rEv€nuo
requir6menls
Rats of R6tum, a moasuro of retum on ufllty rato b8se, Authorlzgd ROR .€fers to th€ rat€ of retum approvBd by a rogulatory
agency and ia ggo6.ally dlscu8sed ln th€ contoxt ol ROE and capital EbuctJr€
Standard & Poods, a credit rating agency and division of The Mccmw-Hill Companies, lnc.
Service prgvld6d whorcby a cuslomd purEhases bolh natural gas commodlty eupply and transpgriatbn trom lho NGD business
U.S, Securitiss and Exchangs Commission
Site Remediation and Rocov6ry Mechantsm, a bllllng rate me.hanism for rBcovering prud€ntly inc{rtr€d snvimnmental 6ll€
r6modlatlon costs allocable to Otsgon thmugh NGD sustomer billing8, suuoct to an camirE6 t€st
The Tax Cuts and Jobs Act enacted on Decembot 22,2017
The basic unlt of natural gas rneasurement, equalto one hundred thousand Britlsh tharmal unlts
Trail W€st Holdings, LLC, 50% ownod by NWN Energy
PBGC
PG&E
PGA
Portland General
PHMSA
PRP
RYFS
RNG
ROO
ROE
ROR
S&P
Salos Servica
SEC
SRRM
TCJA
Th€m
TWH
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO., INC,
Page 5 o1229
T.bb ol Cont nts
Tlmcr!&frl|€{lqh Ptsrl[r.t Llltlld, omff ol T]'lrcm.dr Arndlcari lBrdr.na, U.1..60* drr ol lWH, rd OTN
U.8. G^^P ADcou*tg Xlnoir.. c.n rdy *c.Eld h l| Urtd 8[-a dim..lc.
wt Tc Wldrhgho t ll5.r rnd Trm?ordon Co|rmldon,t|a tr$y 5, qnhc ar Wd*Tbn nd,lla g.3.rd nguhd wd.fb(rha.tc u,l$,tapactb aaiaa and Lrn. oasfllca, anong o$ar tr ll.
5
EXHIBIT 2
PALFREYMAN, DI
F LLS WA]ER CO., rNC.
P4,eAo[m
Iaue-at Cslteol$
F O R|,IAR& LO OKI NG S7A IEIUEI'IS
This rgport contains forwad-looking siatements wlthln the meanlng ol h6 U.S. P.ivate S€curities Littation Reform Act of 1995, wiich are subjecl to the sale
harboE croated by 6uch Ac,t. Fori,vard-looking statements can be identified by words such as anliclpates, assum6s, lnt€nds, plans, s€6ks, b6liev6s, estlmates,
expsc{s, and similar ror€rences to tuture perigds. ExamplBs of forwatd-.logking slatements ioclude, but are not limited to, statements regarding lhe following:. plans, projgctions and prodictions;. obj6ctivss, goal6 or 6tratogles;. assumptions,gsn€ralizationsandostimateEi. ongoing continuaiion of past practica8 or paltoms;. futurc 6v6nts or pertqrmanc€;. lEnds;. isks;. uncafiainties;. timing and cydicallty;. eamings and dividends;. captal expendlhrres and allocauon:. capital or o,ganlzatlonal slructuE;. cllmat€ change and our role in a low-ca$on, r6nqwablo-snergy futuro:
' our stratogy to Gduc€ greenhous€ gas emissions in the communltiBs wo s6rye;. growth;. customgf rates;. lebor rglation8 and workiorcg auccsssion;. commodity cosb;. 048 re6erve9;. operational p€rformance and co86;. energy policy, inftastructure and pr€forences;. public policy approacfi and lnvolvement;. afilcacy oI d6rivativg6 and h6dg6s;. liquidity, financia, posltlons, and plannod seq.rrities issuances;. valuations;. project and program dev€loprnent, expansion, or invostrnont;. business developm€nt efforts, including acqulsltlons and lnlegrauon thereof, and the timing and impaat of planned diEposilions;
' lmplom6nbtion and execution otour rvater sfat6gy;. pipeline capacity, demand, location, and reliability;. adequacy of property righb and operations center dovslopmont;
' lgchnologyimplementationandclborsecijritypractices;. compolilion;. p.ocurement and dewlopment of gas (induding for r6n6wabl€ naturalgas) and wat6J 6upplieE;
' oEtlmatod6xpenditurss;. costs of complianc€;. custorneE bypassing our inkastruclure;. credlt €xposlres;. rata or Egulatory oulcomes, recovsry or r9funda;. impactg or cfianges of lawa, rules and .egulatlong;. lax llabllillss or refunds, indudlng eflecls of t8x reform;. levels and pricing of gas storage coflt'ac{s and gas 6torago matkots;. or.ricomes, timing and offects ot potential clalms, lrugedon, r€gulatory acllons, and othsr admlnlstratlve matte6;
' prolect€d obllgEtions, expectauois end trBatrnent with rospact to reliEm6nt plans;. availability, adequacy, and shift in mix, ot gas and water supplios;. efectE of new or anlioipabd change6 in crltlcal sccountlng pollcles or 680males;. approval and adoquacy qf rggulatory d6f6nals;. efsds and officacy of rogulatory meohanism6; and. onvironmental, regulatory, litigatign and lnsuranco cosls and r€co\r6rl€s, and fimlng thor6of.
FoMard-looking stalgm€ntg are based on our curent exp€ctalionS and aSsumption6 aegarding our busincEs, lhe 6conomy, and oth€r futuro conditions. Bocause
forward.looking statemenb relats to tha tuture, lhey a.e subiect to inherent uncertainties, ,isks, and changes in cirqJmslancee that are difficult to predicl, Our
actual resulb may differ materially trom those contemplated by the ,orward-looking statements, We the{erore ceulion you ag8insl .elying on any of these
forward-looklng Sbtements. Th€y aae neither staEments of historical facl nor guarantees or assuEnoes of fulure porlormance. lmportant factors that could
cause actual results to dlffer materially from those in ihe Iorward-looking stalemeds are discussed at ltem '1A,, 'Risk Faclors' of Part I and ltem 7. and ltem 7A.,
'Management's Discussion and Analysis of Financlal Condillon and Rosults of Operallons" and 'Quantll,alive and Qualltatlve Disclosu.€s About Mark6t Rl6k',
respectively, of Pa.t ll ol thi$ roport.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Page 7 c1229
Idle.cLsededr
&ry fun nrdtooking sbtsmsnt made ln hb l€pod spoaks only as d tha dab on rvhlc-h I h mado, Factors or rwr*r lrlet couts 6u.e rc,hl.l r$ulb b dftr msy
clnaE€ fiom tms b tmo, and ft is not possltl6 ,or us to prsdftn E of thcm. Wo undortiko no oHigatlon to pdrlbly lpdab any lbryve looldng statom€ot,
wllr0llr !B a rBsult of rlef,, informEtixl, frJtur" dwslopment8 or olhervrlre, ercept s msy bs rsquired by hw.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page I of 229
Table of Contents
PART I
FILING FORMAT
Thls annual r6po.t on Form 'lO-K is a comblnod roport being filed by two soparate registErts: Northwesl Natural Holding Company (NW Holdlngs), and
Northwssl Natu.al Gas Company (NW Natural). Except whsro thc conlent cleady indicateg oth6rwi86, any reforenco ln the roport lo 1,v6," 'us' or "oua is to th€
consolidatsd ontity of NW Holdings and Ell ol it6 subsldia.ies, induding NW Natural, whi.fi is a distinct SEC r€gisbant that is a wholly-owned 6ub6idiary of l.lw
Holdings. Each of NW Holdings' subsidigrl€S is a oeparatB l6gal entity with its or.vn assotB and liabilities. lnformatigo ggntalned hor6ln rolating to any individual
.egistrant or its subsidiaries is filed by Euch rogiskant on its own behalf. Each .egistrant makes reprossnletlona only as to itself and its subsidiariss and mak€s
no other ,eprssentation whatso€vGr as to any other company.
Itern 8 in this Annual Report oo Form 1GN includes separate financial slstements (i.e. balence she€ts, stat6m€nts of compr€h€nsivo income, statsments of cash
flows, and statoments of 6qulty) for NW Holdings and NW Natural, in that order. References in lhis discussion to the 'Notes' arg b the Notes to the
Consolk ated Financial Statements in ltem I of this .oport. The Notes to the Consolidated Financisl Statemefits are pre6ented on a comblned basls for both
entities excapt where expressly not€d oth6rwise. All ltems other thsn ltem 8 are combined for tho reportng companios.
ITEM 1. BUSINESS
owRv,Et
On Octob€r 1, 2018, we compl6t6d a reorganizatioo intg a holdlng company structure. ln this r€organization, shareholders of NW Natursl (the pledecassor
publicly held parent cornpany) beoame sh6roholders of NW Holdings, on a one-for-one basis, with the same number olBhares and sam6 ownership percenlage
as hey held ln tlw Natural imm€diatsly prhtr to th€ r€organization. NW Natural becsme a wholly own€d Euboidlary of NW Holdings. Additionally, certain
subsidiari€s ol NW Natural w6r6 transfered to NW Holdings. As requkod under gsn€rally acceplod accounting principles, thes€ subsidiaries are pre66nted as
discon0nued operations ln the 2018 and 20'17 consolidated results of NW Natursl within thk report.
NW Holding6 is a holding company hoadquarte(ed in Pgrtland, Oregon and or{ns NW Natu.al, NW Natural Wata. Company, LLC (NWN Water), and other
busin€ssas and activitiss. NW Naturol is NW Holdlngs' largest subsidiary.
NW Nalural dlshhutos natural gas to rssidential, commerdal, and lndustrial cu6tom€r$ in Orogon and southwest Washington, NW Natu.a! and lts pr€doc€ssors
haw supplied g8s service to the public since 1859, was incorporatod in Orsgon in 1910, and began doing buslnesE 6s NW Nalural ln '1997. l,Iw Natural's natural
gas dBlribulion activities are reportsd in the natural gas distribution (NGD) 6egment. All othor buslness adivities, induding cerhin gas storage aclivities, wate.
busln66ses, and oth6r lnvest nents and activities are aggregat€d and raporlod as 'othea at their respeqtiw rggistranl.
ln addition, NW Holdings has reporl6d disco.rtinued operafigns re€ults related to the pendlng sale of Gill Ranch Storage, LLC (Gill Ranch). NW Nalural Gas
Storage, LLC (NWN Gas Storaoe). cunently an indirect nholly{rr,mcd subsidiary ot NW Holdings, entered into a Purchase gnd Sale Agr6€ment durlng lhe
second quarler ot 2O't8 that proviles for th6 sal6 of all memb€rship inlerests in Gill Ranch. Gill Ranch owns a 75% lniarsst In thc natural gas storage facility
locqtrd near Fresno, Califomia known as the Gill Ranch Gas Slorage Facility. Pacific GaE and Elec-lric Company (PG&E) owns the remaining 25% interest in lhe
Gill Ranch Ga6 Slorage Facility- S6e Note 19 of the Consolidatod Financial Statamonb in ltom 8 of this roport for more infurmation.
,YATURAL GAS D'STR'BUNON UCD) SEGfrlENT
Both NW Holdings and NW Natural have one reportabl€ segment, Ore NGD segment, which i6 operatod by NW Natural. NGD provides natural gas service
through approximately 760,000 meters in Oregon snd southweEt Washlngton. Approximately 89% ot customers are looated in Oregon and 'l 1 o/o are located ln
southwest Washington.
NW Natural ha6 been allocated an sxclusiv€ service lerdlory by the Or€gon Public Utlllty Commission {oPUc) and Washington Utilities and Transpofta0on
Commission (WUTC), which includes [le major populatlon cenb.s in westem Oregon, including the Po. and motropolltan area, nrost of the Willamette V€lley,
the Coastal srea from Astoria to Coos Bay, and portions of Washington along he Columbia Riv6r- Portland sorvos as a major West Coast po.t and i5 a key
distribution c€nt6r. Major busin6ss6s located in NW Nahrral's servico tsnltory lncludo r€tail, manufacturing, and higlt-technology industries.
Cuatomera
The NGD buslnoss s6rvs6 residential, commercial, and lndusbisl custorners with no individual oustomer accounting for mo.s lhan 10olo of NW Natural's o. NW
Holdings' revenueg. On an annual basis, residsntial and commercial customers typi.ally account ror approxlmately 60% of NGD volumes delivered and
approximatoly 900/6 of margin. lndustrial and othsr cudomers lergely account for the remaining volumes and margin.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC.
Page I of 229
8
Raldcntlal
Commorcial
kxt/lt lal
othe/1)
Tot!l
652,012
69,858
1,007
N/A
3St6
iro%
N,/A
63%
8t{
5%
762,81?'t00*10096
NGD margln ls abo 8fleat6d by other hen$, lndudlng mlsc6llanoous rovenu€s. geins or b3sos lrom l{W Netural's gE6 co6t inc€ntvo 6harirE m€<fi6nism, other msrgln
sdio8tnents, and other regulated services.
Gongralt, resid€ntial and commorcial customors pur.has6 bolh lheir natural gas commodity (gas salgs) and natural gas dolivory s€rvicos (tran8portaliqn
sorvicos) ,rom th6 NGD bu6inoss- lndusLial customeE also purchase trsnsportation sorvices, but may buy the gas commodity sither tom NW Natural or dirocily
hom a third-party gas markoter or supplior. Gas commodity cost is primarit a pa6s-through cost to cuslom€E; thorelore, prolit margins sre not materially
afi€c16d by an indushisl custornei's decision to purchaso gas from NW Natural or from thid padi6s. lndustrial and largs oommorcial customgrs may also 69lect
b€twesn firm and lntonuplibl€ 66rvice l6vels, with firm services generslly providing h(thor profit margin8 compsred to intenuptible sorvices.
To help manag€ gas supplios, industrial tarifh Ere designsd to provide eome cerlEinty regarding industrial customors' volumss by roquiring an annual seruice
el6ction, speclal charggs tor changes botween olecliona, and in some csses, a minimum or maximum volume requirement before dlanging options.
Cu6tomor gror,lh .atgs for naluralgas udlities in the Pacific Northwest hbtorically have been arnong th€ highest in th6 nation due to lower market satu.aiion as
naturalgas became widely available as a r€sldential hoating Gourca all6r olher ruel oplions. We estimate natural gas was in approximately 63% ol single-family
rgEidential homes in NW Nsturafs sorvice territory in 20'19. Custom€r grovrth in our.eglon comas malnly from th6 followlng sou.ces: 6ingle-family housing, bolh
n6w constructlon and conwrslons: multlfamily housing new con6t uction; and commorcial buildings, both new constn c{ion and conveBions. Single-family new
construction has consistsndy beon ouI laEost sourcs of groMh. Continued cu6tom6r g.owth is clo6ely tiod to the compsrative pric€ of oahlral gas to electricity
and fu€loil and the ecgnomic heallh of Porfland, Oregon and Vancouvor, Washington. We believo th!r6 is potontialfor continuod grorth as naturalgas is a
protoned di.od enorgy sourcs duo to it6 affordability, rgliability, comlort, convgnienc€, and dsan qualities.
Comoatltlva Condltions
ln ib service areas, the NGD businoss has no dlrect comp€lition lrom oth6r natural gas dblributoE. Hox,ever, it compgtes with other fofms of energy in each
cuslomer class. This competition among energy suppliers is bas6d on prlc6, 6fficl6ncy, rgliabllity, p€rformanc€, pref€ronce, market conditions, technolggy,
fodaral, state, and local€norgy pollcy, and environm6ntal imp6cts.
For ro8klontlal and small to mid-size commercial cu6tome6, ths NGD business cornpobs primarily with p,oMd6rs of6l6ctricity. tu61oil, and propane.
ln th€ industrial and large cqmmercial mark€ts, ths NGD businsss competes with allforms ofonorgy, induding comp€tition from wholesalo nalu,al gas
marketors. ln addioon, largo industrial customo6 could bypass NW Nstural's naturalgas dislribution syslern by installing their own dir€ct pip€line conn€ction to
Ihe int€rstate pipeline system. NW Notural has designed custom transportation service agreoments with sevoral large industrial custom66 to provlde
bansportation s€ruice reles lhat ars comp6tltiv6 wlth the cusiome/s costs of inslalling their own pipolina,
Ssasonalltv of Buslnes!
The NGO business is soasonal in naturD due to highar gas usag6 by resldentlal and comm€rcid custom66 during th6 cold wintgr hoating nronths. Other
catogori66 ol clstomerE experienag similar seasonality in th6ir usag€ but to a l6ss6r 6xt6nt.
R.dul.llon rnd Ralca
ThB NGD businsss ls subJect to regulatlon by the OPUC and WUTC. These regulatory agencies authorize rates and allow r€covery mechanisms to provide thc
opportunity to recover prudently incuned capitrl and operating costs from customers, whilc al6o €amlng a roasonable r€tum on lnvgstmenl tor lnvostors. ln
addition, the OPUC and WUTC al6o regulale lhe system of accounb and issuance of s6curities by tlw Natural.
NW Natural tiles general rate cases €nd rate tariff requests poriodi.ally wlth th€ OPUC and WUTC to sstabllsh approv6d rat€s, an authorized rgtum gn equity
(ROE), an ovorall rat6 of r6tum (ROR) on rate base, an authorizod capital structurs. and oth6r r6v6nu6/cost d.lsral and Gcovgry mechanlsma.
I
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC.
Pase 10 of 229
Table of Contents
The following tabls pressnts summary metsr infomation for the NGD segment as ot D€c€mber 31, 20191
Number of Melers % of Volumes % of Margin
Table of Contenls
NW Natural is 6lso regulated by th€ Federal Energy Rsgulatory Commission (FERC). Undsr NW Natural's Mist interstate storago certificste with FERC, NW
Natural is roquired to file either a petition for rate appmval or a cost and rovenue study every live years to ctrange o.justify malntaining th€ exisling ratos tor the
interstate storage service.
For turthor discussion on our mosl recent g€noral rale cases, see Parl ll, ltem 7, 'Results of Op€rations-Regulatory Matisrs-Rggu/arbn 8rd Reaos.'
Crr-Surdy
NW Natural strives b secur€ sufficient, rollabl€ supplies of natural gas to moqt the needs of crrstomers at the lowest .easonable co6l, whil6 maintaining p{ic€
stability and managing gas purcha66 costs prudently. ThB is accomplished through a compEh€n8ive strategy focus€d on lho following items:. Rolhblllty - eruuring Oas resource podfoligs 6rs 6ufrlclent to satisfy customer requirernents under oxtreme oold wealher coflditions;, Dly.]te Supply - providing diversily of supply sources;. Dlygrse Cqntract - maintainlng a variety o, conkac{ durations, typ€6, and counterpanios; and. Cost l{anagGmont and Rocov.ry - gmplgying prud€nt gas cost managsment sfategies.
Reliabilitv
Th6 6fi6ctit/en6ss of the natursl gas distribution systgm ultimat€ly resb on wheth€r reliable sgrvica is providgd tq NGD cuEtom€G. To ensuro Gfioclivenoss, the
NGD business has devoloped a risk-bsrgd methodology in which it uses a planning standard to 6€rve tho hlghost firm sales demand day in any year with 99%
c€rtainty.
The projected maximum design day fi.m NGD cuslomer sendout is approximately 10 million therms. Ot this total, the NGD buoinsss is cunsntly capable of
mogting about 57% of roquirements wtth gas ftom storage located wiihin or adjacont to its servlco tanltory, whlle tho romaining supdy requiremenls would come
trcm gas purchas66 und€r tlrm gas purchase contracts and rccall agrssmcnts.
NW Natural sggments transportation capacity, which is a natural gas tranqpo.tatioa mechanism undor whlch a shipper can levorage ib fim pipeline
transpo.taUon capaclty by separating it into multlplo ssgmonts with altomato dolivery routos. Th6 rsliabllity of ssrvice on theso ahemato rcul€s \ /ill vary
daponding on th€ consbaints of the pip€lino 6yst6m. For thoso sogrnents wilh scceptable reliability, segmantatlon provldss a 6hipp€r with increasod flexibllity
aod potgntal cgst savings compared to traditional pipsling servic€. Tho NGD businoss rslles on sogmentation of firm pipoline transportation cePacity that flows
from Stanfi€ld, Orogon to various points south ol Molalls, OrEgon.
We beliovs gas supplies would b6 sufiicient to mest existing NGO firm custom€r dgmand ln ths 6wnt ofmsimum design day w€ather conditions.
Tho
'ollowing
table shows the sources ol supply projected to be wed b satisfy the deg(rn day 66ndout for th€ 2019-20 winter heating season:
Tharrns th filtlions Thems Percenl
Sourcos oINGD supply:
Flm 8upply pllrdlas6!
Mist und€rground sto.ag6 (NGD only)
Company{rrned LtlG Btorage
Ofi-system stgrage ggnFact
Pip6ln6 Eogmoniitoal c6pa€ y
Rec€ll agreementg
P!.k day clttlote d€llvorhs
Total
3.1
3.'1
t.g
0.5
0.6
0.4
0.'l
u.h
310/.
t9%
5'/.
6%
4%
1%
't0.0 1000/5
The OPUC and WUTC have lntEgratod Rosource Planning (lRP) proc6s66s in whlch u lltlos dsflne diflorent gro,th soenados and @fiesponding .€6ourc6
acqulsttlon strateglos ln an offort io evaluate supply and domard rosourco r6qui cments, considor uncodainties in the planning process and th6 n66d for
floxitility to rospond to chang6s, and establish a plan for providing reliable sgNice at th€ least ao6t.
NW Natural files a full IRP biennially for Oregon and Washington with the OPUC and the WUTC, .€spectively, and files updales botwson tilihgs. Th€ OPUC
acknowledgss NW Natu.al's actjon plan, whoreas lhE WUTC provides notlce that the IRP has m6t th6 r€quir€menls of the Washington Adminislrative
Codc. OPUC acknowlodgment ofthe IRP do6s not collstitute aatemaking approval of any specific rcsource acquisillofi stret€gy or expendifure. However, the
OPUC CommissioneB generally indicate that they would give considerEble w€ight ln prudsnce revicws to actions consistent with acknowledged plans. The
WUTC h6s indicated the IRP process is one factor it willconsid€r in e prudonce rovisw- For additional information see Part ll, llem 7, 'ReEUlts of Oporatjons
-Regulatory Matterc."
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 11 of 229
10
Table of Contenls
DivsEitv of Suoplv Sourc€s
Nw Natural purchasos gas supplies p.imarily frqrn Oro Albsrta and British Columbia pro/inceS of Cahada and mul pl6 rgcolpt polnts in th6 U.S. Rocky
Mountains to protecl agalnsl rogional supply dlsruptbns and to tak6 advantagg of pdc€ difforgntials. For 2019, 58% of gas supply cem6 lrom Cenada, wlih tho
balanco primarily coming lrom the U,S. Rocky Mountain rsgion. Th6 extr.ction of shalo gas ha$ incrgasod th6 availabilily of gas suppligs throughoul North
Am.dca. Wa boliovo gas supplios available in the wgstqm Unitgd States and Canada ar6 ad6quat6 to se^r€ NGD customor roquiromonts for tho for63€o6blo
ftrturg. I'IW Natural continu6s to ovaluato the long-t€rm supply mix basod on plr)jgqtions of gas production and pricing in tho U.S. Rocky Mountain rrgion a6 t!,sll
as othor roglonB ln Nodh Amedc€. NW Natural has alao announcod ils intent lo lncorporals R6newabl6 Natural Gas (RNG) into lts supply portfolio,
NW Natursl supplernents fi.m gas supply purchesas with gas wlhdrawals trom gas Eloroge faciliti€s, including underground reseNoiB and LNG 6toreoo
f.cllhl65. Storago lacllhlos aro g6noralty injeqted with natural gas during ths off.pcak monthB ln th€ spdng and summor, and th€ ga6 i3 withdrawn lor we during
poak demand months in tha winter.
Tho following tabl6 prgs€nts the sloragg tacilities availsble lor NGD businoss supptyl
Maximum Oafly
Deliverability (therms
in millions)
Oedgned Storage
Capacig (Bcf)
Gas StorEge Facilitiss
Ou,rrd Fodly
Mist, OEgon (MiEt Facility)(1)
Mt{, orlgon {Nortl MH Fadl[ylr)
Contractod Facllity
J6d(son P?dtu, Werhlrutooo)
LNG Facilities
Ofll.d Frc{ldos
Novrport, Orogon
hrtfid, Orugon
Total
3.1
1.3
0.5
0.6
1.3
10.6
1.1
t.t
1.0
0.6
6.8 17.4(!) Tho Misl06s 3lorego lacilily ha5 o total maxrmum daily dolivorability of 5.4 millbn thoms and e total d6si0n6d rlorage cepacity of aborn 16.0 Bcf, ot wfilch 3.1 million
thsms of dally dellv€reblllly snd 1 0.6 Bc.f of 6torage capacity ar6 rosorvod foI NGO bu6ln668 custom6ls.c' Tho Norh Mlrt fadllly ls contaclod to oxcluslv€t s6rv€ Portland G6n6r8l Elect c, a bcsl olocfic utlllty, ond msy not b€ us6d to sorvo olhor NGD crr6tom6rB. S€e.rvortt
lrisa Gas SlorEg,€ Facr,ily' below for nrole informatlon.13) Tho 6tora0o facility b btEt€d near Chehslis, Washington snd is oontaclod frorn Northwsst Pipolin€, e subsitiary ofThe Wlliam6 Con|p€nies.
Tho Mist facility servss NGD 66gment custome6 gnd is also usod for non-NGD purpos6s, primarily {or conFacts with ga6 6to.age clatomers, including ulilitios
and lhird-party marketers. und6. r€gulalory sorooments with the OPUC €nd WUTC, gas sloragB at Mist can bo do\rolopod in edvance of NGD customor noedsbd is subl.ct to rocallwhen nseded to sgrue su.h customors as th€ir demand increasoG. When storag6 cap6city iB recalled for NGD purpo8es it becomos part
of the NGD sagrnont. ln 20'19, tho NGD buslnoss did not rocall additional delivgrability or associatsd storago capadty to s.'vq cuslomsr n66ds. Th6 North Mirt
facllity 16 conttactad for thg exolusive uao of Portland G6n6ral Elecblc, a local el6dric utility, snd may not be usod to aerva other NGD cuslom6r6. 5.6 'Alod,l
Mist Gas Sforage Fscilty' b6low.
Divarse Conbact Duralions and Tvpes
NW Natural has 8 diverse portfolio of sholt-, medlum-, and long-l6m firm gas gupply contracts and a va.ioty of contact typss including llrm 8nd lntorruptlblg
supplios a8 woll 68 Buppbmental suppliBs from gas storage tucilities.
The portfolio of frm gas supply contracts typically lncludes the tollorving 9a6 pu.chase contracis: yea,-round and wintercr y baseload suppllos: caasonal supply
with an option to call on addllicnal daily supplies durjng the winter heating saason; and dally or monthly spot purchases.
11
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 12 ol 229
Table of Conienls
During 20'19. a total of 836 million therm6 were purchased under contracts with durations s3 tollows:
Conlract Duration (prima.y torm)Porcsnt of Purchagos
LqrgF{em (ons }r*r or lqDor)
Short term (more than one monti, less than one year)
Spot (oo. morfh or b68)
Totel
3:t%
21
I
100%
Gas supply contracts ars ,en6$/ed o. r€plac€d as they .xpiro. During 2019, no individual supplior provid€d 100/6 or moro of $a NGD businoss gas supply
req uir6m6nt6.
Gas Cost Manaoem€nt
The cost of gas sold to NGD customers primariiy consists of the following ltems, whlch are included in annual Purchasod Gas Adiustment (PGA) rate6: gas
purchases ftorn suppliers; charges from pipsline companiBs to transport gas to our distdbution system; gas storaqB @at8; gaa lasgryes contracts; and gas
commodity derivative conkacts.
The NGD business amploys a number of Etrategies to mitigate the cost of gas sold !c clrslomers. The primary 6trategles for managing gas commodity prica risk
include:. negotiating fix6d prlc66 dlrec{y with gas supPlie6;. negotiating financial derivative cqntracts thal: (1) effoctivsly convert froating indox priog3 in phyEical gqs Supply conracts to flxod pricss (r6for6d to as
cofimodity pdc€ swaps); or (2) efiec{ively set a celling or f,oor prh€, or bolh, on f,oating lndex pdced ph},sical supply contracb (refened to as commodily
pric6 oplions such as calls, puts, and colla6);. buying phy8ical gas supplier at a s6t pric€ and injeoting the ggs into Etorage for pric6 stability and to minimizo pipelino capacity demand oosb; 8nd
. investing in gas rsserves for lorEer term pdce stability. See Note t3 for additional inbrmstion about our gas ressrvos.
NW Natural also confacts wlth an indopondent energy markoting company to captu.o opportunitios rogarding storago and pipeline c€pacity whsn thoso as66ts
ar6 not soruing th6 noads of NGD business custom.rs. Ass6t managomont activitios provide opportunities for co6t ofga6 6avings fo( customers and indemental
rsvenugs tor NW Naturalthrough r6gul8tdy inc€ntive+haring ngchanisms. Thg8e activitios, not ot tho amolnt shatod, .ro included in oth€r fur s€gmeni
r6porting purpo6€6.
Gas Cost R€coverv
Mschanisms for gas cost rdcov€ry arg dgsign6d to b6 fair and r€asonable, with an appropriato balance bstween the int6r66t8 of c.ustom€rs and NW Natural. ln
g€neral, natuml gas distribution ratgs ars dasigned to.scover th€ oosts of, but not to gam a retum on, th€ gas commodity sold. Risks associated with gas oosl
recovory ar6 minimizsd by roaefiing custom€r rates annually th.ough the PGA and sligning customff and shareholdor inlsr€sts th.ough the uE€ of sharlng,
weether normalization, and cooservation mechanlsms in Orsgon. Seo Psrt ll, ltem 7, "Rosulb ot Operations-Ragu/alory Maltsrs' and 'Results of Opsrations-
Business Segments-Natural G6s Di6trlbution Oporations-Cost of Gas".
T.anaoortation of Ga3 Suoollos
NW Ngtural's gs6 dist.ibution sy6tom ls .cliant on a single, bi{irectional interstate transmlsGlon pipelin to bring gas supplios into the natural ggs disiribution
syst m. Although dopondent on a single F,ip6lin6, tha pip€line's gas llows into the Portland mskopolilan merket hom two dirsctions: (1) the north, which brings
supplios from the British Columbia and Alberta supply basins; and (2) the east, which bring€ ruppligs from Albgda as woll as tho U.S. Rocky Mountain supply
basins.
NW Natural incurs monthly dBmand charges related to firIn pipeline l.ansportatlon contracG- Thsss conhacb have expiration datss ranging frgm 2020 to 2061
The largest plpollna agrssmoflts are wiih Nonhwest Plp€lins. NW Natl.al activoly wofis with Northwssl Pipellne and oth€6 to r6n6$/ cont acts ln advance of
6xpiration to 6naur€ gas transportation cspaclly ls sufiicisnt to me.t ctJsiomgr ngeds.
Rat6s for interstate pip€lin€ transportation 6ervic6s ar6 ostablished by FERC within tho U.S. and by Canadisn guthgdties tor 6grvi66 on Canadian pipolinos.
As mentioned abow, the sgrvice toritory is dependent on 9 singlg pipglinG fgr its natural gEs 6upply. ln Octob€r 20'18. a c.itical natural gas piPelin€ ln w6stem
Csnsda exp€igncsd a rupturo and gas supply to the Pacific Northwo6t was disrupted. NW Naturalw€s Eble to sarvo lltm NGO buslness custom6E du.ing tha
incidenl with nalurat gas lrom the Mist slorag€ facility and realignment of other supplies. The pipelin6 wes rostored to tull oapacity in December 2019. Pipeline
dlsruptions, rephcemont p{oiects, and long-term prol6cted natural gas domand in our rogion underscore the need tor pipeline u6nsportetlon diversity. ln
addition, $tere are potential indusHal projects in th€ region, which could increas€ tho demand br natural gas and the need for additional pipeline capacily and
diver6ily.
12
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 13 of 229
Table of Contents
Curondy, rl6.e ars various interdtate pipsline projocts pmpos6d, lncludlng th6 Trail Wesl pipgline in which NW Holdings h86 an interest, that could meet tha
torecastsd demand growlh for NW N€tural and the rcgion. However, the location of any tuture pipeline pmlect will likely dopond on lh6 localon of commmod
lndustdal prolecb. NW Holdlng6 and NW Natural intgnd lo coatinue to qvaluate snd olosely monitor tha curently conlomplated pDjects to dotermine tho besl
option for our cuslomers. NW Holdings has en oqulty lnvostrnont ln TrallWest Holdlng6, LLC (tWH), which is devoloping pians to build the Trail West pipeline
This pipeline would connect Transcanada Pipelines Limited's (franscanada) Gas Transmission Northwosl (GTN) lnterslale lransml6sion lln€ to l.lw Natu.al's
netural ga6 dlsldbu(lon sy6tom. lf con6tructed, this pipeline would prgvide another transportation psth for gas purch$es from Albsrta End the U.S. Rod(y
Mountains in addition to th6 one that cun6nty movqs gas thrcugh $o Norttws6t Plpelin€ syslem.
G.r Dlstdbutlon
Sahty and tle protedion olomployees, qrslomeE. and our communilies at largo are, and wlll r6maln, top pdorlles. NW Nstural const ucls, operatss, and
malntains lts plpefins dlstrlbutlon syslam and storage operations witi lhe goal of ensuring natural gas is delivered snd stored safely, reliably, and ofrciondy.
NW Natural has one oflhe most modem distrlbution systems in the couniry with no ldenlifl€d cast lron plp€ or bar€ st6€l maln- Tho final known ba,€ 6tegl was
romoved ftom tho systom In 20i5 8nd cast iron plpe remgval was cqmpleted in 2000. Since the 1980s, NW Natural has tak6n 6 proaclive approach to
replacemont programs and parh€red with the OPUC end WUTC on progr66slve regulation to lurther saiety and reliabilily efforts fgr the distribution 6ystem. ln
th€ past, NW Naturgl had a cost r€covery program in Orogon tlat onco.npassod programs for baro st€ol r€placomont, transmisslon plpolin€ int6gdty
manag€mont, and dlstrlbutlon plp€lin€ lnt6gaity managemgnt as appropdate.
Natural ga6 distributign businesses arg li*ely to b€ subject to greater f€d€.al snd $tal€ regulation in tho futurs. Additional op€rating and safety rggulatlons fiom
ths U.S. Oepartmont of Transpo{alion's Pipsline and Hazardous M6t6rial6 Sefety Administration (PHMSA) are currsntly under devslopment. ln 2016, PHMSA
i$usd safsty r€quiroments for natural gas transmi$ion pipelin€s. ln 2019, PHMSA lssued the llrat o, thr6s porlions of tho6e l€gulations which wilt go into effect
on July 1, 2020 and include up to a ls-year timeline tor complianoe. The remaining po.tions ofthe regulstions are anlicipated lo be lssued ln 2020. NW Natural
intonds to continue to work diligontly wilh indusfy essoclalions as w€ll as ledsral and 6tate regulators to ensure the safety of the system and complianoe with
new laws and regulations. The cosb associated with compliance with f€deral, stat€, and locsl laws and regula0ons ara expo€iod lo b6 recover€d in rates.
North Mist Ga6 Storaoe Facllitv
ln May 2019, NW Natural completgd an expgnsion of its oxisting gas sblage facility near Mist, Or6gon, Th6 North Mist facility p.ovil6s long-tem, no-notico
undorground gas storago servico and is dedicatqd solsly to Portland GEne.al Elgctric (Pgrtand Gsneral) under a 3o-year contract with options to exlend up to an
addltignel 50 yegrs upon mutual agrsement of tha partiss. Porfland G€nsral uses lhe faclllty b support lts ga6-ti.ed olecfic powsr generation ,acililigs, which
inmrporals renow€ble 6n6rgy into the el6ctric grid,
Norli Mist includes 8 new reservoir providing 4.1 Bcf of available storage, 6n eddltioial comprossor sbtlon wlth a contractual capaclty of 120,000 dekathems of
gas por day, no-notico s€rvic€ that can b€ drawn on Japidly, and a 13{ile pip€line b connect to Portland GBne.al's Port W6stward gas plants in Cletskanl€,
Oregon.
Upon placernent inlo selice in May 20'l 9, th6 facility was induded ln rata base under an e6tablished tariff Eahedule with revenuE recognized consistent with
0l€ sdodul6. Bllllng rat6s will b6 updat6d annually to thg qunent depreoiable a$ot level and forscasled operating oxp6ns6s.
Whilo th€re are additional gxpanEioo gpportunities in Olo Mist sto.age field, turthor devolopmont is not contomplatod at this lirno and any orpansion would b6
basod on market d.mand, cosl elf6cllv6n6ss, availablo financing, rec€ipt of future permits, and othe. dghts.
OTHER
Certain businessas and actlvl0ss of NW Holdings aM NW Natural are sggregatBd and reported as othe. tor segment repoding pu.poses. Thes6 includG th6
following businesses and activities aggr6gat6d under l.lw Holdlngs:. NW Nahrral Watg. Compsny, LLC (NWN Water) and its wal6r and wastowator utlllty op€ratlons and acqulsitlon adivltios;. an equity mBthod investmont in TWH, a lolnt v6nhJr€ to build and opgrate a gas taNmission pipeline in Oregon. TWH is own€d 50% by NW Natr.al Enorgy
LLC (tlWN Ensrgy), a wholly owned subsidia.y ol NW Holdings, and 50% by Transcanada AnEriaan inve6tment6 Ltd., an indirest wholly owned subsidiary
olTranscanada;. a minority intsr$t in the KBlso-B8ava. Pipslins held by our wholly own€d subsidiery NNG Financial Corporalion (NNG Financial); and
' holdlng company and corporate sctivitiss as w€ll as adjustmants made in consolidetion.
13
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 14 of 229
Table of Conlenls
WATER UTILITIES. Alt€r a comprohensive statoglc plannlng process, in Decsmb€r 20'17, we ontBrsd ths w6ter utility sector by announcing several
.cquisitions, which l.lWN Wahr subssquenlly closed. Through Dec€mber 31, 20'19, NWN Water has completsd a btEl o, eight acqulsltiotls, wllh soveral
additional slgned acquisition agreemonts for privately.owned wstsr and wastewater utllitlos in the Pacific Noflhwe6t and TBxs8. Tho pendlng water distrlbution
transaction6 a.e Gubiect to state utility commissior approvalB and ar€ expoded to clos€ durlng 2020. Onca clo6od, I'IWN Water expects to serve a btal of
approximatoly 62,000 p€ople hrough 25,000 water and wastewabr connections in th€ Pacific Northwest and Texas, with an aggregate inveslment of $110
million. l.IW Holdings continues to pursue 8dditional acquisitions in a dEciplined manner.
Th6 wat6r and tvastrwater utilitios primarily 66.v6 rosidential and comm€rcial cuatomors in lhe Pacific Northw€st. Watgr distribution operauona are seasonal in
nature wih peak demand during warmor summer months, n/hile wast€waler is lsas sssEonally afiected. Entitigs g€n6rally operate ln oxclusive sorvlco torltori€s
with no diroct comp6$ors. Wat6r dlst bution ststomer .at$ 6re r€gulated by stalo utlllly commlsslons whlle th€ wastewater businossas wo own curently ar6
not rato r€gl{ated by utility commissions.
Additionally, the {bllqwing busin€s$es and activities are aggregatEd snd roportod as othor under NW Natural, a wholly own€d subtidiary ofNW Holdings:. 5.4 Bcf of the Mist gas storage fac0ity contracled to olher utilities and third-party market€rs;. nahrral gas asset management aciivities; and. applianco retail ceni6. opoEtions.
tllsT GAS STORAGE. The Mi6t gas storage facility bogan operstions in 1989. lt h a 16 Bcf facilily with 10.6 B€-l ussd to provldo gas storage lor the NGD
buslness. Th€ remalnlng 5.4 Bcf of the facility is aqntracled wlth other utlitlos and third-par8 merketors with lhese resulls reported in other,
The overall facjlity consists of sewn dgpletod natural gas reservoirs, 22 lnjection and withdrawal wslls, a compresso. siation, d€hydration and control
oquipm6nt, gathering lin65, and othsr rDlatod facitrtigs. The capacity at Ml6tservlng oth6r utilltles and thlrd-party matkaters pmvidos multityclB gas storago
s6lrvic6s lo custom6rs in th€ intor3late and intrastatg markols. Th. int rshtB storago servicos ar6 off6r€d undsr a limitsd jurisdiclion blanket cedilicate issued by
FERC, Und€r NW Natural's interstatg Etorago cortificat€ with FERC, i{W Natural is requirsd to file eilhe, a petition tgr.etg apprgval or a co6t 8nd r€vgnue shldy
ev6ry five years to changq or judiry maintaining the existing ratss lor lho lnlgEtato sioraga sorvica. lnbastab frm storsge s€ryicss in Orcgon aae ofiered under
an OPuc.appmved rat6 scheduls as an optlcnal seryics to cortain ollgible qlstomers. Gas storage r€venuss trcm the 5,,1 Bcf 8re derived primarlly from firn
service customers who provide energy{elaled services, inoluding natural gas distribulion, electric generation, and eneEy m6*ellng. The Mi6t facility benefils
trom limitod competlton aE there are tew storage facilitiec ln ths P8clfic Notliwest rsglon, Th€relore, NW Natural is able to acquire high-value, mulli-year
contracts.
ASSET Ii|AI{AGEIIENT ACTIVITIES, NW Natural contracts wlth an lndepcndEnt anergy markoting comparry to provk e asset management services, primarily
through the use oI natural gas oomnpdity GxchangB agEemenb and natural gas pipelin€ capacity release baneactions. The results ol the56 actlvltios are
included in other, excgpt for the ass6t managemenl rGvenues alloc€ted to NGD business cuslomers pursuant to rBgulatory agr66m6nts, whidt are reportod in
O€ NGD sagm6nt.
ENV' RO N N EN T AL I' ATTERS
Proosrties and Facililies
NW Natural owns, or proviously ownsd, properties and facilltl66 thal ar6 curently b6ing invcstigated that may r6quir6 snvironmontal rBmediation and are subjact
to fsderal, state, and local laws and regulations related to onvironm€ntal matt€rB. Th€s€ laws and regulations may reguire expendituros over a long time f.amg
tg address cedain environmental lmpacts. Estimates ot liatiliti€s for €nvironmenial coots 9re diflicult to d€t€mlno wilh p.€cision b€causo ofthe various factors
that can afiect thsir ultimate disposition, These hcto6 lnclude, but aro not limited lo, the follou,ing:. the mmplexity of the BitE;. changes in environmental lawa and regulations ai the federal, slate, and hcal levels;. the number of regulatory agenciee or other panl68 lnvolv6d;. new technology that renders previous tochnology obsolete, or oxperienos with existing teahnolggy lhal prov€s inefisclivo;. lh6 l€vel oI remediation requlred:. variations betwoBo th6 estimated 9nd actual perlod of tlme that must be dedicated io respord to an environmentally-contsminated site; and. the application ofonvironmenl,at law6 that impos€ joint and sovsral liabilitieB on all potentially responsible parti6s.
NW Natural has rocaived rocovery of I portign of auch environmontal cosls thaough insurance proc€6ds, seeks the remainder of such coSts through customea
rates, and bslieves recovery of these cosb is p.obable. ln both Ol8gon and Washingbn, NW Nalural hsr mochanlrms to recover €xponsss. OrDgon recDvedes
ats 6ubj6ct !o an eamingE test. Soe P6rl ll, lt€m 7, "Results of Op€ration6-Re0ulatory Mattsrs-Rale Mechanism$-Envircnmantal Cosl Defe.,sl and
Rocovo4/, Nolo 2, and Note 18.
14
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Page 15 of 229
Table of Contenls
Greenhouse Gas Matters
We reoognize ce.tain of our businesses, including our naturel gas busln€s6. are llkoly to be afiected by requirernents to address gre€nhouse gas emissions.
Fulure rsdsral, otate or local legislstion or regulation may seBk to limit emissions ofg.a€nhouso gasss, Inc.ludlng both cadon dioxid€ (CO2)and methane. These
pot€ntial laws and regulations mey requlrs c€rtaln activllbs to reduce emi6sions and/gr increase the price paid for energy based on its carbon conlent.
CurGnt r€d€ral rulo€ .6quire the reporting of greenhoiJse gas omissions. ln Sept€mbor 2009, th6 Envlronmsntal Prolgctlon Agency (EPA) lssuod a final rule
rsquiring tho annual roporting of gr66nhouse gas omlEslons f.om cortain industrieS, spgcified large greenhouse gas omission sourcas, and faciliti€s lhat omit
25,000 metric tons or more of CO2 equival€nts per year. NW Natural bogah r€poding emission iofo.mation in 201 1 . Under this ,spoding rule, local natural gas
di8lributior companieE like NW Natural arc rsquiGd to roport system throughput to th6 EPA on an annual basis. Thg EPA also hs6 r€quir€d additional
grssnhouse gaB reporting rsgulations to which NW Natu6l h subiect, Equiring th€ annual rspgrting gf fugitive gmissions from operationr.
The Oregon and Weshington l€glslatur66 and gov€mo.s @ntinue lo considervarioug gre€nhous€ gas reduction initiativos, and ballot ms.surss msy bs
proposed in each state. For example, ln prior logislative G€ssions th6 Or6goo l€gislature has considered cap and lrade bills, and cap and trade may b€
consideled again in tuture legislative sessions. While lhe contents of any cap and trade blll arG not cunently ceftain, 6uch a bill could create a declining csp o.t
greenhouse gas emissions from a wide variety of sources, including elestdc and nahrral gas utilitiss, and could require ontities with a complienco obligelion to
hold permits, or allowancas, to emil greenhouse gas smlsslons on a p6r ton ba6ls. A cap and trade bill nas conskle.ed ln the 2019 Oregon logislative session,
and fail€d du€ to lack ot quorum for a vote, That bill included considerations tor nalural gas utllltbs, such as pmvision6 for low-income customoG and lhe value
of cortain allowancas thal could b€ used to lnvost ln emission-r6duchg initiatives.
Even if a 8tate-wido cap and lradg prograh is not addressed in a hgislativo session, ballot m€asuros may b€ propoGed by advocacy groups in Or6gon. These
meagurDs may include r€quir6monts for carbon freo qleclricity, inveStmentS in gl6ctrificgtion programg, or aoooleraling Oregon's €xisting grEonhouse gas
pollutlgn tErgets. While the outcome of th€se federal, state or local climate changa policy dovelopments cannqt be dgtermin€d at this time. th6e initialives could
pmduca a numberofrosults including new regulations, legal actions, additional charges to tund en€rgy effciencl activitles, or other regulatory acllons. The
adoplion and implementation of regulations limiting omisslons of gr66nhouso gasss could require NW Natural to incur compliance oosb associated with our
cuatom€rs' use, which we expecl to recover through rabs and therefore may rBsult in an lnc.€as6 ln tho pric€s charged to customefs and over time potentially a
docline in the demand for natu.al gas.
Some local and county govemments in the United States have been proposing or passing 1000/6 r6n6wabl6 6n6,gy resolu ons with advocates calling lor
olec{riticalion of new conskucllon or seeking to accelerate renewable energy goals. At l6sst one city in ow service lenitory ls currEntly considoring such actlon-
Slmilady, various l€deral and state agenciGs have anactBd or ar6 considoring enactmoht of rules thal would limit gre€nhouse gas emi6sions. For examplo, tho
stat6 of Washlngion's Departmenl of Ecology (DOE) onacted tho Cl6an Air Rule (CAR) in 2016, whlch c€ppod ths maximum groenhouse gas emissbn6 sllewed
from stationary sourcos, such as nalu6l ga8 utilities. For ga6 dietribution utilities, tho produclion ofemissions f.om usage by lhsf cuslomors was consirorcd to
bG pmduclion gf emissions attributablo to th6 utility. ln D€cember 2017, a Washington Slat6 Court rul6d that the OOE lecked legislative authority to regulate non-
omitting sources, such as natural gas dist ibution utilities. ln January 2020, ths Supr6me Court ofthe Stato ofWashington uphgld th6 lo\.r,/e. court's rullhg thal lhe
DOE lacked logislativs authority b regulate non€mitteE, and romandod to lhe lowsr couft applicstion ol the rule to emitling sourc6s, 6uch as elgchic generating
plants, lor turther proceedings.
ln 2017, NW Natural iniliated a muhi-pronged, multi-year strategy to acc€lerate and deli\ror greater greenhouse gas smlgslon reductions in the @mmunities we
seNe, Key oompononb of this strategy Includg Energy 6fficiency, continusd adoplion of NW Natural's voluntary Smart En€rgy carbon oflset program, and
lncorporating RNG into our gas supply. RNG is produced ftom o.ganic materials lik6 food, agricultural and forestry wsste, wsstewsler, gr ls,idfills. Methane is
captured hom lhes€ organic mat€rial6 as lh6y decgmpgse and is conditioned to pip€line quality, so it can be added lnto the exhtlng natural gas syst6fi,
.€ducing net greenhouse gas smissions associat€d with th6 natural gas snorgy supply. ln 2019, Oragon Senate bill 98 (SB 98)vras signed into law allowing NW
Naturalto procure RNG on behall qf custcmers and providing voluntary targots that would allow us to mako qualifl6d inwstm€ntr and purchaso RNG from third
p€rtios such that up to 30% of the gas distributed to retail custom€rE i6 RNG by 2050, and croating a limit of5% of a utilivs lEvonu6 .equiromont that can be
uted to cov6r th€ incremonialqost ot RNG. The OPUC is requir€d to complete ths rulomaking tor SB 98 by July 31,2020. NW Natural is oqtivgly wgrking to
ptooure RNG conbacG for cuslomers, and ls ongaglng ln longer-term gforts to increaso tho amount of RNG on our syst8m and sxplors th€ dswlopment of
.enewable hydrogen through pou/er lo gas.
NW Natural continues to take ptoactive sGps in so€klng to r€duco gjesnhou66 gas emissions in our rggion and is pmactivaty communicating with local, state
and bd6.al govemmonls and communities about tho$e steps. We believG that NW Natural ha6 a vltal 1016 ln providlng energy to the communities we 6erve.
Each year, NW Natjral dellvors moro ene€y ln Oaegon than sny other ulility, whilo salos ol natural gas lo our reskJenlial end @mmsrclal cuEtonors accounl for
app.oximately 5% of Oregon's grBenhouse gas omlsslons according to the State ol Oregon Department ot Environmental Ouality lnSoundary GHG lnventory
2015 Figures. Wo lntend lo continue to provide this necGssary energy to ow communitios and to us€ our modgm pip€tine system lo h6lp the Paaific Northwest
movg to a low-carbon, renowabl€ €ngrgy futur6.
15
EXHIBIT 2
PALFREYI'AN, DI
FALLS WATER CO., INC,
Page 16 of 229
At Oecambor 31 , 20t0, our wofibtar oonsbtsd d tle blotYhg:
t{W N.h.rEli
Table of Contgnts
EMLOYEES
tlon-unloolzcd rmplolrlc!541
Wabr compsny €mpkr)rse8 38
Tdrl o0l.r lntltl.s 53
Tohl Erplryros
{r, trl.lt|bo.! cf 0x O{tca !.ld Prohlrld|.l Erylo!,to! lnbndord Udoo (oPElu} locd No. I t, AFL{lo.
1,2,20
NW Naturaf3lrbor aor€aoEnt wth m.mbors of OPEIU cor3rs wsga3, b Efts, 8nd no lns cond oos. h ov.llt€r 2018, i.lw Nstorals unlootssd emPloys€s
ra{frcd ! cDlllcti,r blEshh! rg]! ilror lhat lhai took !ficct on Drombrr t, 2019 snd.xt€rd. b Mry 3'1,202,1, arld lhotBatter ftom y€6r to yoar unl"lt c}th6l
prrty rsrvos nodc6 of lt! ln0ent io n60o0!0! modncltbla lo 0B co06dYt b8t[ahl]E eglramcit,
Citah subsHlaics msy ]lcoivo servlc63 ttom omployds of o0r3. Bub6ldEhs. Wh€o alcn sowlc& hvolve r6gubt6d on dca, thoao ont0c8 rucrlvlng !.rvhdE
rdmbu'lo lhs sntfy pIovldng s3ryloas puilulnt b .h$!d sondcss 8gIrdmnt3, a8 applcatL.
TflFoF AT,ON ABOUI OIIR EECUME OFE'CERS
For hlbmdoo conc.mlng GxlcuUt.. cfic.rr, 3€6 Plrt lll, lbm 10.
AVA .ABLE
'ITFIOR
AIIO'I
t{W ttoldiu8 lnd NW Nrturelf[€ annuel, quadldy lnd .umnl Irpod]s and o0|€r hbflno on vvlth 0l. Sandtas aod Exchangr Commlssbo (SEC) Th. SEC
mahC,rs en lntdrlrt sito whaE rrpod!, prqy statemrrb, Jld o0r.. Ho.ttslbn flad aan ba Erd, co9Ld, f|d nqualtcd onln rt ltt wsbcl! avrww.86c.dov).
ln addlton, yra makr ava &L, ,r!! ot dl.lgr, on ow strbdL (.,*a.-nurtlr'tbuhd.-coml, qr.nnuC rtportr on Fom 10-l(, quartlfly rcpotb on Ffin l0{,
currlnl rBporb or Form &K, ard smendmonts to thosr rlporh fil€d or tumhh€d puBuar{ to Ssdixl ,3(a) or ts(d) and pmxy matr.lds ffbd undor Sodioo 14 of
t r S€qitieE Ex(,lengp Acl o, 1934, !r amendod (EldrngD Ad), ar eron as llrsonluy pftc{c.bb albr wo docirc. c€lly filo sudl m€tsrisl wih, or ftxnbh it
to, fro SEC, Wc havo hcludcd our wsb.tb oddrocs ar rn kra.fw tedrC refr$ncr fily. lnlormrtlon cqrtainod oo o{r t ,gbolt! b trot lncorpo6tld by I! or€nc€
lnb tds 8r.u.l rlport on Form lGK,
NW Holdhg8 lr|d ilw tlrhrrrl have idoplod a Co& ol Ethlc! lor Cl .mpbyilr, ofic.It, .nd dtrctors tiat h evCat{6 m our Yrob6!a. Wo lnlrnd !o dlrdoG€
.lvlslon8 end amr(dme'ltB to, and my wlh/el! trom. fi. Cod6 of Ett{cs lbr dficrfi end dkscb'3 on our rr€bshr. Out Coapo tt Gor,lmanco Slryld8rd8,
Dirlcto. lndopondonco Sl3ndards, dlrirt of sedr ot tho commltlocs ol fia Bo.rd ot D!!do.!, {d ddtond lnhmdon ed NW Holdlngs r,$ t{W NltuIal
!r! lho w!I.t o at tlr t/v![61t6, Cophs € thGs. docuri.nlr rlry b! ]rqlrabd, d tE co8t, by t}ltltng or cdlng Shuaholdu Sarvlccs, t{w Nttllll, 250 S.W.
Teytor stoet, Por&na, Ortgql S7204, blrptErE 509226-t211 sxt 2402.
l6
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 17 ol22g
IeUe-elAe.ale!.8
ITEM 1A. RISK FACTORS
NW Holdings'and NW Natural'B business and linancial results ars sutliect to a numbor of risks and unc€rtainties, many olwhich aro not within our control, which
could adversely af€ct our buslness, llnancial condition, aod r€sults oloporations. Additional riEks end unc€rteintjes that sre ngt cu.r6ntly known tq us gr th€t are
not cunenty beliw€d by us to b€ material may also harm our businesses, tinanci.l condllion, and r€sutts of opsrations. Wh€n con8idaring any inw8tmont ln NW
Holdings' or NW Natural's securities, investoE thould c€Bfully consider the lollowing intormstion, as well as iniomation conhined in the caption "Forward-
Looking Slatements", lt6m 7A, end our other documents flled Mth the SEC. ThlE llst ls not exhaustivo and th€ order o, presentatiofi do68 not rsf,ect
mamgeflrent'3 determiostion of pdority or likelihood. Addruonally, our lhting of risk tac{ors that p.imarily afiscts one ofouJ businessos does not msan that such
rlsk faqtor is inapplicable to our othe. businesses.
Rkkr R6lrtod to our Buslnecs Generallv
REGULATORY nlSK. Regulefion of NW Holdlngs' and NW Natuftl's rcgulated businest'es, including changos in the regulaw envhonmenL lailure ot rcgulatory
authgdles ag approve ,Etes which pmvide lo. timely rcaovery ol @sts and an adequate retum on invested capital, ot an unfawrcble outcome in reguloloty
ptoco.dings may adwrcely impact NW Holdihgs' and NW Natrafs financial condilion eN resulls of operctions.
Tho OPUC and WUTC h6v€ genBral regulatory authority over i,lw Natural'B gas buslness in Oregon snd Wsshlngton. NW Holdings' regulaled water utility
businesses arE generally r6gulat6d by the public utlllty commlsslon ln the 8latg in which a water business is located. These public utility commissions have brcad
regulatory authority, including: the rates charged to cus(omors: authorized .ales of rctum on rate base, including ROE; the amounts and types of secuddss thst
may b6 l8su6d by our regulated utility compEnies, Iike NW Natural; services our regulated utility companies provide and the manner in which thgy p.ovide them;
the nature of investments our ulility companies maka; defanal and r€@vsry ot varioua expenses, including, but not limitgd lg, pip€line replacemcnt,
6nvironmental .emedistion costs, capital and lnformation technology invostrnenb, commodity hedging exp6nsa, ard certain emplo!,6€ bonBfit 6xp6ns6s sudr as
panslon co6b; transaclions with affliat6d intorosts; rogulatory adjustrngnt mechanisms such ss wBa$or adjustrnent mechanisms, and other maflers. The OPUC
also regulates ac{ions investors may tako with respcct to our utility companigs, NW Natural and NW Holdings. Similarly, FERC has rsgulatory aulhority over NW
Nalural's int€Gtato storage sgrvices, and the CPUC has rogulalory authority ovor NW Holdings'Gill Ranch storago oporations. Erpansion of our busin€ssos
could r€sult in rogulalion by other rogulatory authodtles. For 6xample, NW Holdlngs'has contrasted to scquire a wat€r sector business in Texas thgt is subisct to
tle regulatory authodty of the Public Utility Commission ot Texas.
Thg prices regulators allow us to cfiarge for regulated utility service, and the maximum FERc-approvgd rates FERC authorlzes us to chargo for lnterstat€
storage and relaled transportation services, are the rnost signifcant tactors afiecting both NW Natura!'s snd i{W Holdlngs' financlal position, rosults ot operatlonE
and liquidity. Stato ullllty r€gulatoG hava the aulhority lo dlsallow .ecov6.y of cosls they lind imprudently lncured or otheMise disallowed, and rstes that
regulators allow may be insufficient for recovery ol costs ws incur. We expect to conunue to make oxponditures to expand, improve and safely op6.ate our 9a6
and water utility diotribution and gas etorage systoms. R€gulators can deny recovery ol those costs. Fu.th€morB, whil6 6ach applkabl€ stat€ rogulator has
Bstablishod an authodzed rato of retum for our rogulat6d utility busines566, ws may not bg able to achieve the earnings levelau0rc.izsd. Mo.eovgr, in the
normal course of businoss w€ may place assob in sorvice or incur highor than 6xp6cted lovels o, operatino exponse boforc rat6 cas6s can b6 fil6d to recover
those costs (thiE is commonly raferrod to as ragulatory lag). Th€ failuro of any rggulatgry commission to spprovg requesled rate incresses on a timely basB to
.gcover cqsis or to allow an adequate retum could adversely impact NW Holdings'or NW Natural's financisl condition, .esults of operations and liquidity.
As companies with regulated utility businesses, we trequently havo docketE op6n Mth our regulators, induding a gsn€ral r6to cs66 filed wlth th€ OPUC on
Docomb6. 30, 2019. The regulatory prgceedings for these dockets typioally involve multiple parties. induding got emmental agencies, oonsumer advocacy
groups, and other third parties. Each party has dlfterlng cincerns, but all generally have the common objeclive of limiting amounts included in ratgs. We cannot
predict the timing or outcome ot theso procaedings or our pending Oregon gen6.al rate cas6, ortho Bfiects ot tho6€ outcomEs on NW Holding6'and NW
Natural's rcsults of opGratlons and fioancial coodtion-
EllvlRON EITAL L|ABIUTY RlsK Ceda/h o, NW Natual'6, and possibly NW Holdings', prcpe ies and facilities may oo'se envircnmantal dsks requi.ing
.emodiation, the costs of wlrich are difrcuft to estimate and t tich could ddve,sely afreci l{W tloldings' and l{W Natulal's linancial condition, resulls ol
o,dtations, qnd cash f,0wa.
NW Natural owns, or previously own€d, properties that r€quire enviDnmontal rsmodlation or other sclion. NW Holdings or NW Nsirral may now, or ln the ,utur6,
orfi olh€r propertles that.equi.e environmental remsdialion or other action. NW Natural and NW Holdings accruo all matorial loss contingoncies rolating to
those pmpe iss. A regulalory asset at NW Natural has boon r€cordgd for gstimated costs pursuant to a Defund Oder from lhe OPUC and WUTC. ln additbn to
rnaintaining regulatory defenEb, llw Natural se ed with most of its historical liability lnsursrs for only e porllon of th6 costs it ha6 incunod to dat€ and expocls to
lncur ln th€ futur6. To the ertent amounts NW Nahrral .ecovered from insqrance are inadequatB and it is unable b recoyer theso def€[ed costs in utiityquetomer rates, NW Natural vrould be required to reduce its regulatory assets whlch woirld rgsult in a charge to samlngs in the year ln which regulaiory assets
ere reduced. ln addition, in Ojegon, the OPUC gpproved the
17
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC.
Page 18 of 229
Iable-alCllteds
SRRM, which llmits recovery of dsfened amounts to thoso amount8 which satlsfy an annual prud€nc€ rovlow and an 6aminqE t6st that r€qulros NW Natural to
contribute additionsl amounts towsrd 6nvlrcnmental remediation cosk above approximabty $10 mlllion in yosrs in which NW Natural eams above its authorized
ROE. To the extent NW Nstural qams more than its authorized ROE in a year, it would be rBquircd to cover environrnental expens6 greaterthan the $10 million
with those eamings that exceed ib authorizgd ROE. The OPUC ord6r6d 8 revio\f, of th6 SRRM h 2018 orwhsn ws oblaln greatsr cortalnty of6nvlmnmental
cosb, whictlewr occuned first. We submltbd information for review in 2018, ard believe ws could b€ subiect to further review. These ongoing prudence
r6vl€ws, th€ earnings test, or th€ p6,iodic r6view could reduce the amqunts l{w Nalural is allowgd tg recove., and could qdvelsely arlecl NW Holdlng6' or NW
Natural's financial condltlon, resuhs of operations and cash f,ows.
Moreover, w€ may have di8put6s wlth rogulators and othEr partie8 as to the sowrity oI particular environmgntal mane.s, whst r€mediatiqn gffods ar€
approprlatG, and th6 portlon ofth6 costs l.lw Natural0r NW Holdings thould b€ar. W6 cannot p.odict with c€rtainty tho amounl or timing of tutur6 oxpondituros
rslated to onvironmental investigations, remodiation or other action, th6 porlions of those costs allocable to NW Natural or NW Holdings, or disputes or liti{ration
aising in relation thereto.
Environm€ntal liability estimatB are based on current remediation technology, industry experienca gained at similar sites, an assessment ofprobable level of
rosponsibllity, and the financial condhion of other potentially responsible parties. Howwer, it i3 diffcult lo estimate such costs due to uncertainties sunounding
the course ot environmental remediation, the prelimimry natur€ of certaln sltg invesugations, and tha application of envimnmontal laws lhal impose joint and
several liabilities on all potentially responslble padies. These uncertainties and disputes arising therefrom could lead to turther adveBarial adminiElratave
proc€edlngs or llugation, with a6sociaEd costs and uncertain outcomes, all otwhich could adversely affect NW Holdings' or l.lw Natural's financlal condltion,
aesulb of operations and bash flows.
EHV|ROHUETTIL REGULATTON COIIPLIA CE RISK ,VW Holdingc ard NW Noturul erc sub:iect to environmental Egulalions lot our ongoing b)slnesses,
compliance with which couid adveBoly afud our oqration$ or llnanclal rcsuhs
l,lw Holdings and NW Naturol are subject to laws, regulalions and oth€r legal requirem€nts eoacted or sdqpted by fgdersl, 6tate and local govemmontal
authoriti€s ralating to protoction of tho onvircnmont, lncludlng iho68 logal r€quiromcnb that gotsm discharges of zubstancas into the air and water, th€
nanagsmeni and disposal of hazardous substancgs and wast€, groundwator quality and availability, plsnt and wildlifs protectlon, and othar aspects of
envlronmental r6gul6lion, For ex6mpls, our natJral gas operations are subject to repoding rcquiremenls to he Environmental Prolgction A96ncy (EPA) 8nd the
Oregon Departnent of Environrnental Quality (ODEQ) r€gadlng gr6ohhouso gas emissions. Thoss .nd olher currant and future additional anvironmental
regulations could r$ult in in{eased compliancs costs or additional oporating rostridions, which may or may not be recoverable in customer rates or through
lnsuranca- lflhosg cosla are not rocoverable, they could have an adverse etfecl on NW Holdings' q.l.lw Natural'8 op€rations or financial condltlon.
GLOEAI- CLIHATE CHAI{GE RIEK. Our Dusrrossss msy be suDloct to physica/ r,sks associat€d wilh climate chahge, all of whhh cot ld adwriely atrect NW
Holdings' ot NW Natu,€l's finehcial condilion, I€sufts ol o!s.,?tiono and c'eoh f,ows.
Climate change mgy cquse physical risks, induding an incr€ass in ssa levsl, intensitiod slorms, water scaroity and qhangss in weather conditions, 6uch 6s
changss in prgcipltatlon, av6€ge tamparaturss snd extremg wind qr qthg. climete @nditlons. A si0niflc€nt portlon of ths ratlon's ga8 intra$lruc{uru is locatod in
arsas suscoptible to stom damage that could bo aggravaled by wodand and baEior island orosbn, which could gi\re ris6 to gas supply intBnuptions and prica
rpik68.
These and other physical changB could result ln dlsruptions to nalural gas production and transportation sysbms potsntially incroasing lhe cost of gas and
affocting our natural gas busines6€s' ability to procure gas b moot customer demand, These ohanges could also gIfect our distribution systgm6 resulting in
incr6as6d maintEnancs and capltal costs, disruption of seNice, regulalcry actions and lovier customer satlsfactlon. Slmilar dl8ruptlons could occur in hlw
Holdings' water utility businesses. Addilionally, to th€ extonl that climato change advelsely impacls the economic health or weather conditions of ou. service
t6nltory directly, lt could adv6rs6ly Impact customer demand or our customers' sbility to pay. Such physical ri6ks could havg an adverse effect on NW Holdlngs'
o. NW Natural's financlal condltion, lDsultg of operations, and cash llows.
PUBUC PERCEPTTOT{ A D POUCY RISK. Clranges in puhlh sentiment ot public Nlicy vtith rcspecl to nalwal gas, including th,ough local, stalo ot tederal laws
ot legHation ot othot regulalion (including ballot initiatives), eould adwr$ory afiect lW Holdings' ot t'lw Nahtal's frnancial @ndition, rosults of operations and
cash ,bws.
There are a number of intematjonal, f€deral, state, and local leglslatlv€, l6gal, rogulalory and other initiadves bsing proposed and adopbd in an attempt to
measure, control or limit the et ecl€ oI global waming and climate change, including GHG emissiom euch as carbon dioxide and methane. For oxampl€, th6ro
ar€ qJnent l€glslatlve €ficrts ln Or€gon, Washing on, and other states ln which lte operate to cap or oth6rwi86 .€strict the maxlmum GHGS an entity may emit
without roduction efrorts or oher undertakings. A cap and tlad6 bill was considered in the 2019 Oregon legislativs session, and failed due to a lack of quorum for
6 vote- l, a 6l,at6-wid6 cap and trade program is not passed during the 2020 Oregon shortiegislalive se66ion, ballot measures may bo propos6d by advocacy
groups in Orsgon's Novomber 2020 glection. Slmllady, ono small jurisdlction in NW Natural's sorvico tBnitory, Eug€no, Orogon, is soeking to pursug reduqtigns
ln GHG emlssions by negotiating for GHG targets, carbon offsets and increassd use o, RNG in their sy3t6m. Such cun€nt or futur6 leglslallon, regulation or
oth6r initiatives (includlng ballot
18
EXHIBIT 2
PALFREY[,llAN, DI
FALLS WATER CO,, INC.
Page 19 of 229
Table of Conlents
initatvss or ordinances) couH imposo on oul natural gas businessos op€ratiooal tEqriaornents or rosbictions, Edditional chargos to lund €n6rgy afficioncy
Inldadvo6, o. levy a tax baaed on carbon conlent. ln addltion, nhile no Guch bans gurBntly exi6t in l.lw NatJral'6 operating tenibrias, cerlain municipElili€s, such
68 B6rk6ley, Califomis, ar€ movlng to r€rtict nqw naturalgas hookups ln r63ldental and oth€r bulldlngs, whlle other munlclpalitles hav6 consldorod rsqulrlng th€
conwBion of buildings to el€ctaic h6at, or othorwise adopting policies or inc€ntives to encouraolo the use of elBctricity in lieu of natural gas. lf successful in our
t€nitgd€s, suci r€strlctionS could adversaly impaat customer groMh or u6ag€, and could adve.s€ly impacl our aHllty lo rocover co6t6 and maintain reasonable
atlatomet tale6.
NW Natural b6li6v66 nalural gas ha8 an imporlant 1016 in maving lhe Paclfic NodhweSt tq 6 low carbon futur6, and to that 6nd is d6v6loping pJograms and
moesun s to nEduoo cafton .missions. Howsvsr, NW Natural's offorts may not happen qulckly onough to ko6p pec6 with lEglshtion or oth6r r6gulatlon, lrgal
chqnggs or public sentimont, or may not b9 as €fi€ctiv€ as exp6ct€d.
Any ofthese initiativos, or our unsuccosstul rosponso to them, could .esult in us incuning additirnal costs to comply with th6 imposod rsst ictions, provide a cost
or other competitivg advantage to enorgy sourcas other than natural gas, rduce dsmand for natural gas, imposs cosb or rg3tictions on end usors ot natural
gas, lmpact th6 pricsG no charg€ our customers, lmpose lnfieased cosb on u8 as8odaled wllh th€ adoptlon of new lnfraEtruclure and tochnology b reEpond to
auch requirernents, and could negatively imp8cl public perception of our seryices or producb that negatively diminishes lhe value of our bEnd, all of vyhich could
advers€ly affoct NW Holdings' or NW Natural's businqss operations, lioancial condi$on aM resutts of operatioris.
STRATEGIC TRAI{SACTIOI RISK. Nl,y Hordrhgs' and NW Natu,''lh ability to success,uw complete st'ategic f/ansactions, including merge| acquisition,
dlvestiturc, joint venture, busrhgss developmeat projects ot othet strategic t a/rsaclr?rs is subiec, to signilcanl isk$, including he isk that rcquircd pgulalor ot
govemmental apptuva/.s mey not tu obtaihad, dsl(s rcletlng to uhknown pb ams or llabllltles u ptoblems or ltabilities undlsclosed to us, end the dsk that fot
those or other redsons. ws may be unable to achiew some ot all of the benefits that we anticipate from such t,ansaclions, wttich could adwBely afred NW
Hddings' ot NW ttatural'' frnancial condition, rcaufts of opefttions, and cash iows.
Frgm time lo lime, NW Holdings aod NW Natural havs pursu€d and may continuo to purBue aAat€gic transactions including morger, acquBition, divestiture, joint
v€nlure, businoss dgvqlopmont projocts or othgr stlalEglc tansactlons, lndudlng acqulsltions by tlw Holdlngs ln ths wat6r soctor o, a numb€r of watgr utlliti€s,
wastewater €nlities and a waler seruicas company, wih NW Holdings' continuing b seek othar such water soctor relatod opportunities. Any such bansactions
involve 6ubstantial.isks, lnduding the following:
purchase or Sale transaotions that are contracted for may fail to close for a variety of Basons:
acquiBd businesEee or aEsets may not prgducs revenues, eamings or cash fow at snticipated levels, which could, among otherthings, resull in the
impaiment of any goodwill associated with such acquisltions;
asquired businesses or 83sob oould have environmental, pemitting, or other problems for whicfi contractual protections prove inadequate;
lher6 may b6 difliculti6s in int€gratbn or opgration co8ts of nelv busine66e6;
lhera may axist liabllities thatwers not disclosod to us, that 6xc€ed our ostimates, or for which our rights to indomniiication from tho sollerara limitEd:
we may be unabls to obtain the necassary regulatory or govemmontal approvals to closo a lransectloo, rocolve approvals granted sublect to l6rms that
are unacaeptable to us, or be unable to achieve the anticipst€d regulstory healment of any such transaclion; or
ws may b6 unablB to avoid a s€le ot ass€b tor a prlc€ that is las6 than the book valu€ of Ihoso as6ob.
On€ or more of these risks could afioct NW Holdlngs'and NW Nalural's fnanclal condhion, re6ull6 otop€rations, and cash frow6.
BUsll{ESE DEvELoPf,E T ,usx. l,,ll,y Hordings' and NW Natural's business deveropl,ont proiocts fiay encountet unantic,;rafod ob6tacra6, costs, changgs or
ddap that could result in a prcjert bacnming impaitod, which could negdlively impdct NW Holdlngs' or NW Netu,al's frndnciEl condition, ftsufts ol ol6tdtions
and caah f,o'ts.
Business development projects involve many risks. We are curently engaged in several bosinBss develoFnent projects, including. but not limited to. NW
Holdings' 6ady planning and d6velopment €tagg$ for a regional pipoline in Oreggn, Wg may also engage in olher business develgprnent projects sugh as
lnwstmonts in additional long-t€rm gas lBserves, prciocts in th6 wat6i s6ctor. CNG rBfu6llng slatlons, RNG, pow6r to gas or hydrogon projgcls or oth6r proiacts
lntondod to ,€duc6 carbon emissiorc. The6e projgcls may not be successful, Additionally, lvs may not bs ablo b obtain roquired giovemmental permits and
approrals lo complate our projec{s in a cost-€fficiont or limsly mannor, pot€ntially rBsllting in dolays or abandonmont of th6 proj€cts. W6 could also expori€nce
l68ue6 such as: technological challenges; inofisctive scalability; startup snd construdioo d6lays; consbuction cost overruns: disputos with conkactors; the
insbility to nagof6to acc€ptabl6 agr66m€nts such as rlghts-of-way, easgments, conslruction, gas supply or other materisl contracts; chqnges in customer
dsmand, perception or commitrnent; public opposllion to projocts; changss ln markot prlc6s; and opBradng cost incr6a868. Addltlonally, w6 may be unabl€ to
finance our business developmenl proj€ob at acceptable costs or within a scheduled time fram6 neoBssary for completing the p[oj6ct. Any ol the foEgoing risks,
if realizod, could lesult in the prcrscl bocomlng impahed, and such impairment could have an adverse eltect on NW HoldingJ or NW Naiural'E fnancial condition
and resufls ot operations.
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 20 ot 229
Table of Contenls
JOtilT FARI ER RISK lnvesling in business development projeds through peftnorships, hlnt yen urcs or olher busiIross afiangemsnts afiects ow abilily lo
manage cedain dsks and coud adversely lmpact NW Holdings' or NW Naturul's financial condition, tesults of opemtions and cash flows.
We uso joint ventures and other business arangem€nt$ to manage and dlv6rsify tho rlsks of c6rlain dovelopmer( projects, including NW Holdings' Trail West
plpeline and Gill Ranch Facility and NW Nalural's gas .eserves agreemenb. NW Holdings or NW Natural may acquirg or develop part-ownership inlerosts in
glher projects in he future, includlng but not limited to, in the water sestgr. Underthese arrangeirents, we may not be able tg fully direct the management and
policlos ofthe businoss rslationships, and gth6r particlpants ln those relatlonshlps may tak€ action contrary to our inter6sts, including making oporational
decisiorB that could nogatively sffeqt our cos(s and liablliti€s. ln additio.r, othBr participants may withdraw from th€ project, divest important asssla, be@me
,inancially dishessed or bankrupt, o, hav€ oconomic or other business interests or goals Orat are inconsistent with ours. For gxample, in January 2019, Pacifc
Gas & Eloctric Company, which owns the rgmaining 25 porcont of ths GIll Randl Fadllty (75 porcent oI which is owned by NW Holdings), filod for bankruptcy
protection. While l.IW Holdings will monitor lhat bankruptcy proceeding, and tak€ appropriat€ actions in an attempt to protect its intsresb, it does not control, and
c€nnot prediqt, the outcome of such proc66dings and the impacl, i, any, ofthe procesding on the opgrations of Gill Ranch or thg planned sale by NW Hgldings'
of its interest in Gill Rsnch-
NW Nalural's gas re$eryes arangemenls, which operate as a hedge backed by physic€l gas supplies, involw a number ol risks, including: gBs producllon that
ls significantly less than ths expected volumes, or no gas volumes; op6rallng co6ts Olat are hlghor than 6xp€cted; changes in the consolidated tax position or tax
laws that could affoct NW Natural's ability to take, or the timing of, certain tax benefits trlat impact the financial outcome ol this transaction; inherenl risks of gas
produc on, including dlsruption to oporations or a complete shut-in of the field; and on€ or mqre parlicipanb in one of th66e gaa rgserves ar.angemsnts acting
contrary to NW Natlral's interests. ln additign, whil6 the cost of the origlnalgas resorvos wnturg ls cun€ntly includgd in customer ralea and additionalwells
under lhat anangement ar€ racovered at 6peclfic costs, the occurenco ol ona or more of th6se risks could affoct NW Natural's ability to recover this hedge in
ratos. Furth6r, n$\, gas rss6rv66 arangoments have not been spproved fgr inclusion in rates, and regulatoc may ultimately dot6rmino to not lnclude all o. a
podion of fulurG bansactions ln.atBs. The realization o, any of the abov6 m6ntion6d SlhJations could adv6rsely impact NW Holdings'or NW Natural's financial
condition, rssults of op€rations and c€sh flows.
OPERAnNG RIAK. Iranspofting and stoing natual gas involves numemus dsks lhat mey Esult in ecddents and oth.r opotuting isks and costs, some or all ol
which may not be fu y covarcd by inau,a,nce, and wttich could adwBely affect NW HolditEs' ot NW Natu@l's fioancial aondition, rosulla of ope6tions and cash
flows.
NW Holdings and NW Natural are subiect lo allofthe risks and hazards inherent in the businesses olgas dislribution and storage, and waler distribulion,
Including:. earthquakes. floods, storms. landslides and other sev€.6 wrath6. lncldents and naturalhazardsi. lesks or losg€s of nahtralgas, water or wastewstor, or contamination of natural gas or water by chsmicals or compounds, as a result of the malfunction of
€quipmrnl or facilltles or otharwise;. damagBs from third parties;. operetor enors;. nsgative performanco by our storage res€rvgrrs, tacillties, or wsll6 that could cause us to fall to mget exp€cted or forocaslod opoEtional lwoh or
cDnbactual commit nenb lo our ougtomers;. problems maintaining, or the malfunctlon of, pipelines, wellbores and related equipment and facilities that fom a part of the infrastructure that is critical to
the operallon of our o6s and waier distribution and gas stor9ge lacilities;. presence of chemicals or olher @mpound6 in nalural ga6 that could adve66ly affect th6 p€rformanco oftho system or end-use equipment;. collapse ot underground storage roservolrs;
' lnadoquat€ suppllos of nalurel gas or water;. op€rating cosb that a.€ substantially h(rher than oxp€cted;. migration oI nalural gas through faults ln the rock or to soms a.ea of the rossrvoir whers existing wolls cannot drain the gas etfectively, reEulting in lo6s ol
ths gaE:. blowouts (uncontrollod sscapes of 995 trcm a pipelin9 orwsll) or othsr accironls, firBa and axdosions; and. .i6ks and haza.ds ihherent in th6 ddlling oporations associatod with the developmeot ol gas storage facilitieg, and wqll€.
For example TC Pipolin€s, LP (TC Pipelln6s) has identified the presence of a c-tlemical aubstance. dithiazine, at several ,acilaties on the sysl€m ot ita subsidiary,
Gas Transmi6sion Northw6t (GTN), and Orose ofsome upsbeam and downstream connecling pipeline facilities. A porliofi of NW Naturall gas supplies lrom
Canada are transported on cTN's pipeline$. TC Pipslines roports ihat dllhlazln€ can drcp out ot gas slroems in a powdery form al somB points of pressure
reduction (for example, at a r6gulator), and that in incidents wherc a suffcient quantity of the material acqimulates in certain places, improper functioning of
equlpment can occur, whici can result in ingeased preventativg and cqnective action cogts. While NW Nalu.al has not detedod slgnificant quantities of
dithiazine on its system to date, we conlinue lo monior and could dlscover increased levels ot dithiazine or other compouods on NW Natural's system th6t could
atroct th6 performance of the systom or €nd-use equipmenl.
20
EXHIBIT 2
PALFREY[.4AN, DI
FALLS WATER CO,, INC.
Page 21 of 229
Table of Cootenls
Theso risks could .esult in disruplion of servic€, parsonal injury or loss of human life, damage to and destuction of properly and squipmont, pollution or oth€r
envlronm€ntal damagr, breaches of our contractual commitmenls, End may reEult in curtailment or suspension of operations, which ifl tum could lead to
significant costs and lost revenuss. Furlh6r, b€cau8e our plpellno, storage snd dl6lrih.rtion facilities are ln or near populatod a.eas, including rosidential areas,
commercialbGiness centgrs, and industrial sites, any loss ofhuman life or adverse financial outcoflles resuldno from such evonts could be significanl. We could
be 6ubj6cl to lawsults, clalm6, and qiminal and clvll enforc€ment actlons. Additionally, we may not be able to maintain the bvel o. types of insu.ance we deslre,
and the insurance coverage ws do obtain may contaln laroe deductibles or fall lo cover @daln hazardS or cover all potentlal lo8ses- Tho occunence of any
gperating risks not covered by insurance could adversely affec1 NW Holdings' or NW Natural's financial condition, results of op6rations and cash flows.
BUANESS cONfll{UITY RlsK MHordlrgs ard NW Natu,al mey be ddvo6ely impacted by local o. nafiona/ disasle/s, pandemic illness, polltlcal unrcst, tototist
aclivtties, cyber-attacks or data broachos, aN othor oxtrome events to which we may not be able to prompdy rcspond, liitich could advercoly affocl NW
Holdings' ot NW Natwal's operaaion$ or finahcial condilion.
Local gr national dis€sters, pandemao illne$, political unrsst, t€rrorist aclivities, oyber-attscks and dab breaches, and olhsr exteme events aro a throat to our
assets and operations. Companies in critical infrastuctu.e industdes may facg a heightened risk du6 to b€ing the target of aM having heightonsd exposuB lo,
ac13 of tenorism, including physical and secudty breaches of our physicsl inftastructure and information technology systems in the form of cybor-attack8. Thes€
attacks co{ld, amoog othqr things, ta.get or impact our technology or mechanical gyslems that operate our distribution, trammission or storage facilities and
result in a dis.uption in our operations, damage to our system and inablllty to m66t customer requiJements. ln addition, the thr€at of terrori8t activilies could lead
to incrgased economic instatility and volatility in the price of natural gas or other neoessary commodllies that could afiect our operatlons. Thr6at6n6d or actual
natlonal disa6ters or tenorist activities m6y also di6rupt cadtal or bank marftets and our ability to raise capitral or obtain debt financing, or impaot our suppliers or
our.rrsbme.s direcdy. Local disasler, protosts or pandemlc lllnsss could result in disruption ofour infastructrre or part of our workforce being unable tg gpgrale
o, nraintain our infrastructuro or perform other tasks necessary to conduct our busin6ss. A $low or inadoquate respo{1se to ovents may have an advErsg lmpacl
on our oporatlonE and eaming6. We may not b6 abl6 to maintain iufrcient insurance to cpver all .isks associated with local and national disasters, pandemic
illn€ss, terrorist activitios, cybor-atta.lG and oth6revonts. Addhionally, larg6 scalo nalural di8a8t6r6 or tenorist attac*s could d6stabiliz6 the insurance industry
making the insurance we do have unavailabl€, wlrich could increasg the risk lhat an ev€nt could advarsoly affoct NW Holdings'or NW Natural's operations or
financialrssufts.
HOLDI G COXPAIfY D|\4DEND RISK. As a hordnv company, NW Holdingo deponds on ,fs opor€ting subsidiades, inctuding NW Naturcl, to oldet frnancial
obEations and the ability of NW Holdings to pay dividends on iE common stock ls dapenden? on the Bcoipt of dividends and other pay'nenls lrom i?s
sub$Miartes, including NW Natu.al,
As a holding company, NW Holdings'only signiflcant assets are the stock and memb66hlp lnterests of it6 operating Eubsldlaries, which at this time ls primarily
NW Nalural. NW Holdings'direcl and indi.ect subsidiarie8 are separate afld distinct legalentities, managed by th6ir own boards of directors, and have no
obllgatlon to pay any amounts lo their rgspective shareholders, whether thrqugh dividends, loans or other paymenl8. Th6 ability ofthege companiG to pay
dividonds or mak€ othe. distdbutions on their common stock is suuoct to, among othsr thingE: th6ir r6sults of oporations, n€t incom6, ca6h flows and linancisl
condition, as woll as lho succ€Ea ofth€ir busines6 6lrat6giea snd generaleconomic and competilive condilions; the prior righb ofholders ofexisting and future
debt gsqrrities and aoy frrture prefened stock issued by those companios; and any applicablo lggal restdctlons.
ln addition, the ability of NW Holdings' subsidiaries to pay upstrEam dlvidends and make other disidbutions is subiect to applicablg st6t6 l6w and re9ul6tory
rostdctions. Underthe OPUC and WUTC regulatory approvals for the holding company formation, if NW Naturalcaases to comply with credit and capita!
st ucturc requiEmonts appro\,/ed by the OPUC and WUTC, lt wlll not, wlth limltsd exceptions, be permitted to pay dividend$ io NW Holdings. Under the OPUC
and WUTC orders authorizing tho holding company .eorganization, NW Natural may not pay dividends or make dlstribulions to NW Holdlngs it NW Natural's
crodit ratlngs and comrion equily levels fall below specified ratings and levels, lf NW Natural's long.term s€cured credit ratings are belor,/ A. for S&P and A3 for
Moody's, dividonds may be issued so long as NW Natu.al's mmmon Equity ls 4570 or abov€- lf NW Natural's long-lerm socurod credlt ralingG ar6 b6low BBB for
S&P and Baa2 for Moody's, dividends rnay be issued sg lgng ss NW Natural's common oquity is 46% or above. Dividends may not b€ issued if NW Natural's
long-tBrm s€.u.od credlt ratlngs fall to BB+ or below for S&P or Ba1 or b6low fo. Moody'E, or il NW Natural's clmmon equity is bslow 44%. The ,atio is
m6asured u$ing common equity and long-torm debl exoluding imput€d debt or debt lik6loas6 obligations, and is dotarminsd on a procoding or prolocted 13'
monlh basls.
EIPLOYEE BENEFIT RlgK. The cost of providing pension and poshotirement heallhcarc bonefil.s is $ubiec:t to changes in persloD assels srd /,iabrride s, changing
emptoyed d.mognphics efid changing acluadal assumptions, which may have an adve,re efrect on NW lloldings' ot NW Naturul's linanaial condition, .gsults of
oporations and cash ,iows.
Until NW Natural closed the pension plans to new hiros, r,thich for non-unlon smployees was in 2006 and fo{ union gmployees was in 2009, it provided pension
plans and poslretirement healthcare beneflts to eligible tull-time utility employees and relirees. About half of NW N6tural's cu.ront ulility employees were hired
prio. to those dates, and therefore remain eligible for these plans. Other businesses we acquire may also have pension plans. The costs to l,lw Nahrral, or the
o$er applicable businesses we may
21
EXHIBIT 2
PALFREYI,IAN, DI
FALLS WATER CO,, INC.
Page 22 o1229
Table of Contents
acquilE, tur providing such bonefits is subiect to change in the ma*et valuo ol the pension a8sets, chang66 in 6mploy6e dsmographics lnduding longor life
exp€c,tancl6s, lncroa6es in h€ahhcsre costs, cunent and futurs leglsletivo ch6nges, end various ectuadsl celculations snd assumptions. The acfuarial
a$umptions used to c6lculate our luture penEion end postreiiremenl healthcare expenses may diffur mat€rislly ftom actral resulb due to 6ignific€nt market
fluctuations and changing ryithdrawal ratos, wage rates, inbrest rEles and other tactors. The6e differ€ncas may rssuh in an advorse impact on the amount of
psn6ion contributlons, p6n6lon expens€ or other poEtretiremGnt bonefit co6ls recordod in tuture periods. Sushined declines in equity markets and reductions in
bond rates may have a material adveEs eff6ct on the value ofthe pension tund assets and liabilities. ln these circumslanc€s, NW Natural may bs required to
recognize increased contributigns and pansion expense esrlie. then it had plann€d to th€ ext6nt tiat $c valuo of ponsion assets is less than the tobl anticipated
llablllty und6r thg plans, whlch could have s nogative Impact on NW Holdings' and NW Natural's financial cofldition, results of ope.atigns and cash f,ows.
WORKFORCE RISK. NW Holding$' and NW Natu.a, s busrhesaes are ,egvily deqendent on being able to atlract and rotain Ehlified employees and maintain a
eompehtiw cost structure with matuet.based saldties and emplope bengfils, and wodlorce disruptkms could adve,g,gly afied NW Hdding6' ot tlw l,latu@l's
opeEtbns and /6suns.
NW Holdings' and NW Natural's ability to implement our bu6insas stratEgy and ssrve our customeE is dependent upon our continuing ability to sttract and retain
talented professionals and I Echnioally skilled workforce, and being sble to transler the knot,ledge and expertise of our wotkiorce to new omploye€s as our
largely older workforc€ relires, We €xpoct that s significant podion of ou. workforce will rotire withln the cunent decade, which will .Equire that we attr€ct, train
aM rotaln skillod workors to prevent loBs of institutional knowl6dg6 or skllls gaps. \Mthout an appropriately skilled workforce, our ability to provide quality Bervice
and meet olllr regulatory requirements will be challenged and this could negatively impact NW Holdings' 8nd NW Natural's earnings. Addnbnally, a majority of
NW Naturalworkgrs are repreG€nted by the OPEIU Local No. 11 AFL-CIO, and aro covorsd by a colloctive ba.gaining agreementthat extends to May 31, 2024.
Dlsput6s wlth lhe unlon roprssenting NW Natural employees over i8rms and conditions o, their agreernent, or railure to timely and efieqtively ren€gotlate the
agr66m6nt. could rosutt in instability in gur labo, rolalionship and work stoppages that could impact tho timgly delivery ofgas and oth€r servlcos from our utility
sM sto.age tacilitios, which could sirain rBlationships wilh cu6tomor6 and Etate rogulators and causo a los,s of revsnu68. Tho collectivs bargaining agreqmenb
may also limit our f,exibility in doaling wi0t NW Natural's workforce, and tho ability to .hang6 wo* rulos and practices and implement other 6ffcioncy-relat€d
improvemgnts to successtully compete in today's challonging marketplaca, whioh may negatively afect NW Hgldings' 8nd NW Natural's linancial condition and
resultS 0f op€rations.
LEG|SLAT|VE, COf,PL|AXCE At{D TAxtt{c AUTHoRITY RISK. Nty Holdirgs and NW rvaaurr, are subjed to gowmmental rcgulatlon, end compliance with tocal,
$teto and loderct rcquircments, lnduding taxing requirements, and unfo,Fseon cha],as ln or lnteryrctetions ot such Bquiomants could afreat NW Holdings' or
NW Naturul's llnanclel condition and results gl opafttbns.
NW Holdings and NW Natural are subiect to regulgtign by fedsral, state and local gov6mm6ntal euthodties. We are requirod to comply with a vaJiety ol Iaw6 and
169ulations and to obtain authorizations, p€rmits, approvals and ca.tificatos ftom govemmental agencies in various asPects of oua business. Signlfcant ctanges
ln fedoml, state, or local gowmmental lGadorship can accolerato or anplit changes in exiEting laws or r69ulalion6, or the manner in whict sl€y are int€rpreted
or onforced. For oxampl€, th6 cunoni U.S. presidenlial adminl6tration haa mad€ numorous leadership changos at fed€ral administrative agenci6s since th€ 2016
U.S. prosidontial eloction. Moreovor, the U.S. Congress and th6 u.S. prosidential adminislratibn may makg substantial chang6s to liscal, tax, rogulation and
othgr lederal policies, which chsnges m8y be significantly impacled by the outcomg ol the 2020 U.S. presld6ntial and congrossional olection. The cunont U.S.
pre8ldontlal admlnislratlon he6 called for End implomentod Glgnlflcant chenges to u.S. fiscal policios, U.S. trade, healthcare, immigration, foreign, and
govemmBnt regulatory policy. To the extent th6 u.S. Congress o. U.S. pr€sidentisl adminBtration implemenlB change6 to U.S. pollcy, those changes may
impact, among other things, thg U.S. and global eoonomy, intemational trade and relations, unemployngnt, immigration, corporale taxes, healthcare, lhe U,S,
rogulatory environmont, lnflation ard other areas. Simllarly, local el€clions during 2020 may lead to signifcant policy changes at the stat€ or munlclpal lEvels in
our se.vice areas that may affact us. ln addition, torcign governments may implement changes to their policiBs, in respon6€ to changos to U.S. poliry or
otherwis€, Although we cannot p.edict tho impact, if any, ofthese changps to our businesses, they could advors€ly afi.ct NW Holdings' or NW Natural's financisl
condlton and r€sulls of op€ratlons. Untilwe know what pollcy changos ar6 made end hoiv lhose changes impact our buoinesses and lhe business of our
competitors ovBr lh6 long term, we will not kno , if, ov6rall, w6 vi,ill b6n6fit from them or be negatiwly afreclsd by th6m.
Though we cannot predict changes in laws, regulationt, or enforcement, u/e 6xp6ct th6r6 to continue to be a numbe. of Eignifcant chang€6. W€ cannot prsdict
wilh cortainty thB impact ofany future revisions or.fiangos in int€ryretations of oxigting regulstigns or tho adoption of n€w laws and.egulations. Additionally, any
failu.e to comply with existing or new laws and regulatioN could result in fines, pgnaltles or lnjunclive msasu.ss that could affect operating a33eb. For examplg,
under th6 Energy Policy Act -of 2005, the FERC has cjvil authority und6r tho Natural Gas Act to lmposs penaltiss for current violatlons of ln oxcess of $1 million
per day tor 6ach violation, ln addi6on, as the reoulatory environment forour businesses increaE€6 in compl6xlty, the risk of inadvodent noncompliance may abo
incregse, Changeg in regulations, th6 lmposition ot additionsl regulations, and the fallurc to comply with laws and regulations couH negalively influence NW
Holdings'or NW Natural's operating environmont and results of operalions.
2.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Page 23 ol 229
Table of Contents
Additionally, changes in fed€ral, state or local tax laws and thsir relatsd regulations, or dfieing inte4r€tations or enforcernent of appliosble law by a f€deral,
sbte or loc€l taxing authority, colld r6suh ln substantl€l cost to us and n€g6tlv6ly afiecl olr result€ ot op€ratlons. Tax law and lts rolat€d r€gulauons and ca6e
larv are lnherendy comdex and dynamlc. Disputes over interpretations of tax laws mey b6 sstUed with the taxing authodty in examination, through programs like
the Compliaflce A$urance Process (CAP), upon appeal or thmugh litigation. Our iudgrnsnts may inoludo rcs€rves ior potential adveEe outcomes regarding tax
po6ltlon6 that havg b6en tak6n lhat may b€ 6ubj6ct to challenge by taxlng au0lofldes. Changgs in laws, rggulatlons or ad\r6c6 judgmsnb and thg lnh€Ent
diffculty ln quantirylng potential tax effecb of buslness decislons may nogatively afioct NW Holdings' or NW Natural's fmncial condition and r€sults of
operations.
Furth€rmors, certain tax assets and liabilitj6s, sudl as def6r6d tax assets and rogulalory tax assots and liabilities, ar6 recognizEd or roco.ded by NW Holdings
or NW Natural basBd on certain assumptions and dotorminafions mad€ based on availablo avidenc€, such as projgqted flrture taxable income, tax-planning
stratagios, and rosults of recont oporation6. lftheso asrumplions and d€terminations prove to b€ i.tcorr6ct, th€ recordod r€sults may not b€ roalized, which may
negatiwly impact the financial results ot NW Holdings and NW Natural.
Ther€ is uhce.tainty as to ho$r our rugulators will refec{ the impact ofthe logislalion and other govemment regulation in Etes. The resulling ratemaking
treatment may negatively sffeot t{W Holdings' or NW Nahrral's financial condition and results ol operations.
SAFETY REGULATE R|SK NW Hordirgs and NW Natwal may expedenca hcreased fedorcL stdte dnd lo{,al regulation ofthe sary of our syslems and
ope'lations, which oould efuersely efrect NW Holdings' ot NW Neturc!'s operori,4g clsrs and iina,tcial rEsuns.
The safsty and protection of the public. our custorners and our employees is and rvitl .6main ourtop priority. We are committed to consistontty monibring and
maintalning our distribution systsms and storago operations to ensuro that natural gas and wat6r is acquired, stored and deliver€d safely, rgliably and efficien0y.
Glv€n rrcent high-protilg natural gas e)eloslons, l6aks and accid€nts ln oth6, parts of tho counby lnvolvlng both distrlbullon Eystems and storage lacllitiss, no
anticipate that ths natural gas industry may be lh€ subjoct of 6von gr6ater federal, statB and local rsgulabry ovorsight. For €xampl€, in 20'l 6, the Protecting our
lnfrastruclure gf Pip€lines ohd Enhancing Safety Act (PIPES Act) was sign€d inlo law incrgasing rsgulations for nah.[al gas storage pipelings snd underground
storagE facilitiBs and prioritizing lhe complotion by ths Pip€lino and Hazadous Mat€rhls Safety Admlnlsbelion (PHMSA) of regulations relatod to tho salsty
strandards ror natural gas transmission and gathering pipelines. Similarly, in 2016, Califomia passod legislation dirscting the Department of Oil, Gas and
G€othermal Reaource8 (OOGGR) to dev6lop regulations alfecting gas rtorage operations. DOGGR hgs issued regulatians which require csrtsln lnlggrlly testing
and tubing Ior wells at the Gill Ranch Facility within lhe next 7 years.
Wo lntEnd to work dlllgehlly wlth lndustry associatlons and federal ard stat6 regulators to seek to ensura compliance with th6se and oth€r n6w lawE. We 6xp6ct
thera to ba increased costs associated with compliance, and thoss co6ts could be sionificant. lf theso costs aro not recovsrable in our customer rates, th6y could
hav€ a negative impact gn NW Holdings' snd NW Naturgl's operating costs and finanolal rssults,
HEDOIIaG RISK. /VW Natural's tisk managoment policies and hedging activities cannot eliminate the isk of commodity pticc movements and other financial
mdrket dsks, and its hedging dctlvllies may exposa h to additional liabililies fot *h/d.h rale recowry nay be disallowed, wltlch coold resull in dn adverco lmpact
on NW Holdings' and NW Natural's oporating rownues, costs, dedvative assots and liabilitios and operating cash f,ows,
NW NatuIal's gas purchasing requiremenb expose it to risks of commodity price movaments, while its use of debt and aquity financing exposes it to interest
rat6, lhuidity and otherlinancial ma.ket risks. l,lw Naluralattempts to rn€nage these exposures with both Unancial and physical hedging mecianisns, including
ib gas reseryes transactions which are hedgss backed by physical gas supplies. Whlle NW Natural has dsk managtsmont procadurcs for hodgino in place, th€y
may not always work as planned and cannot entirely eliminate the risks associated with hedging. Additionally, NW Natural s hedging activities may cause it to
lncur addltlonal exp6nsas to obtaln thg hsdg6. NW Natural do€s not h6dge lts enlire interost ,ate or commodity cost erposuro, and lh€ unhedged exposuro wlll
va.y over time, Gaim or losaes exporienced through hedging ac{ivities, induding carrying costs. generally flow through NW Nalural's PGA mechanism or are
rocoverod In fuluro genoral rato caaes. Howev6,, th6 hedg6 trans€ctions NW Natural enters into fgr utility pu.poses ar9 subjEd to a prudenco revi€w by the
OPUC and WUTC, and, if found imprudent, those expsnsos may b€, and have bq€n provlously, dlsallowod, whhh could hav6 an advorso 6fi6ct on NW
Holdingo'or NW Nahr.al's fnaosial condition snd results of operstions.
ln addition, NW Natural's achral buainoss requiromenb and svailablB resouross may vary ftom forecasts, which ara used as the basis for iis hsdging dacisions,
.nd could cause its exposure to bo mor€ or less lhan antlclpaled. Moreove., if NW Nalural's dedvalive inshuments and hBdging transactions do not quafry for
regulatory defenaland it does not elect hedge accounting lrcatrnont under U.S. GAAP, NW Holdlngs'or NW Netural's results of oporalions snd financlel
condition could be adversely affeoled.
NW Naturalalso has credit-rolated exposure lo derivative counterpartios. CountB.partiss owing NW Natrral or its subsidiades money or physical natu.al gas
commodlUos could broach th6ir obligations. Should lhe coun(erpgdies to these arrangements fail
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 24 ol22g
I3ue-ef-Gsdeds
to perform, NW NatJral may b€ for6d to enbr into allgmative ar.angomonts lo most lb normal buslness requiEments. ln that avont, NW Holdingg' or NW
Natural's finEnclal rasults could be adversely alfectsd. Additionally, under most of NW Natural'B hedging arrangemenb, any dovvngrgde of lts ssniot uns€cured
long.term debt credit rating could allow lts counterparlies to requlro NW Naturd to post c€!h, a letter of 6edit or other fom of collatsral, whlch would expose NW
Natural to addilional cosb and may trigEEr significant lncrease6 ln bomwlng lmm lts cr€dlt facllldos or gqulty contribution n6ods from NW Holdings, if the cr€dit
radng downgrade is b€lon, inveslment grade. Furth6r, based on cunert intelpretations, NW Natural is not con$idered a 'swap deale/ or'mai)r swap partlclpant'
in 2020, so NW Natural is exempt trom certaln requiremenb under the Dodd-Frank Act. lf NW Natural is unable to claim thls ex€mptlon, lt could be subiect to
higher cost6lor its derivativ€s actlvltlos, and such higher co6ts could hav€ a n€gatlve lmpacl on NW Holdings' and NW Natural's opemtlng costs and financial
r6sults.
tt{ABtLIry TO ACCEss CAPITAL AR(ET RISK, NW Holdinge' or NW Natunl's inability to access capital, ot signilicant incE'asos in the cost ot capital, could
advorcely efted NW Holdings' ot l,lw Natwofs linanciel condiuoh ahd rcsu/ts of oporat o.ls.
NW Holdings' and NW Natursl's abllity to obtain adgquate and cost efrgctive shoft-t€rm and long-torm llnancing d€pend$ on maintaining investmsnt grade credit
plofles as v{ell as the eistence of liquid and stable financlal m6rkets. NW Holdings reliBs on accoss to equity and bank m€rkets lo finance equlty contrlbutlons
to subsidiaries and other business requlroments. NW Natural relies on acoe$ to capital and bank marketg, including comm6rcial papor and bond markets, to
financ€ its operation6, consbuctlon o)eenditures ard other busln€ss roqulr6m6nb, and to rofund maturlng dobt that cannol be tunded entirely by intemalcash
fiows. Disruptions ln capital markets could adversely afiect our ability to access short term and long-term finanoing. Our access to funds under commltt6d cr6dil
facilities, which are cunen y provided by a numb€r ofbanks, is dapendent on the ability of he participaling banks to meet their rundlng commilrnents. Those
bank6 may not be able to m6et thek tunding commitrnents it lhey exp6ri6nc€ shortag66 of capltal and llquldlty. Oisiuptions io the bank or capitral financing
mark6ts as a result of economic uncertainty, changing or lncreased regulation of the financial s6ctor, or failure o, major fnancial institutions could ad!€rsely
affect NW Holdings' and NW Natural's accGss to capital and n€gatively impact our ability to run our bu8inogses and make ctrat€glc lnveslrnonts.
NW Natural is cunonty .atrd by S&P and Mgqdy's and a nogative .fiangB in ils crodit ratings, particularly b€low invostment grade, qould advorsaly affoct its cost
of bonowing and acc€s8 to sourcgs gt liquility and capital.
Such a downo.ade could furthor limit ib acco8s to bonowing und6r availablo credit lines. Additonally, downgrades in its curont credit Jatlngs below inveslrnent
grade could cause additional delays in NW Natural's ability to aocsss the cspilal markets while it seeks supplemBntal state rogulatory approval, which could
hsmper lts ablllty to acc6s8 credlt markets on a timery basl6. NW Holdlngs'cr€dil pmfilo k largely supported by NW Natural's oredit ratings 6nd any negative
change in NW Natural's crEdit ratings would liksly nogath,ely impact NW Holdings' accDss to sources ol liquidity and capital and cgst ot bonowing. A cJedit
downgrade to NW Natural, or resulting negative impact on NW Hglding€, could also require additional suppori in ho form ol lettors ol credit. cash or other forms
of collatsral and otherwiss adversely afecl NW Holdings'or NW Nalural'E linancial condition and resufts of operations,
REPUTATIONAL RISKS. Custoarers', /6glsrato/s', and rcgulato,,a' opinioos of NW Holdings and NW Nalu,s,l are all€ded by many tactors, including syslem artd
fuel reliabilily and salety, patection of custo/ner inlginalan, fttes, media cwereg€, and public sentimant. To the ertent ahat cust m9r8, ,egi6laloE, ot tegulators
have ot dewlop a negalive opinion ol out businesses, ,VW Hordings'and NW Natu,s,l's fmanaial positbn, rcsuft9 af operat'lons and cash flows could bo
advercely afreded.
A numbor of factors can affect customel6 p€rceplion of us including: sorvice intonuptions ot satety concems due to fallures o, 6quipment or facilities or ftom
other causes, and our ability to promp{y respond to such failures; our ability to sat€guard Eensldvo customer intomation: the timing and magnitude of rate
lncrgasss; and volatllity of rates. Custcmers', legl8lsto6', and regulators' opinions of us can 6lso b€ affocled by media coverage, including the prollforatlon of
social media, which may include inrormation, whsthcr factual or not, that could dam8ge the perception of naturalgas, our brand, or our roputalion.
Oth6r concerns about th€ use of natural gas include th€ potsntlalfor natural gas Explosions and the efiect of natural gas on indoo.9i. quality. For 6xample, NW
Natural's gas distribution system was slruck by 8 third party rosulting in a gas oxplosion in 2016, aod whilg NW Natutal was dstorminod not to be at fault, the
perceptign ofnatu.alg€s as an energy sourco could have bg€n affectBd. ln additbn, 6tudi66 fiom time to dmg quoslion thc indoor health and goneral climate
qfiocts from buming natural gas, which may alsa impact public pe.coption. Th6sB shifls in public ssntimGnt may not only impact furlhe. logislaliv€ lnltlatives, bot
behaviors and perceptions of cugbmerS, inv66tor$ and rogulators.
ll customsrs, logislatoE, or rsgulator8 have or d6velop a negalivs opinion ot us and our seryicos, o. of nafural gas as sn engrgy souJco g6norally, thi6 could
make it more difficult lor us to schisve favoreble legislative or regulalory ouloomes, Negstive opinions could al6o l€sult ln sel6s volumes reductiom or increased
uso otother 6ources of energy, or.dditional diffoulties in accessing capital mark€ts. Any oflhgso oonsequenoes could adversely afeoi NW Holdings' or NW
Natural's Iinancial position, resulb of operatlons and cash llotYs.
RELTAXCE ON TECH OLOGY RISK, NlyHoidings' and NW Natutd's etro sto htegrate, consolidate aN strcamline each of their oPe,ations has resulted ln
inaraasod tolianco on technotogy, the failue of ythich could advorsoly afroal NW Hodings' ot NW Natu,8.l's financial conditlon and rosofti of owations.
24
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 25 o1229
Table of Cootenls
NW Holdings and NW Natuml have undertaken e variety of iniliativss lo integrato, slandardlze, c€ntralize and streamline operations. These efforts have resulted
in greater relianoe on technological tools such ss, at NW Natursl; sn onlerpdse Esource planning syst€m, a dlghal dlspatch sy6tem, an sutomated m€ter
readlng systom, a vr€b+ased ordering and tracking syslem, and other similar bchnological tools and initiatives. Ourtuturc succass willdepend, in part, on our
ability to anticipate and adapt lo techndogical changes in a cost-effec'Uvs mann€r and tc off6r, on a tlm€ly basis, services that meel customer demands and
owlving industry standards, Now te.hnologies may emerge lhat could be supe or to, or may not bo compatible with, some of our oxlsllng technologiss, and may
raqulre u6 to mako significanl expenditures to remain qompetitive. We continue to implement technology to improve our business processes and cuslomer
intoractions. ln addition, our various existing infomation tochnology systemS rsqulrg poriodic modifications, upgrade6 and/or replaqoment. For example, NW
Natural intondE lo upgrade its SAP system aod roplaca its customsr information systom in th6 n6a. futur€-
Thero aro various risks associatod with thes6 systems in addition to upgaades and replac€menls, including hardware and sofiware failurc, communications
failur6, data distortion gr deslruclion, unaulhorizsd acc€ss to dala, misuse of propriotary or confidantial data, unaulhoriz€d control through sloctronic msanE,
pmgramming mistakes and othor lnadvertenl enors or deliberate humsn acts. ln addition, we are dep€ndent on a continuing fiow of important components to
maintaih snd upgrade our informatbn technology systems. Our suppliers may face prcduclion or lmpod d€lays du€ to nalurul disssters, 6ldkes, lock-outs,
polhicel unGst or othsr such circumstan@s.
Any modificalions, upgrades, system maintenanoe or rcplacements subject us to inherent costs end dsks, lncludlng potentlal dlsrupllon ofour int€malcontrol
structuro, subslantial capital €xp€nditu.es, additional administrative and operatirlg exponses, retention of sulllciently skilled personnelto implement 6nd operate
th€ now systerns, and other risks and costs of dolays or dlffculties ln transitlonlng to new Eystems orof integrating new syslems into our cuarent systems. ln
addition, the dimcuties with implementing new technology systems may cause disruptions in our businGss operations and havo an adv€66 €fIsct on our
busloess and op€rationE, if not anticipated and approprialely mitigaled. Thero is also risk that w6 may not b€ aHe to Ecover all costs associatod with projocts to
improve our technological capabilities, which may advorssly affocl NW Holdhgs'or NW Natural'E financlal conditbn and r66ults ofopeEliqns.
GYBERSECURIrY REK. NW Holdings' aod NW rvat!.a/s stEtu6 as trl i/,frcstruaturo sowicos ptovidet coupled with its rcliance oo technology could rcsuft in a
secudty btooch which could adve$oly affect NW Holdings' ot NW Natural's finencial condltlon and results ol operations.
Although we take preaeutions lo ptot6ct our tecfinology systems and 6rc nol sr/ygrc ol Eny material s€curity breaches to date, there is no guaranteo that lhe
prcc€dures we have implemented to protect against unauthorized access lo s€cured data end 6yst6ma 616 adsqualG to safGguard 69ain6t all sGcurity breachss
or other cyb6r anacks. Addidonally,lhe facilities and systems ofclients, suppliers and third party seNice providers could be vulne.able lo the same cyber fisks
as our facilities and systems. and such thlrd party systems may b6 int6rconnected lo our systems both physically snd technologicslly. Therefore, an evont
ceu66d by cyb€rattacks or other malicious act at an interconnocted third party could impact our business and facltitles similarly. As theso potential cyba, socurtty
altacks bocome moro common and sophisticated, we could be required to incur costs to strengthen our syslems or obtain specific insuEnce coverage against
potential toss€s. Our busin6ss€s could oxp6ri6nce bBaches of socurity pertaining lo 66nsiliv6 cuslomgr, emplgyee, and vendor infgrmation maintained by us in
the nonnal cou6e of busin€ss, which could adveBsly affect our roputation, diminish customer clnfid6nc6, dlsrupt oporations, materially lncr6as6 th6 costs we
incr./r lo protoct against th6se risks, and subjocl us lo possiblo financial liability or increasGd regulation or litigation, any ol which c.uld adversely affecl NW
Holdings' or NW Nalural'8 financial condition and results of op€rations,
REGULATORY ACCOU TIIIG RISK. /r, tho tuturo. NW HoMings or NW Natu@l may no long$ meol the ctiteie lot contlnued epplice on ol Bgulatory accountingpftcticos lof all ot d poftion ol out tggulated opeations.
lrwo can no longer apply regulatory accounting, we could be required lo write off our regulatory assets and precludgd from the future defsnal oI costs not
recovered through rates al the tim6 such amounts are lncuarod, 6ven It w€ are expected lo recover lhese amounts frcm customers in the future.
GAS PRICE RlsK. Hrghet naluhl ges commodily prices and volatilily in the ptice ol gas fiay adwBoly affect NW Natu's,fs MO business, whoreas ,ow6r gas
Nice voletlity may adva$ely atrect NW Natural's and NW Holdings' ges slo/ege bushsss, i.r each case nggdtively afiecting NW Holdings' and NW Neturafs
resuhs ol opeftdons and cash flow6.
Tho coat of natural gas is afiected by a variety of factors, including !r€ath6r, changes in dsmand, lhe l6vol of producuon and availablllly of natural gas 6upplio6,
lransportalion consbaints, availability and cost ol pipelins qapacity, federal and stato ono.gy and environmontal regulation and logislation, natuml disaslo.s and
olher catastrgPhic events, national snd worldwide oconomic and politicsl conditions, and th6 pric6 and availability ol alt6rnative fuels. At NW Nalural, the cost we
pay tor natural gas i6 gonorally passed lhrough to customers through an annual PGA rat€ adjustment. lfgas prices wore to incrsase sbnmc€ntly, it would rals€
the cost of energy b NW Nstural's cu6tomors, potentially causing those customeE to oonserve or switch to altemate sources ofenergy. Significant price
lncaeasGa could also cEuse new home builders and commercial developers to gelect ahamative Gncagy rouac€s. Oecreas€E in lhe volume oigas NW Nstural
sells could reduce NW Holdings or NW NsturEl's eamings, and a decline in customers could slow gmwth in tuture eamirgs. Additionally, because a portion ('10%
or 20%) of eny
25
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Paoe 26 of 229
Table of Cootenls
diffsrsncs betwoen the estimat€d average PGA gas co6t in rates and th6 actual av6aag€ ga6 cosl lncunod is rBcogniz€d as cutrent income or €xpcnse, higher
averags g6s cost6 than thoss assumed in setting rat66 can adv€rsely afiect NW Holdings' and NW N8tural's op€rating cash f,otlrs, lhuldlty and r66ults of
oporallons. Additionally, notwithshnding NW Nalural's cunent rate structuro, highor gas coeB could result in lncrBased pressure on the OPUC or the WUTC to
seek olhor rneans to rsduce NW Natural's rates, which also could adversely affgct NW Holdlngs' and NW Natrel's .osulis of operalions and cash flows.
Higher gas pricss may also cause NW Naturalto expedence an increase in short lem debt and temporadly reduce liquidity becauge it pays 8uppll€rs for gas
when it is purchased, which can be in advance of when these costs are rgcqve.ed thrgugh rste6. Signmcant lncreasos ln th6 pdce oI gas can also slow collection
gifgrts as clslomors 6xperienco increased difficutty ln paylng thok hlghor enorgy bills, leading to highor than normal delinquent accounls .eceivable rgsulting in
{rr6at6r €xpqnse assoclatod with collection efiorts and lncroas6d bad dobt 6xpsnse.
Conv€rE6ly, storag€ businossss ben€fit from p.ics volatility, which impacts tha lev6l of demand for sorvicss and tho .ates that csn be cherged icr storage
sarvic€s. La.gsly duo to tho abundant Eupply of natural gas made available by hydraulic frscturing teshniques, nalural ga8 prhes have dropp€d signitic€ntly to
lavols that are near historic lows. lf pdces and volatility rsmain low or deglins fudher, th€n the dsmand for 8torage sorviceE, and the prices that we will be able to
charge lor thoso sorvicos, may decline or be depres8ed tor e prolonged period of time. P.ices beloiv the costs to operate a storsge facility could rosult ln a
docision to shutin all or a portion of the fadllty. A sustained deoline in these pdoos or e shut-in of all or a porlicn of lhe tacility could heve an adverse impact on
NW Holdings'or NW Natural's tinancial condition, result6 of operations and cash 0o,t/s.
tXpAtR EXT OF LOitc-LfVED AS3ETS OR @ODWLL RISK ,mparimeats of he volue of long-lived as$ets ot goodttlll could he,re a matedal effecl on NW
Hddings' or Nw Natural's frnanclal condition, or results of opentlons.
NW Holdings and NW Nalu.al review the cgrrying valu6 of long]ivod assots whanBver ovenb or changes in circumotanc6s indicat€ the carrylng amount ofth6
asseb mighl not be recoverable. Th6 dotBrmination of rocgverability ls ba€ed on thg undiscountod nGt cash flotvs axpoctod to r€sult rrom the oporation of such
assets. Proj6ct6d cash llows d€pond on the future qp€rating costrg and pmioclod r6v6nues associatod with lhs aseot. ln 2017, NW Natural rocognizod a $192.5
million impaimant of long-lived assels st th€ Gill Ranch Facility as of D6cemb6r 31, 2017. We review our glhgr longFlived assets to d€t€nnino it an impaiment
analysis iE necessary.
We review the carrying vslue of goodwill annually or whenever events orcfiang$ in circumstances indicate that 6uch carrying value may not be recoverable. A
goodwillimpsirment analysis b€glns with a qualitative analysiE of evonts and clrcumstrancoB. lf the qualitativE assessment indicat$ that the csrrying value may
bq at rlsk, w€ wlll perfonn a quantihtive assessment and recognize a goodwil! impaiment tor sny amounl in vrhich lhe fairvalue ola ropofllng unit exc€ods it$
fair value. NW Holdings' total goodwill rvas Mg.g million as of December 31, 2019 snd $9.0 million 9s of D66mb€r 3l, 2018. The increase io the goodwill
balanc€ vras du6 to additions assoclalsd with acquisitions in $6 [,at€r sector- All of our goodwill is related to waler and waslewater acquisitigns. There have
bsen no lmpalrments recognized for he water and wastev,/abr acquisitions to date. Any lmpairment charge tgken with r66pect to our long-llved assets or
goodwill could be mat€rial and could hav6 a matcrial 6f6ct on NW Holdin$' or NW Natural's linancial conditioo and r€sults of operations.
CUETOmER GROWTH R|SK NW Holdings' and NW Natr/tra,l's NGD maryin, eamings and cash llow may be negatiwly affected if we aft unable lo sustdin
customet grcwth rates in ou NGD s€gment.
NW Naturel's NGD margins and €arnings grcwth hav€ largely depended upon the sustsined growth of its residential and co.nmsrcial customer base due, in part,
to the new construction housing ma*et, conversions of oualomera to natu]al gas from other enffgy sourcs8 and growlng commercial use of natural gas. The last
r€cession 6lo,v€d n6w conslruction. Vthile new homg constnrctlon has rosumEd and the muhi-lamily cornposition has been higher than its prs-rec€86lon pac6,
ov6.all consfuction has not retumed to the pr6-rec66sion paoe, and thera are predictions ofan impending new recs66ionary cycle- lnsutficient growlh in these
markets, tor oconomic, political gr other reasons could adversely afiect ).lW Holdings' or NW Natural'8 utllity margin, oamings and cash ilows.
R|SK oF cot pmTON. Our IVGD bus,l4ecs is sublact to in.,eased competition which could negalively afiect NW Holdings' or rVW rvaluralb resurfs of opentions.
ln th€ resldontial and commgrcial mad(ets, NW Natural's NGD businsss comp€tss pdma.ily with suppliors ot el€ctricity, fuel gil, 9nd propan6. ln th6 industrial
markst, l.lw Natu.al compotBs with supplie.s of all ,orms oI6neEy. Compstition among hese foms o, energy i! basod on pdcE, 9Iflci6ncy, roliability,
pgrformance, markst condilions, technology, environmsntal impacts and public perception. T6chnologlcal improrcmonls in othsr Boergy sourcgs such es hest
pumps, batt6d6s or other altomati\r€ t€chnologieE could grode MW Natural's comp€titivo advsnhgo. lf natural gas prices rise relative to other ooargy 6ources, or
if the cost, envkonmental impact or public porceplion of such olhor energy souroes improves relative to n6tural gEs, lt may negatively 6fiec1 i.lw Natural's sbility
to atbacd new customers or retain our existing residontial, commorcial and industri6l c'ustomels, which could have a negstiv€ impact on our customer grow{h rale
and NW Holdlngs'and NW Natural's results ot oparatlons.
Our natural Eas storage op€ratlons compete primarily wth oth6r Etoraga facllitlos and pipolinos. Natural gas storage is an increasingly competitiv6 buslness, wlth
the ability to expand or build new storage capaclty ln Califomia, lhe U.S. Rocky
26
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 27 ot 229
Table of Contenls
Mountain6 and 6ls6wh6re in th6 U.S. and Canada. lncreasgd competition in the natural gas storage buslnsas could rsduo€ th€ d€mand for our nalural gas
Glorage servic6s, ddve pdces down for our stor6g6 business, end adversely 8fioct our abillty to r6naw or rgplac€ existng contracG al rates suffcl€nt to malntain
qunenl revenues and cash flows, \yhich oould adveBely afiect NW Holdings'and NW Nalural's financial condilion, resulb of operalions and cash flows.
RELIAIICE ON THIRD PARnES TO SUPPLY IATURAL GAS RISK, NW l,ralural rc es on third pafiios to supply the natuBl gas in its NGD segmont, end mltatlfis
on NW Nalural's abilily to gbtain supplies, or feilurc to rc@iw expected supplies lor whk* it has c@tncted, could have an adve'se impact on NW Ho/dings' ot
NW Netu,el's flnenclel /€'iuhs.
NW Nalural'6 ability to s€qure natural gas tor cunsrt and firlure gales dcpends upofl its ability b purchass €nd roceive dslivery oI supplios of natural gas from
thld partl6s. NW Natural, and ln some casos, lt6 suppliero of natural ga6, doos nol havg control qver the avsilgbility o, natural 96 EupplisE, competition tor those
supplies, disruptions in those supplbs, priority alloc€lions on transmission pip6lines, or pdcing of tho66 supplics. Additionally, third partios on whom NW Natural
r6li€8 may fail to deliv€r gas for which it has c4ntracted. Fgr exsmple, in October, 2018, a 3Ginoh pipeline ngar Prinoo George, British Columbia owned by
Enbridge ruptrrod, disrupting natural gas flows ,rom Canad€ lnto Washlngton whil6 the ,uptured pipeling snd gn adjacgnt plpeline were a8sessed and lhe
ruptured pipeline was rep€ired. Onoe repaired, prossurizalion levols for those pipelines were reduced for 6 signmcant period of time for assessment and lesting.
It NW Natural 16 unable or llmited ln lts ability to obl,ain natural g€s from ib cunent suppliers or new sourc€€, it msy not be able to meet ousbmgrs' gas
r€quirements and would likely incur cosb associatsd with aclions nscassery to mlligato servlco dlsruptlons, both of whlch could slgnlficantly and negativoly
impact NW Holdings'and NW Natural's results ot operations,
slt{GLE TRANSPORTATIOI PIPELIIE RlsK. NW Natural relies on a single pi@lins compeny lot the transpodetion of gds to lls sedce tofiitory, d dlsruptlon ol
which could adversely hnpacl its ability to meet cuatomerc' gas requirements, which cauld signifrcantly and nwativ1ly impact NW Holdings' and NW Natu,',l's
rssults ot oD€,atlons-
NW Natural's dist.ibutbn System is directly connect€d tq a single interstate pipglin€, nhich is orvnsd and oporaled by NorthwEst Pipslino. The pipeline's gas
llows are bidirectional, transporting gas lnto the Portland metropolilan markot fram tr,vo di gc-tigns: (1) the norlh, wfiiah brings supplies from thg British Columbia
9nd Alberlg supply basins; and (2)the east, which brings supplies ftom ths Alborta and the LJ.S. Rocky Mountain supply basins. ll there is a rupture or
inad6qual6 capaclty in, or suppllos lo malntaln adequato p.€ssures in, the pipeline, NW Nah.rral may not be able to mget its customgrs' gas rsquirements and we
would likely incur costs associat€d yi,ith actions necessary to mftigate oarvic€ dlsruptlon8, bolh ot whlch could s(rnlticantly and nogativsly impact NW Holdings'
and NW Natural's results qf operalions.
THIRD PARTY PlPEut{E RISK. Nyy Hordirgs'and NW Natuhl's gds sto,ago brJslhessgs deperd on third-patty pipell,.es that connect our slorage facllltlas to
lnte,slete pl!€lines, the lailuE or undvailaulity ol which could adw,sely atrect NW Holdings' or NW Natumlb financial condihon, rasults of orymtiors ard cas,
,lows-
Our gas storage ladlltigs ar€ r6llant on th€ continued operatign ql a third-party pipeline 8nd other tacilitie3 that provk e delivery oplions to and trom our storago
tacilitieg. Becauso we do not o,vn all ot thos€ pipslinGs, their opsrations aro not within our conhol. lf ttr6 hird.party pipolino to which vr6 ara oonnected w6ro to
bocoma unavsilabh ior cunsnl or future wlthdrawal6 or injgctionE o, netural gas due to repsi6, damage to ths infrastmcture, lack ol capacity or othsr reasons,
our €bility io operate sffici€nty and sstisfy our cuslomers'nosds could bs compromissd, theroby pol€riially having .n adverse impact on NW Holdlngs'or NW
Natural'8 financial condltion, reEults of operations and cssh f,ows,
WEATHER RISK, Wamer than avemgs woather may haw a negative impact on our revenues dnd resufts of ope.ations.
Wo are exposed b weather dsk in our natural gas business, primarily at NW Natural. A majorily of NW Natural'E gas volum€ is drivon by ga6 sal6s to spac6
hsating residential and comm€.cial cu6tomers during the winter heating season. Cuneni NW NahJral rates are basod on an aasumption of average wsather.
Warme. than av6rage wBather typically rosulls ln lor,rrer gas sal6s. Cold6, vrBath6r tlDicalty r6sult6 in higher gas sal6s. Although th6 otfects of warner or coldgr
wealher gn ulility margin in Oregon ar€ oxpecled to be mitigated through the operaton ofNW Nahrral's w€ather no.mallzatlon meclranlsm, woathd varlatlons
from normal could advBrsBly affEct utillty margin bocau66 NW Natural may be roquired tq purchas€ more or le6a gaa al spot rstes, which may be higher or lower
than the rates assumed in it$ PGA, Also, a portion ot NW Natural's Oragon r€Eidential and commorcial customors (usualty lesr than 10%) havo optod out ot the
nsalhor nomaltsation m€chaniEm, and approximately 't 1% o, its customsE are located in Washington where it do6s not havo a weather nomslization
mechanism. Th6se efscts could hev6 an adv€rse efiect on NW Holdlngs' end NW Natural's tinanclal condltioo, .€suts of op€rations and cash flows.
GUSTO En CO SERVATIO RISK, Cuslomers'conseryetign efrotts may haw a nogatiw inpact on NW tloldings' aN NW Natural's tovonues.
An lncreaslng natlonal locus on energy conservalion, including improved building practicas and appliance efflciencies may result in increased energy
conservation by customers. This can decr6aso NW Natural'E sales ol natural gas and adversely at eqt NW Holdings' gr i.lw Natural'6 results gf qpe,ations
b6cau6e revenues are collected mostly through volumet ic rat6s, bas6d on th6 amount ol gas sold. ln Oregon, NW NatuEl has a con8ervalion tarlff which is
doslgnod lo rocovor lo6t utility margin due tg declines in residential and small commerdal customeB' consumption. HowBver, NW Natural do6s not hav6 a
cons€rvation tarifi
27
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 28 of 229
Table of Contents
ln Washington that provides lt tlls margin proteqtion on sal€s to customers in ihat stats. Similar conservallan risks 6xl8t fol water utilitios. Customers'
consorvation offorts may have a negative lmpact on NW Holding6' and NW Natural's frnancl.l condltion, revenues and results of operations.
Rlsks Rolrtld Prlma lvto NU, ll,oldlnos'Watar SeGlor Bu3lnet3aa
IIEW WATER SEGTOR Bt S|]{ESS.
'Vl.y
Hordlrgs h8s srlerBd thg wAter Se ete,t ltuugh the Aiqllilth,n Ol e numbet of watef and wdstewaler @mpanies. walef
and wastewater businosses are subJecl to a ,tumbet of iSks in ddtlon to lhe rlsks dsscribed above.
Slgnlffcant locEss, llaHlltlgs or impairments adslng from thes€ busingsses may adversely afect NW Holding6' flnanclal position or results of operations
IIVESTXEIT RtSt( NW Hotdlngs' 'xpaclations
with respect to the tinanclal rosurls ofns irveslmerts in water operations are ba86d on vaious assumpfons and
bellols that may i,ot ptove Grrcurate, resulling in lalluros or delays ln adtleving expeded rcIums ot o6t'onnance-
NW Holdings' expansion into the wster 6oc1or as an impo.tant lomponeot of it6 growth Etfabgy. Although NW Holdings exp€ds its wrbr and w66t€water utility
operations will result in variols b€noft6, induding expanding customor bas€6, ptmridino inv€stnent opportrnities through inf€6tructlre dovelopment and
enhanclng tBgulatory tslalonships within lhe local communities seryed, NW Holdings rnay not be abl6 b rBallz€ th€so or other benefits, Achieving the
anticipated benefib is subiect to a numb€r of uncertainti8s, including rvhether the busln€6s6s acqul.sd can bo oporated ln tho manne. intendod and whothor
ggsts tg linance the acquiEitions and lnv€strnents will bs conslstent wlth expectations. Events outsid€ of our contrcl, including but not llmiled to regulatory
changGs or developmonts, could adversely affsct ou. aHlity lo r€alize the anticlpated benefb from bulldlng NW Holdings' water platform. The Integration of
newly acquired water businosses may b€ unp.€dichble, subject tq delays or chang€d drcumstancas, and such busingssgs may ngl p€rlorm ln accordanca lrrith
our expecGtions. ln additlon, anticipated oosts, l€v6l of managonrent's attention and lnbmal re6ourca6 to achiovo tha lntegraUon of tho scquir€d businesseo
may ditr€r slgnlfcantly from our qlnent estimatos rssulting in failures or delays in achi€ving exp6ct€d .€tums or performarcs. It NW lloldings' exP6clrations
r€garding th; financial results of its investrnqnts in watsr operatigns prov6 to be lnaccuratr, it may adv6.86ly affecl NW Holdings' financial posillon or rasults of
op€rationi.
ITEM 18. UNRESOLVED STAFF COMMENTS
W6 havc no unrosolved staff commonts.
Allhorrgh the wEtgr bu6ine8sea arg not qJreruy exp€cisd io materially conhibute b the resutts oI operations g, NW Holdlngs, the6€ busineBsos alE subjecl to
rlsk6, in additon to those described abovo hat could adveBely affecl Ol€ir reaolts of op€ratlon8, lnduding:
. contamination ofwater suppli€s, including water provided to customsrs with naturally occudng or humaftfiade substances or other hazardous matBrials;
' lntenuptions in wator supplies and droughlsi. cons€rvalk n efforb by custorners:. regulalory r6quirements; and. ureather conditions.
?g
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 29 of 229
Table of Contents
ITEM 2. PROPERTIES
NW llsturrl'r Nltural Gas DlrMbutlon Prooertler
NW N8tural'8 natuIalgas pipeling system consisb ol approximately 14,000 mil6s of distdbutlon and bansmisaion majns and approximately IO,OOO mil6s ol
sarvice lines located in il6 toritory ln Orogon and southwest Washiflgton. ln addition, lhe plpolins systom lncludss s€rvlc6 pipellnos, meE.g and tegulators, and
966 rsgulaling and meteting stations. Natural gas pipelino meios er€ locat€d ln municlpal streels or alleys pursuant to frsnchise o, ocsrpation ordinsncss, ln
county roeds or 8tat6 highrEys pu6uant lo agreements or pgrmits granled pursuanl to stetuts, or on lands of olboG pursuant to easements obtained frcm the
ovrn€B of such lands. NW Natural also holds permib for the croS6ing of numerous navigablo waterways and smallor bibuhrlas throughout our sntirs 6eJvicgtgrltory-
NW NahrEl owns servica building facllltles ln Portland, Oregon, a6 vrell as various salsllit€ E6wico c6nt6rs, garagss, warohousas, and othar bulldings necessary
and usoful ln thg conducl of its busins$, Rosource centers ar6 maintiained on ovrnad or l6a66d pr6mises at €orvenient poinb in tho dbtdbution syst€m to
plDvido s6rvico within NW Natural'8 6ervic€ tg.ritory. NW Natural also owns LNG sto.ag€ ,acilitiss in Por{and ard n€r Newport, Oreglon,
NW Natu.al al6o loases gf,ic€ spsc€ in Portand for its corpo.at6 oporalions csntsr, whlch €xplros on iray 31, 2020. ln anticipstion of the expiration of the cun€nt
leaso, NW NaturEl exocuted an adsnalvg soar€fi and evaluation process that focus€d on saismic prspar6dn6ss, safuty, rsliability, lhe least cost to our
customors, and a continued commitment b our employ66s and the communilies we serve. ln October 2017, NW Natural entorod lnto a 2o-year lsass agreemenl
tor a now corporat6 operatiofis center in Portland. NW Natuml expects to begin operatlons at the location in March 2020.
NW Natu.al's Mortgage and Deed ot Trust (Mortgage) ls a first mongage lien on Eubstantially all of the property coostituting NW Naluralb natural gas dlstdbutionpl.nt balances,
Thcse proporthS are u6gd in the NGD sogmont.
NW l{rturul's N.lural Gaa Sloruoo Ptoperties
NW Nahrral hoHs leases and olher proparq lnt6te6t6 in approximalely 12,000 net acres ol underground naiural g6s storagB in O.6gon and ea$emenB and other
prop€rty hteEsts related to pipslinos associat d wlth th6se facllities. NW Natural owns rlghb to dsplotrBd gas r€soryoks n6ar Mlst Orogon that aro continuing to
bo dovolopod and op€rated 68 undergmund gas storago tacilitios. NW Naluralalso holds allfuture storsge righb in csrtain oth€r areas of th6 Mist gas fiold in
Orogon in addition to oth6r l6a$es and prop€rty intere6t6.
A portion of these prop6nl6s 6re used in the NGO segment.
l,lWN Wrto/s Dlstrlbutlon Proooiles
NWN Watoa owls and maintains watsr plpolinea and wast6wat6r treatm€nt tgoililios, and holds relatBd l6a$os and oth6r property interostS in Or6gon,
Washingbn, and ldaho, associalod with wsbr gntiti€s that wsrs acquirod during 2018 and 2019. Pipelinos a.9 locatsd in munioipal stroets or alloys pursuant to
flanctliso or oscupation o.dinances, in courty roads or stat€ highwayE pursuant to agr€em€nts or psmits g,anted pursuant to statute, o. on lgnds ol otherspuEuant to oasemonts obtained tom ths own€rs of such lands. Thsse propertles alo u6ed by entitigs that ar€ aggregated and reportBd as other under NW
Holdinge.
We consider allofour properties cunently used in our operalions, both owned and leased, to ba wellmaintained, in good operating condition, and, along withplanngd sdditions, adsquatB for our prssent and for€seoabls futuje needs.
ITEM 3. LEGAL PROCEEDINGS
O'lher lhan the proceedings disclosed in Not6 18, we have ofily nonmsledal litigs$on in the odinary courso ot busineGs.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
29
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 30 of 229
IrDie-of-Cllleos
PART II
ITEM 5. I{ARKET FOR REGISTRANTS COMMON EQUITY, RELATEO STOCK}IOLDER MATTERS AtlO ISSUER PURCHASES OF
EOUITY SECURITIES
t{w Holdings' commort stock ie lbttd !M fldes on lhe Nw Yo.t S!od( Exdla.|ea urxLr tha rymbol NWN.
Thcr! b no estsbtshld pubfic trdhe mr.*rt io. tlw l{atur.f! cornmgl tbd(
As ot Fobruary 24, 2020, thora ivglr /t,739 hold.l! ot llcord ol NW Holdhg8 common rtod( ard tlu, Holdlngc wrs lho tol6 hddcr ot NW Nru(rf! cornmon
rlod(.
Thc lblorlng lluc provldss lnlor rton about purcrusrc of t{W Hok$nfs'c4rty s6ortttl€8 ttlat ere roglstror6d pursuad to Srclho t2 offi. Secuttt s ExdlaEo
Ad ol t93{, .s .n6ndcd, during ths qusrili !nd.d Docaflb€r 31, 20'19:
P€rbd
Tdel Numb.r
ot shsrE! PuE aS€di)
EErsr.EetEE-o(Eublsslr s
ToLl Nun6.r ot Sharss
Purfiassd a8 Palt ofAv€ege Publdy AnnoJnc.d Plsn! orPrit'Pddp!.ShaIr Prc0raflr3e)
Maxlmum Dollar valu6 of
Shltlr thlt lrly Ylt Br
Purchasod Undsr the Plarlr or
Prcof!mse)
8lLncc brward 2,121,528 I 16,732,6,18
1 t/01/ts.t 1B0/t0 637 65.40
Total
(r)
2,12i1,528 $16,732,848
Duing th. qu.d.r rdsd O.cembar 3t, 2010, m rh{B d i{W [iou,rg8 cocrrlo.r dod xn c pun*rrl.d o.r lh. oP.n m.rt t b mlot th. rtqd,snlnb of oqr Dhr5otxt
!h6rr+ed carnpq|3anon prcg..mr t urliC fi6 qurl dd.d t .cJllb.r 3l , 20t0, no dw[ of ]{W tbldfitr @lrxnoll .loct rur lcc.pLd E p.[n nl lbr .lod(
opdoi .xq*.. Frlu.nl b 0r NW N!tulll R..r!bd Slod( Ofdon Phn.
EM,{ tr. $r.||d ..d.d lrecqr$aa 31 , 2019. no ${[ ot NW tloldlrEr cor po dod. sr.! nou.dl'rad pu.luit b 0l. NW l'bldhg. Boant ol lrredot&rp9,lvrd
lh9rc-npuriluce progrem. ln l,by 2OlO, vr. llcrhgd NW Holdlnes Board d Dlrlciora +Diod b.)&nd t!. llFr drso prDgrln hlpugh irily AX?2. For mor.
ffirm.doo on ttb p.oor!m, l.. lb 5.
30
637
e)
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 31 of 229
TabLe of Conterls
ITEM 6. SELECTED FINANCIAL DATA
ln thousands, oxcept Ft share data
NORTHWEST NATURAL HOLDING COMPANY
SELECTED FINANCIAL DATA
Fo. th6 y6ar oMed Docembor 31,
201S 2018 2017 2016 20'15
Operating rsvonlrsS
Eamings frcm continuing operatlons
Loas from dh.onllnuod oplratlons, n€t ol Gx
Nel income (loss)
Eamings from continuing oporalions per shsre of
common Stock:
B€Cc
Diluted
Lqss from dlsEontinuod opsre6on6 pgr 6haro ot
comrnon 6tocki
Ba6lc
Dhned
E6mings (loss) per shsre of common stock:
Barlc
Dilutod
Oivirends pak per sh8re of common atock
ln lhousands, oxcepl pet sharc dete
0
$
746,372 $
65,31t
(3,576)
61,735
706,143 S
67,311
(2,7421
64,569
2.34 S
(0.10) $
(0.0e)
755,038 $
72,073
(r27Be6)
(55,623)
(4,45) $
(4.14)
668,t73 $
62,419
(3,52i1)
58,895
717,88
60,026
(6,323)
53,703
'1.96
r.96
1-88
2.19
2.19
$2.6r i
2.51
2.26 6
2.25
2.19
(0.12) $
(0.12)
2.07
2.07
r.g0
(0.r3) $
(0.r3)
(0.23)
(0.23)
2.24 $
2.24
'1.89
2.r3 $
2.12
1.87
Toi.l a6c€t6, end ol poriod
Total oquity
Longit rm dsbt
3,42AA $
865.SS9
805,S55
3.242.662 J
762.634
706,247
3,039,7,t6 3
742,776
683,184
$$(1.e4) i
(1.s3)
't.88
$3,07S,801 $
850,497
67S,334
3.069.410
740.972
569,i145
NORTHWEST NATURAL GAS COMPANY
SELECTED FINANCIAL DATA
For the year end6d Oecember 31,
2019 2018 2017 2016 2015
Opersting rov€.ruBs
Egmings from continuing op6,alions
Loss tom digcortinued opBratioN, not ot tax
Net income (loss)
Tolal assets, end of poriod
Totll equity
Long{erm debt
705,571 $
68.049
11,723\
66,326
667,949 $
62,8a15 $
(3,e40) s
s8,895 $
s 73S,S{4 $
68.974
755,038 $
71.720 $
(r27,343) $
(55,623) $
717,W
60,51r
(6,808)
53,70368.974
$3,321,4a7 $
822,196
769.081
3,192.736 $
715,668 s
704.134 $
3,043,676 $
742,776 $
683.184 $
3,081,470 $
850,,197 $
679,334 $
3,O72,100
780,572
569,445
31
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 32 ol 229
Table of Contents
ITEM 7. MANAGEMENTS DISCUSSION ANO ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPEFATIONS
Thg following is managemsnt's asseasm€nl ot NW Holdings' and NW Natural'8 llnancial conditjon, including he principal tactors that affocl r68ult6 ol operallon$.
Ths discussion coverE the year6 ended December 31, 2019, 20'18, end 2017 and refers to the consolidated resulb of NW Holdings, tho substanlial maiority of
whlch consbt ol lhe operating resulb ofNW Natural. When signifioant activity exists at NW Holdlngs that does not exist st NW NatJral, additional disclgsuJe has
boen provided. References in this diEcussion to "Notos' are to the Notos lo lhe Consolidaled Financial Statement in ltem I of thig report.
NW Holding6' diract and indlrect wholly-owned subsldlariBs include:
. Northwest Nalural Gas Company (NW Natural);. Northw€st En€rgy Corporation (Ensrgy Corp);
' NwN Gas R€s€Nos LLC (NwN Gas Ressrves);. NW NoturalEnergy, LLC (NWN EneEy);. Nw Natural Gas Storags, LLC (NWN Gas Storage);. Gill Ranch slorage, LLC (Glll Rsnch), which is present€d a6 a dlscondnued op€retion;. NNG Financial Corporation (NNG Financial);. KB Plp6lln6 Company (KB);. NW NaturalWater Company, LLC (NWN Water):. Falls Wate. Co., lnc. (Falls water);. Salmon Vall.y Water Company;
' Nw Natural water of Oregon, LLC (tlwN water oI Oregon)i
' Sunstone Water, LLC;. Sunston€ lnfrastructulE, LLC;. Sunriv€r Water, LLC (Suffiver Wator);. Sunriv€r Environmgnlel, LLC (Suntiver Environmantal). NW Natural Water ofWashington, LLC (i'IWN Water of W€shington);
' Casoadia Waler, LLC (Cascadia Water);. Cascadia lnfraslructurs. LLC;. Suncadia Water Company, LLC (Suncadia Wate4;. Suncadia Environmental company, LLC (Suncadia Envhonm6ntal):. tlw Natural Water ot ldaho, LLC (NWN Wal6r of ldaho);. Gom State Water Company, LLC (G6m Stat6 Wat€r);. Gom Stato lntastructurs, LLC;and. NW Natural Wata, of T6xas, LLC (NWN Wator of Texas);. Blu6 Topaz Water, LLC; and. Blue Topaz lnfrastructure, LLc.
On October 1, 2018, we completed a roorganlzalion into a holdiog company strudun6. Wo bolleve that our holding company structure is an agil€ and efiicient
platform from which to pursue, fnEnc6, end oversoe new opportunitlBs, such es ln the $,ater sector, while also providing legal separatlon botween regulated
natural gas dlstribdlon oparatons and other buslnosses. ln this reorganization, shareholders ol NW Nahral (ths prod€cessor publidy held parent company)
became-shareholders of NW Holdings, on a one-for.ono basis, with the 6ame numb€r of sharos and same ownership percentage as they h€ld in NW NatJral
immediately prior to the reorganlzatlon. NW Natural bec€me a wholly-own€d $ubsiriary of NW Holdings. Additionally, c€ftaln subsldlades of NW Natural were
transfgnod-to NW Holdlngs. -As required under accounting guidance, these subsidiaries are p.66entod ss discortinu6d op€ratiofls in the 2018 and 2017
consolidatad results of tlw Natural withln thls rBport.
NW Naturalt natural gas dlstribution sctivities are r6port6d in the natur8l gas distribution (NGO) segment. Th6 NGD segment also includes NWN Gas Rosorves,
which is a whofiy.ownod subsidiary gt Engrgy Corp, and the Nc]podion or l.lw Natural's Mist storago facility in Orggoo. other activitios aggregatod and
reportgd as other at NW Natu|gl include the non-NGD stgrggtr acuvity at Mist as vroll as 6s38t management a9ryi@a and tho applianc€ retail center opoEtions,
Oih6r activlties aggregated and rsported as oth€r 8t NW Holdings includs NWl\ Ene.gy8 equily invostnent in Trail Wsst Holding, LLC (TWH), whlch ls pursuino
th€ development ofa proposod naturalgas pipeline through it$ wholly-owned subsldiery, TroilWest Pipeline, LLC (IWP); NNG Flnanclalt invoslment in K€lso-
Beaver Pipeline (KB Pipeline); and NWN Water, which own6 and continues to pursue investments in the water sector. Se€ Note 4 for turther discussion ol our
business segm€nt and other, as wellas our direct and indirect wholly-owned 6ubBldhlbs.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 33 of 229
32
Table of Contents
ln addition, NW Holding6 has reportod diecontinusd opsrations rEsults rslated b the pondlng sal6 of Glll Rench Storage, LLC (c Ranch). NW Naturat cas
Storage, LLC (NWN Gas Storage), cunon y ao lndh€cl wholly-qwned subsk iary of lfliv Holdings, cntolld lnlo a Purchas€ and SEle AgrEement during ths
86cqnd quarler of 2018 that provkle,s lor tha s.l6 of 8ll memborshlp lni6r€8te in Gill Ranch. Gill Ranch owns I 75% intolt'sl ln tha natural g6s storage fgcility
locabd noat FrBsno, Califomia known as the Glll Ronch Gas StorEge Facllity. Paclrlc GaB and Electic Cornpqny (PG&E) otyn8 ihe rsmelning 25% iniBrost ln theGll Ranch Gss Storage Fac,lity. For mol€ lnlormauon, s€€ 'Resul(s of Operations - Psdirg Sdro of 6/r, Renc,l Slor80[r' below.
IO||-GAAP FlllA}{cl,AL IEASURES. ln additioo to presonthg tho ]esults of op€ratiom and oamlngs amountB in tolal, certaln financlal rEsaurss arB oerossed ln
c6nt8 p€f 8har5 9r exclrde th€ effeds of cedain itoms, whlch arr nonGAAP llnancial measuros. We proseri n6l in.Dm. or loss and osmlng6 or losS pgr share
adlustrd for corlaln ltarfls along with the U.S. C'MP financial mBasurss to illu$lrato tholr magnitude on ongoing business and op€rationel rs6ulls. Although the
exdud€d amounls ar6 propqriy lnchd6d in lhs delsrmination of nst income or loss and 6amlng6 or lo6s par shar6 undsr U.S. GAAP, we beliave th6 amount and
n6tur6 of th6r6 itgms mak€ perbd to potiod comparisons of opsratlons difficult or potgnlially confu8ing, We us€ such mn-GAAP fnsncial measur66 to enalyzgour financial porformanc€ b6c€usa ws bgliew they provido usaful informalion to our lnwsto.6 and c.Bditorg in s\raluating our financial condition and rssults of
oporstions. Our non-GAAP fnancial rl6acures 6hguld not bo consldsrsd a substitute for, or superlor to, msa8uros cslcrlatBd in accordanc€ with U.S. GAAP.
Rrconcllladons of the nol}.GAAP finanoial measures to thelr clo6est U.S. GAAP financial meaaure uaod in subsequent sections of lbm 7 arg fiovidod b€low,
33
EXHIBIT 2
PALFREYIUAN, DI
FALLS WATER CO,, INC.
Page 34 of 229
].eus-.srcqle.lls
NW HOLDINGS NOt.ICAAP RECONCILIATIONS
ln irillions, excepl por shate data
2019 2018 2017
Amount Per Share Amount Per Shar€ Amount Por Sharo
Net income frcm continLring operations
Adjuotnent:
Tax efiec,ts or 2017 TCJA rcmeasuroment(l)
Adjusted nBt lncome trom continuing oparations
NGD segmsnt nst incorne from contnulng opordtions
Adjustment:
Tax sfioc1s of 2ol 7 TCJA remeasurement(1)
Adjust€d NGD ssgmehl h€t incomo from continuing operations
Olher nst income ftom continuing operations
Adjustrn nt:
Tax effecls of 2017 ToJA remeasurementil)
Adju6tcd othcr nst lncome rrom conlinuhg operalions
NW ATURAL NON6AAP RECONCILIATIONS
ln milliohs
$ 65.3 $ 2.19 $ 67.3 $ 2.33 $ 72.1 $ 2.51
(3.4) (o.12)
$ 8s.3 $ 2,1S $ 67.3 $ 2.33 $ 68.7 $ 2.3e
$ 60,8 $ 2,04 t 57.5 $ 1.99 $ 60.5 $ 2.10
l-0 0.03
$ 60.8 $ 2.04 $ s7.5 $ 1.99 $ 61.5 $ 2.13
$4.5 $ 0.15 $9.8 $ 0.34 $ 11.6 $ 0.41
14.4\ (0.15)
0 4.s $ 0.15 $9.8 $ 0.34 s 7.2 $ 0.26
2019 2018 2017
Amount Amount Amount
Nst lnmm6 frcm continuing oporations
Adiu6tmont:
Tex efiocts of 2017 TCJA rcmeasurementl)
Adiustrd nol income from continuing operationg
$69.0 $68.0 $71.7
(3.0)
$69.0 $68.0 $68.7
NGO sagm6nt n6t lncomo trom continuing operatims
Adiustment:
Tax ofiscts of 20 l 7 TCJA r6measu.6msn(r)
Adjusted NGO segmenl nel income from continuing operaiions
Olher net income from cootinuing oporations
Adlustment
Tax efiects of 20 l7 TCJA remeasuremen(1)
Adjustod other n€t lncome from continulng oporaliong
Nole: Tolals moy nol t@t due to roundmg-
$60.8 $57,5 $60.5
1,0
$60.8 $57.s $61.5
$8.1 $10.6 $
(4,0)
8.1 $10.6 $7.2
of the fedoral trax rate chenging from 35% to 21% effective D€cember 22, m17. The msjodty ot this beneft was recorded at NW Nalural. NW Holdings EPS amounts are
calculated using dilutod shares of 28.8 million as shown on the MW Holdings Consolidalod Statem€nts of Comprehensiv€ lncome- The TCJA impacts in th€ NGD segm€nl
and oth6r may not correlate exactly to lhe consolidated amounl duo to rounding. S€e Note 11 for additional information on the TCJA.
u
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 35 of 229
Table ot Contenls
EXECUfIW SU,,NARY
We manage ou. business and 6trategic initiativE with a long-lerm view of providing s€rvice safely and rsliably to our olstomers, working with reguhtors on key
policy initiatives, and remaining focused on growing ow businesses. See'2020 Outlop,l{ belott for mor€ lnformation. Hlghllghts for th6 year lnclud6:
' added nearly | 2,500 natural gas customers in 2019 for an annual growh rat€ of 1.7% at Decemb6r 31, 2019;
' lnv68tod $219.9 million in NGD'6 lnfrartructuro end tacilities for growth, reliability, and tochnology upgrades;. complGled const uction ol th6 North Mist gas storago ,acility and commsncod stofago s6rvioes in May 201 9;
' scorsd fir61 in tho nalion among largo gas utilities in th6 2019 J.D. Power Gas Utility Rosidontial Customor Satisfaciion Sludy:. concludsd th€ Washington gonoral rat€ c!6o with a $5.1 million increase in revenus rsquirgmsnt;. filed a g€nersl rate case in Oregon roquesting a $71.4 million rovenue roquiremgnt incrcase;
' continued acquiring watsr utilities, olosing tha large8t transactior lo dale with ths purchs€ of the wat6r and wastewator utilitios in Sunrivor, Ol6gon in Msy
2019; and. delivered increasing dividends tor the fl6 consecutive yesr to shareholdeE.
Key financial highlights for NW Holdings includol
2019 2018 2017
ln mlllb,s, ex.apt per shere dete Amounl Psr Shar€Amount Per Sharo tunount Psr Sha,e
N6t incom€ from contlnulng operations
Lor! fiom dhcontlnurd opcratons, not o, tax
Con6olidat€d net income (loss)
Adruded n€{ Incomo iom oonunuhg op6rathns0,
Natural g6s distributidl margin
Key financial hilhlirhts ,or NW Natural include;
ln millione, exced pet sho|9 dala
61.7 t
65.3 S
422.7
?.07
2.19
64.6 $
67.3 $
383.7
(1.e3)
2.3S
$65.3 i
(3.6)
2.19 $
(0.12)
67.3 $
(2.7)
2,33 $
(0.00)
72.1 I
$nxl
2.5'l
(4.14)
t
$
$
$
$
$
$
$
$
2014
(55.6) s
68.7 S
392.6
20'17
2.24
2.33
2019
Amount Amount Amount
N6t lncomo trom continuing operations
L63 ftom dbcontnusd opsratorrg, not oI tax
Con6olk ated n€t incom€ (loss) $ 69.0 $ 66.3 $ (55.6)
AdFird ort lncomc trom contnulng opcrstloos(t) $ 69.0 $ 68.0 $ 68.7
(, S.q the Non€A\lo Rocoiclllatlons tiablo at the baginning ol lt6m 7 lor a roconciliatFn ol thb mn-GMP financial m€a6ur6 to its clos€rl U.S. GAAP fnancisl .ncasure.
2010 COIPAREo ?O 2018. NW Holdings' net income trcm conlinuing ope.ations d6cr6ased $2.0 mlllion and NW Naturafls net lncome from coitlnuinq operation6
ind.as€d $1.0 million-
ln March 2019, Ure OPUC i$su6d an order resolving the remaining op€n it6ms lrom NW Naturafs 2018 Oregon 96n6ral rat€ cas6 lEgardlng rocov.ry of th€
psnsion balancing ac@unt and Iroatm€nt of tho bonefits a6sociated with lhe TCJA. As a result of tho ordsr, in he firBt quarter of2019, NW NahJml,ecorded a
dic€llgwarrco and sevoral bensfits and erp€nsos thEugh th6 consolk ated statemenlG o, compr€h€n6iv€ income 6s lollolr6:
P.mlon b.hndng rccount. Approximaloly $12.5 million in previously dofer6d pGnslon gxpenE€s were recognized ot which apprcximstely $4,6 million was
racorded ln operations and maintenance expense and $7.9 million was rocordod in other incom€ (oxpense), not. Thoso dlsrgos wers offsel wlth a
coresponding indease in revsnu€ of $7. I mllllon snd ln lncom6 tax benafits of $2.7 million as the order required the ofiset of certain defered TCJA benefits
against the pensbn bslancing account. Additional TCJA income tax benef(s w6ra reallzed throughoul2019 to otrsot th€ rerflalnder ol the $'12.5 million chaEe
NW Natural also recognized a rogulatory ponslon disallowancs ol$10.5 mlllion with apprgximatety $3.9 millign recggnized in operations and maintenance
6xpense and $6.6 million recognized in other income (expens€). net, partially oftsot by rslated dlEcrote lncome lax b€n€lits of $'1.1 mlllion. Lastly, l.lw Natu.al
.6allzed $3-8 mlllion of defensd rggulatory intorcst accru€d on th€ p€nsion balancing accounl.
35
$6S.0 $68.0 $
(r.7)
?1.7
(12131
EXHIBIT 2
PALFREYIUAN, DI
FALLS WATER CO., INC,
Page 36 of 229
Table of Contenls
Detoned TCJA benefts and tlmtng varianca. ln addition, lhe OPUC od€r€d the r€tum ol approximatoly $6.3 million of excess dofered income taxes associated
with plant and gas reserves annually beginning April 1, 2019. As a result. NW Natural recognized approximately $2.0 million in income tax b€n€fts in lhg fir6t
qua.ter of 2019. Reductions to cuslom€r billings commenced April '1, 20'19 and off$et these insome tax benefits in total by the €nd of 2019. NW Natural will
continue reductions to customer billings and recognitlon of defened incomo lax bsnetil6 in subsoquent years until all benelits have been retumed.
The incrsaso of $1,0 million at Nw Natural was pdmarily duo to he followlng factorg:
a $39.0 million inc.6as6 in NGD segment margin driven by new customgr rat66 fiom tho 2018 Orcgon rato case and 2019 Washington rate case, customer
gro./th, and l6asa rovonue from thg Nonh Mlst Etoraga facility; ths romaining incrsaso primarily rolale3 to $7.1 million in revenugs which wer6 ofh€t by
pension expsnsss dua to the OPUC ordor as discussod abov€;
a $9.4 million decrga66 in NGD s€gment income lax expenss primadly duo to tho lncomo tax implications of th6 March 2019 OPUC order, of which $5.4
million wss ofs6t by pension expen66s as dlscussed above, with the remainder driven by the retum of defere'd TCJA benefit crodlts lo custom66 and lowsr
prstax income in the cunenl poriod compared to the prio. period; and
a $5.8 million incirgas€ in detured regulatory lntorost income in oth€r incomo (exponse), net, ofwhich $5.1 million rslatge lo int6.€6t r€cogniz€d ln
association with th€ OPUC ord€r diEcussod above; offset by
a $34.4 mlllion lncreaGs ln p€nsbn cosb within operatlons and mainisnanc€ sxpen$€ and olher income (exp€nse), not, ofwhioh $12.5 million rslates tg
costs which were entkely ofiset by revenues and lncome t6x benefits as di$cussed above, and $'10.5 million rclates to the regulatory ponslon dlsallo rance
discussed above. ln addilion, thero wa6 en $1 1.4 million inqease in pension expenses as NW NaUJral bogan collectlng ongoing pension c4sts through
cu6tomer rat6s on November 1, 201 8 sod began collecling d6t6rr€d p€nsion costs through customer rates on April 1, 2019 raher than detening a podion !o
the balancirE account:
I $5,4 million increase in depleciafon and arnortizalion primarily due to qdditional capital expenditrr66;
a $5.4 mllllon d€crEase in non{cD s€gment operating rev€nu66 du6 b louror assrt manag€monl r6v6nues and ingeased asset managemenl revenue
shadng with Orogon custornels as a re6ult of th6 2018 Oregon rato casa;
s $4.6 million incIsaso in NGD segm6nl lntorsst expsnse due to hlghor interest on long- and shoi-tcrm debt balanas6; and
a $2.9 million incr€as€ in NGD s6gm6nt opgralionE and maintonanco oxp€nsas prlmarily atttibutablo b annual emplo),ee cost incre€ses,
The decrease gt $2.0 million 6t NW Holdings was primarily driyen by increases in prob66ional 66flic4 co6ts and expenses essoclated virith d€veloping tho water
buslnsSs, pBnlally otls€t by the increase ot $1.0 million at NW Natursl.
2018 COIPARED To 2017, NW Holdings' and NW Nstural's net lncorne trom condnulng operatlons wsrs $67.3 million and $68.0 million, respectively, in 2018
compartd to $72.1 mlllion and $7'!.7 million, respeclfuoly, ln 20'17. Th6 d6cr6ase was pdmarily due to the benefit assoclatgd vrith the TCJA d€toned lncome tax
remeasurement ln 2017.
Excludlng tho bonsrit ln 2017 assoclatod wi$ th9 TCJA romaasuromont, NW Holdings adjustod nct incoms fiom conlinuing opsratiom deqreas6d S1.4 mlllion.
Sse the Non-GMP rs{onciliatigns at tho basinning of lt6m 7 for additional info,mation, The docrgaS6 was pdmaally due io th6 rollowing faclors, allofwhich were
drivon by aclivity 6t NW Natural:
' an $8.9 million decloass in NGD segmgnt margln prlmarily du6 to th6 deferal of excess revenue asaooiated $,ith the federal incomo tax rate dscrease as a
result ot the TCJA;. a $4.3 mlllloo lncrBa6e ln oporations and maintensnce expanse drivon by g6n6ral p8yroll 8nd benefttB incrosses as well Es increases in proressional
scrvicss and contract labor;. a $4.1 million increase in deprBclatlon end amortization prima.ily due to additional capital expendhures; and. a $3.3 mlllion d6crease In olh6r incorne (expense), net, primarily due to an lncr€ase In penslon and postretiremenl benefit oxpense, partially ofiset by an
increase in ths €quity portion of AFUDC; parlially ofiset by. I $20.2 milliqn decregse in incomq tax Bxpense due to the decrease in tho federal incomo tax rato as a rrsult of thB TCJA and lowEr pr€tax eamings.
36
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 37 of 229
Table ol Contenls
2020 ouf,-ooK
We expect lo make significant progress on our long-term obj€ctiv€s in the corning year, Our natural gas distrlbution business is focused on p{oviding safB,
rollablo, and afiordable eneigy in an onvironmontally .esponslbl€ way to b€tt€. tha lh6s of th€ publlc we s6.v6. Our ,,!/atsr and wastewat€r utllity bu6lne66 ls
committed lo rollably providing clean water and safe wastewater s€rvicss b tho public, whlle also continuing to grow organically and through acquisltions.
ln 2020, wo romain focl.lsod on th6 stratogic plllars of our businoss:. En€u.iog 6€fe A rsligble 8ervicg;
' Pmvlding supedor cuslomer 6sNice;. Advaocing conskuctiv€ legislativo policiss ard rsgulaton;. Enabling cu8tqm6. grcwth; and. Loading in a low-carbon future.
EISURI'{G SAFE ANO RELIABLE SER\4CE. Delivering our producls salely and rElaably to customers is our first pdodty. At l.lw Natural, wo remain focused on
safety and emergency response through handa-on, scenado+ased beining for omploy€os, thlrd-party contractors, and fr6t rosponders. Th6 rellability, r6siliency
and safety oI our gas system h critical and t'o this end, we remain focused on investing in neces{iary upg€des and lEplacing key system components. Satuty for
our gas infraritructure also includ€i mainlaining aBd Ekeng0rening our cybersecurity derensos, upgrading koy technology systBms owr lhe noxt several yearIi,
and praparing tor largo-scale 6merg6ncy evenls, such as selsmlc hazards. Our wal6r and wast6wator utlliuo6 aro ,ocused on onhanc]ng th€lr capltal €xp€ndltu.€
plgns to ensure continued 68fe and r€liable sorvb€ lo customors and allow us to readily prioritize capital investmeflb.
PROVIDI C aUPERIOR CUSTO ER EXPERIE}{CE. Wo hav6 a logacy of p.ovidlng €xc6ll6nt custom€r 6€Mce and a long-6tanding dodication to conlinuous
improvement, whioh has resulted in NW Natural consistently roceiving high rankings in th6 J.D- PowEr and Associatos cuslomor salistactlon studios. ln 2020, w6
lnlsnd to sbivg to enhance our natu.al gas auEtomers' experienc€ to mest their evolving oxpectations by prioritizing imEovsments to t€ohnology and intemal
proo6ss6s, to support (xr customers' most fraqusnt intoradions and highest valua touchpoints.
ADVANCI'IG COISTRUCrTVE LEOISLATIVE POUCIES AND REGULATIOII. ].lW Natural rscontly wo*6d with lawmakors and tho gowmor to pass a landma* bill
for tho Sbt6 of Oregon SanatB Bill98 is groundbreaking lagislation that allows utililies to p.ocure renewablg naturalgas tgr home8 and busine6sg8. While
clnentty in rsgulatory rul€making, NW Natu.al has b€€n pursuing potential rengwable natural gas suppli€s and expocts to bogin procuring il for custom66 in
2020. Thi6 y64., NW Naturrl plans to submll an lntogralsd rosouros plan to both th6 Orsgon and Washington Commissions outlining our k€y long-t€rm capital
prciects and resource plans for conventional and r6n6l{rablo natural gas. NW Natural will6lso continu€ wo*ing with th6 EPA and oth6r stakehold€rs on an
environmentalty proteotive and oost-efective clean.up for the Portland Harbo. Superfund Sit6. For our wat ulilities, wo are focused on building relelionships
wlth our cur€nt and prospgdive regulators, pursuing efticient spproval processes for acquisitions, and engaging ln constructive regulatory proceedlng$.
ENABLIIIG CUSTOIIER GRolvTH. Natural gas is the preferred energy choice in our eervice tenitory given its efficient, affordable, snd reliable qualities. We are
tocus€d on levBraging thsss key attributss to capitallzG on our roglont strong €conomlc growth. Wo conunue to grow our ma*6t 6haro in the r€6llential s€ctor
and caplure n6w commercial customers as well as multifamily developments. At NW Natural Water, wB continue to bB focused on supporting the fast{mwing
communllies lye cunsntly s6rvo and conUnulng our disclplined acquhition 6kat€9y.
LEADING l A LOW4ARBOI FUTURE. We are deeply committed io a dean en€rgy tutu]e and environmental stewardship. lt's why NW Natural launched a low.
carbon initiativ6 to reduco emlsslons ln tho communit6s w€ s€rv6 by l6veraging our modem natural gas pipgline syslem in ngw ways, working closely with
c!storns.6, policymake6 and regulatoE, and €mbracing cuttjng-odgo t'Bchnology. ln 2020, we will continue to execute on our RNG 6trat6gy with plans to procuro
RNG for ou. cuotomars as proscrlbed und€r Oregon Senate Bill 98, execute on our RNG interconnection projects, and develop voluntary renewable product
ofigdngs for our customers. A study commission€d with a pr€mier gnvironmontal con$ullanl has concludod lhal natural gas can h6lp achi€v6 crucial 6mis6ion
roduc ons of 80% by 2050. NW Nalural intonds to strive to hglp its customers reduc€ and offsst their consumption, Bupport th€ dev€lopmant ol RNG, and
explora othsr innovativB $olutions to lower the c€rbon intenslty of natural gas, 6uch aB po /9. to gas. W6 al6o intend tq ley€rage technolggy and .elalionships tq
examine way6 lo reduce enission3 across the entire value chain from suppliers to en&use heating appliances.
37
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 38 of 229
Table of Contenls
DIWDENDS
NW Holdings divldond highlights includ6:
Pet comfioa sharc 2019 2018 2017
Ohrdond8 pald i 1.9025 S 't.8925 $1.E825
ln January 2020, the NW Holdihgs' Board of Dircctors doclarod a quartorly dividsnd on NW Holdings common stock of $0.4775 per share, p€y8ble on
Fobruary 14, 2020, to shar€holdars of recod on January 31, 2020, ref,ecling an indicatod annual dividend rate of $1.91 per share.
Sae 'Financial Condilion - Liquidity and Capitel Resourcos'for mo.e information regarding the NW Holdings and NW Natural dividend policies and regulatory
conditions on NW Natural dividends to its pamnt, NW Holdings.
RESUI.'S OF OPERA T'O'VS
Requlatorv Matlers
Regulation and Rates
IATURAL GAs olsTRlBUTlo[. NW Natural's natural gas distribution business is subject to regulation by the OPUC and WUTC with respect to, among oth6r
matlers, rates and terms of service, systems of ac@unts, and issuanc€s of secufities by NW Natural. ln 2019, approximately 89'/6 of NGD customeni wBre
locetod in Oregon, with the remaining '11% ln Washington. Eamings and cash Ilof,,s hom natural 9a6 dislribulion operations are largely determined by.ates set
in general rat€ cas€s and other procoodings in Oregon and Washington. They arB also affactod by wosthcr, tho local economieE in Orsgon and Washington, the
pac€ o, cuslomer growth in the residential, corhmerqial, €nd induslrial rnarkets, and NW Nalural's ability to romain price compatitive, cofltlol expenses, and
obtaln roa8onabl6 and timely regulatory rocovery of its natural gas distributlon-rolatod co6ts, including operating 6xpens6s and inv66lment co6ts in plant and
olher regulatory assots. So€ 'Most Rocarl Coapleled Rafe Cases' b6low.
IET IITERSTATE GAS STORAGE. NW Nalural's intorctate storago activity at Mist is 6ubioct to r€gulalion by th6 OPUC, WUTC, and the Fed€ral Energy
Regulatory Commission (FERC)wilh rospect to, among other matters, ratos and terms ot sarvica. Th6 OPUC also rogulates tha intrastato storags sqrvic€s at
Mist, while FERC regulates the interstate storage seNicos at Mist. The FERC uses a maximum cost of seryic€ model which allows for gas storag€ prices to be
set at or below the cost of servic€ as approved by the agency in NW Natural's last reguletory llling. The OPUC Schedule 80 rates a.e ti6d to th6 FERC rat€s,
and are updated whenevor NW Natural modifes FERC maximum rates.
oTHER ln Juno 2018, NWN Gas Sto.ege, a wholly-owned subsidiary of NW Holdings, ontorsd lnto a Purchaso and Sal€ Agre€ment for th6 sale ol all of lts
ownership interests in Gill Ranch, a natural gas stoGge tacility located near Fresno, Califomia. The sale was approved by the CPUC in December 2019. The
wholly owned rate regulaled water businessos of NWN Waler, a wholly otr,m6d subsidiary ot NW Hgldings, are subjecl to .egulation by the utility commissions in
th6 states in which thoy are located, which .urr6ntly irclude Orogon, Washington, and ldaho, and is expectsd to lnclude T6xas.
Most Recent Comoletod Rate Cases
OREGON, Effective Novembe. 1, 2018, the OPUC aLrthorized rates to oustomers based on an ROE of 9.4%, an overall retum of 7.317%, and a capilal slruclure
ol50% common equity and 50% long-term debt. ln March 2019, the OPUC issued an order resolving lhe remaining matters of the .ate case regarding .ecovery
ot NW Natural's p€nsion balancing account and th6 rsturn oftax refom bonofts to customers. For addilional lnformation, soe'Rat6 Mechanisms - Pensio, Cosl
Deleftal and Ponsion Balancing Accounf and'Rate Mechanisms - fax Refom Defomf bB!0 .
On Docombsr 30, 2019, NW Nalural ,ilEd a ggn6.al rato casa in Oje0on. For more info.malion, s66 'Regulatory Poc66ding Updatos - 2020 Oregoh Rale Case'
below.
wAsHlNGTotl. E {€ctive January 1, 2009, throuoh Octob€r 3,|. 2019, the WUTC auborized rat6a to customGrs basod on an ROE of 10-1% and an ovarall ret6 of
r6lum ot 8.4% with a capital sbucture ot 51% colhmon equily, 5% shod{erm debt, and 44% long-term debt.
Efiective Novembor 1, 2019, th€ WUTC auhorized .ales to customers based on an ROE of 9.4% and an overall rate ot retu.n of 7.161% with a capltal structure
gf 50.0% long-term debt, 't.0% short-tem debt, and 49.0% common equity. The WUTC also authorized lhe recovery of environmenlal remedialion expenses
allocablG to Washington qtstorners lhrough an Environmontal Cost Recovory Mochanism (ECRM) and direcled NW Natural to provid€ f6d6rcl lax roform
benefits to customels. 366'Ral6 M€chanisms - Environmsntal Cost Defenal and Rocovory - Washlngton ECRIf e d "Rate Mochanisms -Iax ReIoin Daferaf
38
EXHIBIT 2
PALFREYMAN. OI
FALLS WATER CO,, INC,
Page 39 of 229
Table of Conlenls
FERC. NW Natural is r€quir.d unde. its Mlst int66tate storage certifcats authority and rate appmval orders to filo ev6ry five years either a pglition for rat€
apprcval or a cosl and Evenue study to change or justify maintaining the existing rates ior its inl6Elate slorage seNices. On Octob€r '12, 20'18, NW Natural filed
a aate petition with FERC for revised maximum cost-based rstes, which incorporatod th€ new federal corpoiat€ lncomo tax late. The rovisod l6tes were efiective
beginning November 1, 2018.
NW Nalural cofitinuously evaluates the need for rate cases in its jurisdlclions. Sse 'Regulatory Proc€oding Updatos-O.ego, Rato Case' below.
Rate Mechanisms
During 2019, NW Nalural's k€y epprovod,etas and rscovory mechanisms,or 6ach s6 ic6 araa includsd
Oregon Washington
2018 Rato Case 2009 Rate Case 2019 Rat6 Caso
Authorized Rate Struqture
ROE
ROR
DobUEquity Rato
9.4%
7.3v.
s0%60%
r0.r%
8.4yo
1g%t51%
9A%
51%t19%
K6y R6glrla!0ry M66anl6m8:
PGA
G€, Cost lnEntivo Shedng
Decoupling
WARM
Envi.onmental Co6l Recrvery
lntgratrb Sbragp and Assst Msnagomsnt Sharing
Annualty, or more often i, circumstances warant, NW Nstural rovisws all 169ulatory ass6ts for .ocovorability. lf NW Natural should dotermine all or a portion of
thace rogulatory ss66ts no longer m66t lh6 criteris for continled application of reoulalory accounting, th6n NW Natural would be r€quired to write.ofi lhe het
unrocovsrable balan@s against esmings in the period srrch a dotemination wa8 mad6.
PURCHASED GAS ADJUSTIEi{T. Rat€ changes aro sstablished for NW Natural each year undor PGA mochsniams in Orogon 6nd Weshlnglon lo reflecl
changGs ln the sxp€ctod coat of natural gss commodity purchases. The PGA filings includo gas cosls under spol purchases as well as contracl supplies, gas
costs hedged with financial derivalives, gas costs fro.n the vJithdrawal of storage invontories, the production ot 98s reserves, interstate pipelin€ dsmand costs,
temporary rate adjustnefits, which amodize balances o, defun€d rogulatory accounts, and lhe rsmoval of tamporary rat6 adiustmentrs efiective for the provious
yoaa.
Typically, each year NW Natural hedges gas prices on a ponlon of NW Natural's annual sales Equk€ment based on normal weather, including both physical
and financial hodges. NW Natural entered the 2019-20 gas y6ar with ib lorocastod sales volumos hedged at 52% in finanqial swap and optioh conlracts,
including hedging of 56% in Orggon and 24% in Washington, and 19% in physical gas 6uppli66, induding h€dging of 20'16 ln Oregon and 14% in Washington.
As of Docomber 31, 2019, NW N€tu.al vras hodged al approximately 71% for th€ 2019-20 gss year, aM was hedged in Orogon at approximatsly 75% and
Washlngton at approximately 38%. NW Natural i6 al6o hEdged bstwa€n 1% and 290/0 for annual rsquirgments ovor ths subs6qu6nt fve gas yeaB, which
consists ot betwaon 27. and 3l% in Or€gon and b€tweon 0% and 15% in Washington. Hedgs lev€ls are subjecl to chahge bas6d on aclual loed volumes, which
depend to s certain extent on weather, economic conditiqns, and estimated gss resewe produclion. Also, ga6 sto.agE lnventory levels may inc.ease or decneas€
with 6tor6g€ 6xp6nslon, changeE in Elorage contracts with third parti€s, variations in the h€at conlont ofthe gas, and/or storage recall by l,IW Nalural.
ln September 2019, NW Natural filed its annual PGA and r€c€ived OPUC and WUTC approval in Octob€r 2019. PGA rato changes were effective November 1,
2019. Rates and hedging approaches may vary bBtween states due to differenl rate structures and mechanisms. ln addition, as requir6d wilh th6 Washington
PGA fling, NW Natural incorporated and began implemenling risk-responoive hedging strategies lor lhe 2019-20 PGA for its Washlngton gas supplies.
Urder lhe current PGA mechanism in Oregon, there is an incontivo sharing provBion whereby NW Natural is required to select each year an 80o/o delenal or a
90% d€forral of higher or lower actual gas @sts compared to ostimat€d PGA prices, 6uch that the impac{ on NW Natural's cungnt oamings ftom the incontive
sharing is eithsr 20% or 10% of th6 difl€r6nc€ b€tw€€n actual
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 40 of 229
x
x
x
x
x
x
x
x
x
x
x
39
Table of Contenls
ar$ estimaisd gas costs, r€spectivsly. For the 2018-19 8nd 2019-20 gas years, NW Nahrsl sels.led th€ 90% dofarral option. Undor ths Washington PGA
rn€chanism, NW Natural defers 100% of the higher or lower actual gas coBls, and those gEs cost difforenoe3 are passed on to customers through ths annu6l
PGA rate adjustment,
EARNTNGS TEST REV|EW. NW Natural is 6ubj6ct to en annual oamings r€vi6w in Oregon lo detemine if tho NGD business ls eamlrE Ebove its authorized ROE
threshold. f NGD business eaming6 exce€d a speoific ROE level, lhen 33% of lhe amount above that lev€l i8 r€quirod b b€ def€ned or refundgd lo custom6rs.
Undor thb provlslon, lf NW Nalural selects the 80% delerral gas cost option, thon NW Natural rgtalns all .amlngs up to 'l50 basis pdnts above b|e curenty
authorizod ROE. lf NW Natural select6 tho 90% dofonal option, thsn it.etains all samings up to 100 basis points above the cunently aulhorizod ROE. For the
2018J9 6nd 2019-20 gas y6a6, lt solBct€d tlo 90% delersl option. The ROE ulroEhqld is subjEct to adjustmont annually bas€d on movemonts ln short-term
lnt6ro6t rates- For calendar yoars 2017, 2018, and 2019, th6 ROE threshold was 10.66%, 10.48oh,and 10.24o/o, resp6divoly. Thoro wsrs no rotunds r€quir€d for
2017 and 2018. NW Nalural does not €xp6ct a rofund tor 20'19 based on lEsult3, aad anticipatss filing its 2019 eamings t96l in May 2020.
OAS RESERVES. ln 2011, th6 OPUC appmv€d the Encana ggs .e€erves banractign to provldo long-torm gas prics protEction ior NGD businoss customars and
dBtemined costs underthe agreement would b6 recovered on an ongoing basis thmugh the annual PGA medEnigm. Gas produced from NW Natural'6
inter$ts is sold at then prevailing martGt p.ices, .nd revenues from sudl sales, net of aagociated opersting and produclion costs and amortiz.tion, 6re includsd
in co6t ofgas. Th€ cost of gas, including a canying co6t tor th6 rate bas6 inw8trnqnl mad6 underihe original agreement. is included in NW Natural's annual
Oregon PGA filing, which allorrs NW Natural to recove.lhese costs through custorner rates. Th€ net investment under the original agreem€nt eams a rate of
relum.
ln 2014, NW Natural amended the original gas r6serves agreement in response to Encana's sale of ib interest in the Jonah field located in Wyoming to Jooah
Energy. Under the smended agra6m€nt with Jonah Energy, NW Natural has tho option lo invest in additional w6ll8 on a w6ll-by-well ba$ls with drilling costs and
rgsulting gas volumcs sharad at thB amended proportiomta worklng lnterosl lor 6ach wcll in which NW Natural invesb. Volumos produced trom lhg additional
walls drill€d after th6 amendsd agreem€nt ar6 includod in NW Natural's Oregpn PGA at a fix6d rale of $0.4725 per therm. NW Nalural haE not parflcipat€d In
additional wslls sinca 2014.
OECOUPLING. ln Oregon, NW Nalural has a d€coupling m8chanism. Decoupling is int€ndod to break the link between eamings and tho quantity o, gas
consumed by custome.s, rgm9vlng ahy linancial incsntiw to digcourage customerE' eff0d6 to consGrva €neEy. Ths OrEgon docoupling mechanism was
reaulhorlzod end lhs bas6lln6 expectad usage per costomer wa! Ie86t ln the 20 1 I Oreglon general rat€ case. This mechanism employs a ulF-per-customer
deooupling oalculation, which adjusl6 margln rsvenues to aocounlfor tho difference betw€en ootual and expecled cuslomer volumes. Th6 maroln adjustm€nl
resulting from dlfferencas b€twesn actual and expecled volum6 under the decouding component i8 rocordsd lo a daf€rral account, Mrich is induded in the
annual PGA ftllng.
wAR[. ln O.€gon, NW NaluJal has an appmved weather normalization mecfianism, which is applied to r6sldentlal and commsrclal customer bills. This
mochanlsm is drslgnsd to holp slabilize the collection of fx6d coEb by adJustlng resldcntlaland (bmmerclalcustomer billings based on tgmpgrature variances
from awrag€ wealhsr, with rato decr€a666 when th6 w6athBr is coldor than avsrag€ €rd rato increas€s wh€n thG weather is wamer than avorag6. The
msahani6m i€ applied to bills from Dqc6mborthrough mi&May gf esch hsating 6€s6on. The m6chani6m adjust6lh€ margln compon6nt of customers' rates to
roiecl avorage weathsr, Mlich usss tho zs-year avoJag€ tgmperature lor oach day ol Ih€ billing perird. Daily av6rag6 lomperatu.es and zs-year average
temperahlres are based on a set point tempgratur€ of 59 degrs€s Fahrsnheit for rgsidentisl customers and 58 d6gr66s Fah.enh€it h'r commercial custom9rs.
The collectigns of any untlillgd WARM amounts due to tsriff c€ps and iogrS are defer€d and eam I canylng charge until collsctod, or rotumed, in the PGA the
following yesr. Resid€nlial and commaroial cusiomsrs ln Oregon aro allow€d to opt out ol the weathDr no.malization mechanism, and 8s of Decamber 31 , 2019,
8% of btal eligible customers had opted out. NW Natural do€s not have a wsather normalization mechanism approvod for Jesidential and commercial
Wa6hington custome,s, which account for aboul l 10/6 of totsl customers. See 'B[r6iness S6gmont-N8rura, Gas Dislnibdiot ' below.
II{DUSTRAL TARIFFS. The OPUC and WUTC have approved taritrs oovering NGD ssrvice to major industrial customers, tvhich are lntgndod to give NW Natural
aenainty in lhe level gf gas supplies needed to sewe this custgmer group. The appmved te.m6 includ6, among othsr things, an annual election pgriod, special
prlclng provisions for out-of-cycle changes, snd a requiremont that lnduStrlal customors complete the lerm of their service election under NW Natural'E annual
PGA larifi,
E VIRo IEffiAL cosT DEFERRA! ANO RECoVERY. NW Natural has aulho za0ons in Or€gon and Washington to defer costs related to r€modiation of
p.operties lhat gr9 gwned or wel6 prgvio{sly o{rrnod by NW Natural. ln Oregon, e Site Remediation and Rocovery Mochanism (SRRM) is cunently in plac€ to
recover prudontly incunod co6ts allocable to Oregon customers, subj€c{ to an eamings lsst. On Octob8r 2t, 2019 tho WUTC suthorizsd an Environmentsl Cost
Recovery Mechanism (ECRM) for recovery of prudon y incuned co6ts allocable to Washing on oustornoB b€ginning November '1, 2019.
40
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO., INC,
Page 41 of 229
Table ol Conlents
allqao.QBBld
Under the Oregon SRRM colectlon proc€ss, there are three types of defen€d onvironmefltal romadistion oxpense:
' PrE-revlow - Thls class of co8l6 rBpr63ent6 remediatiofi spend thst has not yet been deemed prudenl by the OPUC. Canying costg on thgse remediaton
expensas arc rocord€d at NW Natural's euthorizod cost of capital. NW Natural an cipateG the prudonc€ t€vl6w for annual costs and approval of the
eamings tesl prescribed by the OPUC to occu. by tho third quarter of tho following year.. Post-r6vlew - Thls class ot co6ts repr66ants remediatlon spsnd that ha6 be6n d€emed p.udent End allgwed 6ter applying the eamings test, bul is not yet
induded in amortizalion. NW Natural eams a carrying cost on thoso amounts at a rats oqual to the flve.!,6ar troa8ury rats plus 100 b8sl8 polnts.. Arnodization - This dass of cqEts rep,eognts gmqunts ircludgd in cunent customer ratos for collsciion and is gsnsrally cslqJlalsd as one-fifrh of the po6t-
revlow detonod balanc6. NW Nalural oams a carrying co6t oqualto th€ amonizalion .ale determinod annuglly by the OPUC, whi.h gpproximgtes a short-
term borrowing rat6. NW Natural includ6d $5.1 million and $6.1 million of defered rornediatlon exponss approvod by the OPUC lor collectlon durlng th€
201+20 and 201819 PGA y€a.s, respeqtively.
ln addition, the SRRM slso providos lor th6 annual collection of $5.0 million frcm Orrgon custom66 through a taritr rider. A6 it coll€cls amounts f.om customsrs,
NW Natursl recognizss these collsctions as evenue net of any eamangs tegt adjustrnents and sepsrately arnortizes En equaland offselting amount of the
defened regulatory asset balancs through the environmental r6m6dl6tlon operating expnse line shown B€parately in the op.aling 6xpens6s se.{ion of the
Congolidated Stabments ofComprehensiw lncome (Loss). See Note IE fo. more information on our envircnmeotal matters.
The SRRM eamings test is an annual leview of adjusted NGD ROE comparsd to aulhorized NGD ROE. For 2018, tho llrst ten months werg wclghted at 9.5%
and the last h/vo months 81 9.4%, rerleqting the ROE change from NW Natural's most recent rate case effective Novembor 1, 2018. To apply the €amings test
NW Natu.al musl lhst dgt6rmin6 what lfany costs are 6ubj€ct to the test thmugh the following qalculationl
Annuellpond
Less: $5.0 million bas6 rate rid€r
ftlo. y!81 cErry-qr!.(r)
i5.0 mlllion Insuranc€ + inlerest on ln6uranc6
Total ddlrrd snnual lpond 8ut €ct I'o oamlngs tost
L€s6: over€amlngs adiust nsnt, ll any
Add: drfomd int6r6st on eoouel sgcndP)
To the exlefit lh6 NGD busine6s eams at or below its authoized ROE as defined in the SRRM, the total amounl transtered to post.review is .scoverable
through the SRRM. To th€ 6xt6nt moro lhan aulhorizsd ROE lE eamod ln a year, ths arnount transiBn6d to post-r€view would bc .educed by thoss eamings that
exc€€d its aulhorized ROE.
For 2019, NW Natural has p€rformed this test, which is anticipaled to be submitted to tho OPUC ln May 2020. No oarnlngs tosl adjustment is expocled for 20i9.
$lffhioc&!-E!8l4
The ECRM ostablished by th6 WUTC o'der on October 21, 2019 permits NW Natu.al's r6covary of snvironmontal romodiation expsnses allocabls to Washinglon
cusbmors. Thes. explnse6 r6p.os6nt 3.32 p€rcont of costs a6sociat6d with r6mediation ot sites that historicalty seNgd bqlh Oregon and Washington
customer3. The ordor allows for recovery of past defened and tuture prudonily incunod rorn€diation co6ts alloc€blo to WashirEton through applicalion of
insuEnc€ proc€qds and coll6ctions from custom66. Prudenuy incured costs that wsrs defered from tho initial defenal authorization in February 2011 through
June 2019 a.€ to b6 tully offset with insuranco proco€ds, with any remeinlng lnsurance proc6€ds to bo amortized ov6r a 10.5 yea. p6rbd. On an annual basiq
NW Natural wlll fle for a prudence delermination and a request to recover remediation expenditures in excess of insurance amortizations in the following ye6/s
ouatomer rates. Afler insuranoe proceeds are fully amortjzed, lf ln a panicular y66a lhe aoquB3t to collecl derened amounts exceed8 one percont of Washingrton
nomalized revenu$, then the excess will be coilected over thre6 years with interest.
The WUTC order also disallowod approximately $1.5 million of defe.red snvhonrnental romodiation expeh6e6- NW Natural recognizod an after-tax charge of
approxlmately $1.1 million in lhg fourth quarter of 20i9 as a result of this order.
PEHslol{ GosT DEFERRAL AND PENSION BALANGING AccouNT. From 201,l through Oclob€r 20'18, lh6 OPUC authorized a regulatory m6chanism ln which
NW Nafural dolsrred annual ponsion exp6nse6 above the amount sgt in rates, with r€covery ofthes6 defgrod amounts through th6 implomontation ol a
balancing account, which included th6 6xpoclation of higher and lower
41
Tolal amount transfened to post+evierv(!) Ptior yeaa carr-ovar r€sults wlr6n lh€ prior y6ar amounl b6nsfn6d lo post-rEvisw is negalive. Th€ n€gEW6 arnounl is c€rdod ov€r to offsol annusl spend in the following
year.€) Deforr€d int€rBl is add6d to annusl sp€nd to the extant th6 apend is recoverabl€.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 42 ol 229
Table of Conlenls
p€nsion exp€nses in firture y6ars, During lhis psriod the mochanism pomitted NW Natural to accaus intersst on lhe account balance al the NGD business'
authorlzEd ratc of .etum. The OPUC ordered the fieezing ot the account in October 2018 with pension expenses to be recovered through r€tes beginning
Novomber '1, 2018-
ln March 2019 th€ OPUC issu€d an order (Pension Order)directing the nleans by which lhe acoount would be recovered. As a result, the following ilems were
rocorded in the first qua(er of 2019:
Appll€d $7.1 milliqn ot TCJA bonofns deferred from January 1, 2018 to Octgber 3'l, 2018, as a roduction againsl the pension balanqing account:
Creditgd to customers' b€nofit $5.4 million o, dgter.ed income laxes as a roduclion against the pgnsign balancing accounu
Rsduced the amount of th€ frozen balancing account by an addilional $'10.5 mlllion; and
Reduced the interest rale on lh6 ponsion balancing account from NW Natural'8 authorized rats of retum of 7.317% to 4.3%.
Th6 items abovo rcsulted in the recovory of $12.5 mlllion of defor€d psnGlon expensqs by applylhg dsfonod tax boh€llts againsl lhs psnsion balancing account-
Rscognltion of these items result€d lh higher operations and maintenance expense and other income (expense), nel with offsetting benefits recognized in
operatin0 rcvenues and income tax expeNe. Additional pnsion 6xpen86s ofS10.5 mlllion trom the Egulalory dl86llowanc€ were 6lso rocognizBd ln operations
and maintenance expense and other incomo (expense), net. Delened regulatory interest income of $3.8 million was also realized in other income (expense),
net.
Commencing April 1, 2019, the OPUC also aulhorized the collection of the remaind€r of the pension balancing account over ten years in a customer tarif oI [7.3
million p6r y6ar. Pen6ion expens€ d6f6rrals. excluding interest, were $10.3 million and $6.5 million in 2018 and 2017, respectively. Defered p€nsion exponse
r6cov6ri6s, inclusive otth€ applications of doferrgd TCJA b6n.fit6 doscribod abov6, rver6 $16.8 mlllion ln 20'19.
TAX REFOR DEFERRAL. ln Decembor 2017, NW Natural filod applic€tions wi0r tle OPUC and WUTC to defer th€ overall net benefit a6Eociated with th6 TCJA
that was .nacted on Docernbet 22,2017.
ln Fobruary 2019, NW Natu.al and the oth6r parties to the 2018 O.egon r€te csge agr€ed upon i9rm6 by nhich the det€nod ben6fit6 would be r6turn€d to
customers via a joint stipulation fled with the OPUC. ln Msrch 2019, lh€ OPUC approv6d thG t6rn8 ln th6lr entll€ty aE follows:
Appli6d $7.i million of TCJA benefits delened from January 1, 2018 to October 31, 20 t8, ss a reduction against the pen6ion balancing accounti
Credited to cuslomBE beneft $5.4 millioo of deforr€d income tax6s a6 a reduction agalnst ths ponslon balancing eccount:
Commoncing Ap,ll l, 2019, th6 OPUC also ordsred lhe following:. Provide an annualcredit to baso rates of$3.4 milllon tor oxcass dofored Incam€ taxo6 to all customors, subj€ct to lho avorag6 rato assumption method;. Provjde an additiqnal annual cEdlt of $3.0 million to sal6s service qJstom€rs for five lr6arsl. An incraaso in rate bas6 of $15.4 million, and corresponding increase to revqnue .equirgment gf $ t .4 million.
l, NW Natural files a genersl rat€ css€ within fve yoars ofthe date o, th€ Psnsion Order, this r€venu€ r€quirgmant may be Edjusted as parl of that genoral rate
ca$e.
On Octob€r 21, 2019 th€ WUTC issuod an order dictating th€ means by which defengd tax reform benelits vrould be retumed to cuslomers b€glnning Nov€mber
1 . 201 9. The ord6r dk€cts NW Natural to provide cuslomers with a rate rsduction ot $2. 1 millio(l over one ygar to .efl6cl the benofit o{ the lo\}I/er federal corporate
lncome tax rate accumulating from January 1, 2018 through October 31, 2019, and providBs an additional annual rate reduction initially set at approximately
$0.5 million to reoect a bonefit from the remeasurement of defened tax liabililies ot approximately 315.0 million.
IITERSTATE S'ORAGE A]{D ASSEI XANAGE EHT SHARIIG. On an annual basis, NW NatuEl cr6dits amounts to Oregpn and Washington customers as pad
of a rogulatory incentiv€ sharing mgchanism related to net rgvenues oamed frgm Mist ga€ storsgs and asset managem€nt acliviti66. Gon€rally, amounts are
creditsd to Orogon custom€rs in June, while credib ar6 given lo cuslomgr6 in Washlngton as roduc-tions in ratss through th6 annual PGA filing an Novemb€r. ln
November 2018, lho percsntage ot net rGv6nu€s Ehared with Orogon arstomBrs incroasod from 67% to 90% as a r€sult of the 2018 Orsgon gener€l rate csse.
The following table pres6nt6 the crsdits to NGD cuatomerE
ln millions 2019 2018 2017
Orrgon
WashinOton
$r8.3 $
1.2
tr.7 0
1.0
11.7
't.0
42
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 43 ol 229
Table of Contents
HOLDIiIG COIIPA}{Y REORGAIIIZATIOH. On October 1, 2018, ws completlrd th6 r€organiza0on b a holdlng compsny strucluro. Thsre 6rg a number of
oondilion8 under the agreemont with the OPUC and tha WUTC relaH to tho formailon of a holding company structuro. One of tho condillons is that, for ihr6o
year6 ficllowing fumation oflhe holding company, i.lw Nalural will be required to provide 6n annual $500,000 credit to Oregon cuslomers and a $55,000 credil lo
Washlngton customars. The frst and second y6ar crodlts to both Oregon and Washlngton customers w6rs glv6n ln conJunctlon wift lhB 201&'19 and 2019-20
PGA fillng3 with tho ratG adjustmenb commencing on November 1, 2018 and 2019, rGspectively.
Raduletoav Procoedlno lJodatas
Dudng 2019, NW Nsturalwas involved in thB regulatory activities discussed below.
WAIEh UILmES.ln 2019, t'lw Holdings, through lb wat6r subsldiarios, contlnu6d implomontatlon of ils gror.,ih slratagy and 6nt6rod into tho following
agrosmsnt6 which requi.ed regulatory spproval:. Sunrlvrr Wltar, LLC rlld Sunilvor Envlrormlntal, [lC - NWN Wat6r of Orogon r6colv6d reguialory approval from lhe OPUC for th€ Sunrlvor
Wat6r acquisition in April2019. Sunriv€r Environmental ls not und6r tho OPUC'S jurisdic{ion. Th6lransaction clo36d in May 2019.. E.t tos Wltar Syrlgmr lnc. and ilontsrra lnc. - Cascadia Water received rcgulatory apprgval from the WUTC ,or these Sequim, Washlnglon
scqulsltions ln Aprll 2019. The lransactlofl closod ln May 2019.. Splrlt L*r Er't Wrter Comp.rry .rd Lthnwood W.tsr - Gem State Waler recoived regdatory approval from the IPUC for these Coeur d Alene,
ldaho acquisitions in July 2019. The transadion clcsed in July 201S.. Srnc.dl. Wat€r Comprny, LLC ,nd Suncrdh Envlronm.r{al, LLC - tlWN Watgr of Washlngton r€calved rogulatory appmval fol the purchaso of
Suncadiq W8ter in January 2020, Suncadia Environrnental is not subject to th€ WUTC'8 iurisdiclion. The transaction closed in Jonuary 2020. See Note
20 tor additional lnformation.. T&W W.tcr Srrvlc! Comp.ny - NWN Wat6r of T6xas r6c6iv6d rogulatory approval trom th6 Public Ulillty Cornmission of Texas lor tho T&W Wet6r
Service Company ocquisition in February 2020. We expecl the transaclion to clqse in 2020.
hITEGRATED RESOTTRCE PLA (lRP). NW N8tural fil6s a tull IRP bionnially for Orogon and Washington with ths OPIJC and WUTC, rEspeclirroly. NW Natural
fihd lts 201E Oragon end Weshington lRPs ln August 2018, ond recaived both a letier of complience from ths WUTC and scknqwlodgmert by th6 OPUC in
F.bruary 2019. Th6 IRP included analysls ofdiffsrsnt growth Ecenario6 and conespondlng Esourco acqulshion stetogies. ThiE anelysiE is nesded to develop
Supply and demand ros{rurDe rDquirErEnts, oonsider uncertEinties in the planning proc€ss, and to establish s plan tor providing roliable and low cost natural gas
selvlco.
REIIEUTABLE NATURAL GAS, On June 1 9, 201 9, the Oregon legislature passod SenatB Bill 98 (5898), which enst les natural gas utilitios to pmcure or develop
r6n6wabl6 mtural ga8 (RNG) on b€haf ol thgir Oregon cu6tomor6. RNG ls produced from organic materials lik€ tood, agricultural and tor66try wa6t6,
wstewaier, o, landfills. Methane is captured trom thBse oEank malerials as they d6composo end is condltioned b Fipoline quality, so it can be added into the
exbting nalural ga6 syEtem, reducing net groenhouso gas emissions.
SB98 ouuin€E th6 following peramgters for lhe RNG program including: sstting out brqad larggls for gas utilities thst qllqw for thg prrrchase of RNG from third
padi€s such that 30% of ths gas distributod to retail cuslomgrs is RNG by 2050; allo\r,ing gas utlities to lnvest in RNG intraEtrucluro for the produc{ion,
plocesslng, pipeline interconnec{lon and disbibution of RNG to hgir customsrs; and crsaiing a limit or 5% of a utility'E revgnue requirqment that csn be ussd io
mver ih6 incremontal cost of RNG tr protect ullllt6s and rat6pay6rs lrom lnc.roassd cosb aE the RNG nr6d(el dovelops.
Th6 blllwas slgned lnto law by lh6 govemor in July 2019. The OPUC op6n6d a docket in Augqst to bsgin lh€ rulemakino proc€ss for tho trll, whlch iB oxpeclgd
to conclude with the OPUC adopting rulss by July 31, 2020.
GORPoRATE AGTMTY TAx. ln 2019, tho State of Orogon onactad a Corporato Actlvlly Tax (CAT) that ls appllcaHa to all busln€ssos wlth annual Orogon gro6s
rwenue io excess of $'t million. Th€ CAT is in addition to the state's corporate incomo bx and imposo$ a 0.57% tax on certain Or€gon gros3 recoipts lo8s a
roduction for I portion ol cost of goods 8old or labor. Th€ CAT legi6l6tion b6c6m6 elToctive Septemb€r 29, 2019 snd applios lo c€l6nd6r y6ar8 b€ginning
Januory 1, 2020, On Docember 23. 201S, NW Natural l'ilod an application with th6 OPUC to allo,v us b defrr lhis sdditional axpanss, with r€covery of thes6
d6l€n6d amounts to b€ deb.mined through future rate case proceedings,
20al oREGOll RATE CA3E. On December 30, 20'lg, NW Naturalfiled I request for a general rate increase with the OPUC.
The filing includes 8 requested $7,l.4 million annual r6v6nue requiremenl increasG basod upon the following assumptions or rcquests:. Capital structure of 50% debt and 50% equity;
' Retum on equity of 10.0%;. Co$t of cspital oI 7.298%;. Av€rago.ale baso of $1.47 billion.
43
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Paga 44 ol 229
Table of Contents
Ths fling includes an incrcass in av€ragg rate bas6 of $269.9 mlllion compared to the last rele cass du€ to tho following itoms. lnv€stments supporting customGr growth and reliability for the disbibution systom as wellas tor operating r8siliencyi. Replacing key compon€ols ot our Mist storage faoility, whioh provideg service during the peak vrinter monlhs; 6nd. LJpgredino lechnology including cybersecurlty and crltlcal custom€r lntsrfaclng 3y8trms.
NW Natural's filir€ will be revlewod by the OPUC and other stakeholders. The proc€ss is anticipated to tak€ up to '10 months wlth new ratos oxpeclsd to take
efiect Novombor 1, 2020.
Buslnoss Seomsnt - Nltur.l Gls Dl3tdbutlon ll{GDl
NGD rosults ar6 primarily affect€d by customer grcwtr, ruvonuos from .alo.baso additions, and, to a c€rtain €xt6nt, by chang€s in doliwrgd volumes due lo
w€ath€r and customeE' gas usage pattems. ln Or6gor, NW Natural has a conssryation tariff (also callod ths deooupling mechanism), which adJust6 margin up
or down each month through e deferod Egulstory accounting adjustmont design€d to ofirot changes r6sulling from incnsasss or decreases in avorago use by
residential and commercial olstomeB. NW Natural also has a wGather normalization tarifi in Orogon, WARM, which adjusb customer bills up or dol{n to offset
changes in margin resulting trom above- or bolow-average temperatures during the winbr heating s€ason. Residential and commercial customers in Oregon are
allowod to opt out of th€ wgather nomalizalion mechanism, and as of Doc6mber 31, 20'19, 8% ol total eliglble customers had opted out. ltIW Natural doos not
hav6 e woather normalization mschanism approved br resldsntlal and commordal Weshington customors, which account for about 11y. of tolal customers. The
decoupling 8nd WARM mechanisms ars d6slgn6d to rsduca, but nol aliminats, the volatility ofcwtomer bills and nahrralgas diEbibution €amings. 56€
'R€gulalory MattorE-Rare Mechen,'srrs" above.
The NGD busingsE is seasonal in naturo du6 to high€r gas usags by rosiironlial and oomm€roial ou61om96 dudng th€ cold winl€r h6ating month6. Other
categod€s ol custom€G exp€rionce seagonality in th€ir usag€ but to a l66ser extsnt- Seasonality affoc{s tho comparability of ths resufis of oporations ot th€ NGD
business a6oss qusrtors but not across yoa6.
NGD ssgment highlights include:
Dollers end themrs lo milllons, axcept EPS data 20ls 2018 m17
NGDn t trrcom! I 60.8 $ 57.5 $ 60.5
Adjusted NGD net income(1) 60.8 57.5 51.5
EPS - NGD $gmcnt 2.U 1.99 2.10
Adjusted EPS - NGD 66gm6nt{1) 2.M 1 99 2.13
G!! sotd aM dollver€d (n lharfls) 1215 1,124 1, o
NGD marginc) $ 422.7 $ 383.7 $ 392.6
(rr So€ the Non-cAAP R€concilieloas tabl€ al the b€ganning of ltsm 7 for a r€conciliaticn oI lhis noTFGAAP frnanchl measulg to lB dososl U.S. GAAP linancial moasur€.
@ 39€ NaturalGas oistributlon Margin Tsble bElow lor eddilional datall.
zotg COITIPARED TO 2018. NGD n€t lncome was $60.8 million in 2019 compared to $57,5 million in 2018. The prlmary factors c.ntribuling to the increase in
NGD not lncomo were a6 follo{s:. I $39.0 million inc.easo in NGD margin primarily due to:. a $16.2 million increas€ du€ to new custom€r rates from the 2018 Oregon .ate case and 2019 Wa6hington rato case:. a $6-1 mllllon inqease from cusbmer gro./th;. an $11.8 million increase figm l€venuo g6nsrai6d from NW Natu,al's North Mist storage contract which commenced oeNice in May 2019 and ls
included within oth€r r6gulat6d s6rvices withln NGD margin;
' a $7-'l mllllon Incr€asg due to rsvonugs rocognizsd in associalon wih rocoverios ot NW Nstural's pension balancing account, whicfi arg gntirsly oflsot
by psnsion gxpenses within oporations and maint6nance and othor incomc (€xpsns€), nat; and. a $3.7 million inc.oaso driven by colder than average weether in the first quarter of 2019 couplod with highor fse ,gvenuos f.om intsrruptiblo customers
as a r€sult ot system rostridbns; parlially otr861 by. a $3.2 million d€crgase du€ to en adjusbnent to the tar( reform deleral qlimate in 201Ei and. a $'1.5 million d€crsas€ due to a rogulatory disallowonce of defoned onviEnmental exp6ndlturos as a rosult of the 2019 Washington rate c€se.. a g9.4 million decrease in income tax expensG pnmanly due to the income tax implications of the March 20'19 OPUC order, of which $5.4 million was oftsel
by pensaon expenses as discussed above, with the remainder driven by the retum ot defened TCJA benefit cr€dits to customers and lower pretrax income in
the currenl period compared to the prior period; and. a $5-8 million increase in defered regulatory inteEst incomo in other income (6xpens€), net, of wiich $5.1 million relates to interost rocognizod In
associalion with the OPL,C ord6r discussed above.
Th6 incr6a6es wero parlially offsol by:. a $34-4 mllllon incrcaso ln p€nsion @sts within oporalions and malntonanco oxponso and other incomo (exp6nse), not, of which $12.5 millign relates [o
costs ,,vhich wo,o entirely oflset by tevenuos and incomo tax bsnefits in the Maroh 2019 OPUC order, and $10.5 million relatos to the regulatory ponsion
disallowanco included in the March 2019 OPUC ord6r. ln addition, there was a $11.4 million increaso in ponsion expsnses as NW Natural begsn collecting
ongoing pension costs through
44
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 45 of 229
Table oI Contents
cuslomer rat6s o.l Nov6mb6r '1, 2018 and b6gan collocling dgfen€d pension cosls through customer ratos on April 1, 2019 rather than defering I porlion lo
th€ balancing account;
' a $5.7 million inclesse in depreciation expense due to NGD plant additions;. a $4.6 milllon lncroas€ ln lntoroat exp€ns6 drivon by $2.3 million higher interest on long t€rm debt, $1.2 mlllion lower AFUDC dsbl interesl income, and $0.9
million highor commercial pap€r and lins ol credit int6r6st:. a $3.3 million desrease in AFUDC equity inlerest; gnd. a $2.9 million incrgase in NGD segment operalions and maint6nano6 6xpen6€6 pdmadly attributable to Ennual employeg cost increasgs,
Total natural gas sold and deiivered in 2019 inc.€asod 8% over 20'18 primarily due to t|e lmpact of weather that was 6vorag6 ln lho curcnl pGrlod compared to
weather that was 15% wamer than average in the prior p€riod.
2olt COXPARED tO 2017. NGD net income wss $57.5 million in 2018 compared to $60.5 mllllon ln 2017- NGD net lncomo ln 2017 lncludss a $1.0 million lo6s
from the remeasurement ol defened income tax balances due lo the enactment of the TCJA. Exduding this item, adjusted NGO net income decreased $4.0
million, or $0.'14 per sharo. S6e the NW Holdings Non-GAAP Reconclllatlons at the beginning of ltem 7 for additional intormation.
Tho primary factors contributing to th6 decr€ase in adjusted NGD nel income were as follows:. a $6.9 million dscroass in NGO margin primarily du6 to:. a $7.9 million docroase duo to revonuos collsclad and dofonBd in association with tho TCJA; partially otfssl by
' a $4.8 million increaao ,rom custom€r growlh; and. tho majority ol the romaining decroaso was duo to ths efi€cls of warmer than av€.age weath6r in 20 1 8 comparod to colder lhan aveaagg weathe, in
20 !7, partiglly otfset by higher rates from th€ 2018 Oregon gsneral rata cas6 afiecliv€ Nowmber 1, 2018.. e $6.0 mllllon incroas€ ln operalion6 and maintenance expense driven largely fiom payroll and benefits due to increased headcount, general salsry
incroases, and increased professional services and conlract labor exponss:
' a $4.2 mlllion dec,ease in other income (expense), net, primarily due to increases in pension non-seryice component cosls, partially offset by in..sa6es in
tho equily portion oIAFUDC ln 2018; and' a $4.0 million incroaso in deprecialion oxpenso primarily du6 to additional capital oxpgndltur€s; pertlally offsot by
' a $20.0 million dedsase in income tax €xpsnse prlmarlly duo to th6 reduclion in the tederal stalulory tex rEte frcm the TCJA and lovier pretax irrcomo,
Total natural gas sold and deliver€d in 20'18 decreased 9% over m17 primarily due to the impacl of weather lhal waa 26% wam€r th6n th6 prior pedod and
15% warmer than Everage.
45
EXHIBIT 2
PALFREYi,4AN, DI
FALLS WATER CO,, INC,
Page 46 ot 229
Tab e of Conlenls
IIATURAL GAS D|STR|AUnON itARGtN TABLE. Ths following tabl6 summadzes th6 composition of NGD gas volumes, revenles, and cost ofsal€s:
Favorable (Unfavorable)
,n l,ousands, exclPt do$ee day end cudild .leta 2019 20'18 2017 2019 vs. 2018 2018 vs. 2017
!9Dld!E!rllI!@rl
Rosidontial and commorclal sal6s
lnduitdd relas and trenaportatlon
Total NGD volumes sold and dollverod
OcrElDq-to&ots;
Residential and comm€rcial sales
lntfu8tful 6€166 aM fellaponEUon
Oth€. dislibution rovonuos
Oth€a aagplaied sorvilo6
L€sE: R€v€nue tax€slrl
Tolal oporelim trv6nu6s
Loss: Cosl ol gas
Loa!: Envtqrl'lgntal rgmodiatbn exponso
L€as: Rovonu€ iaxes(r)
NGO maEin
uglgi.ol')
Ralld€ntial and oommardal salog
lndustrial sales and transportation
Mlac6[amou8 rov6nu6a
Gain (loss) lrorn gas cost incentive shadng
C[h6r margln adiBlrn nb6]
Distdbulion maEin
Otl.r r6gul6tod s6rvloa$
NGD margin
Ds[Qg-dlvt()
Achr6l
Perc€nt colder {wE.me4 than av6ra06 weathel
ItcD.l&EE-ildld.pshd;
R€sidental melers
ComrErcial msl€rB
lndustrial metors
Total numbor ot rnot6la
NGD Meler orowlh:
Comm6rciel melerc
lndu8lrlel ntotora
Tolal m6t€r growth
422,731 363,6S6
7U,v7
480,807
661,163
467,(NO
740,369
499,92,1
73,,l84
13,767
(79,206)
(32,884)
't,215,'t 54 'r,128,203 1,240,293 E6,951
$
(112,090)
638,884
56,663
13,035
't2,056
621,782
5E,7t3
(10s)
242
684,2r4
63,S25
3,47?
'62,432)
15,212)
(3,981)
N2
(19,069)
$$17,102 t
e,18ot
13,1{4
1 t,794
19.069
7m,548
255,135
12,337
30,325
680,648
255,743
11,127
30,042
732,92
325,019
15,29t
39,880
608
(1,2r0)
(243)
(s2,2S4)
69,276
il,l64
(30,082)
3o2,632 39,035 (8,S36)
3 366.974 t 352.710 I
31,985
4,67r
(1,299)
8,350
30,817
5,5a2
127)
(s,608)
355,?36
31,U?
3,885
1,237
$14,2U $
1,168
(87r)
11,272),
13,958
(3,0m)
(r,030)
1,877
(r,264)
(s,555)(5s)
s
t
s
5
$$ 27,247
0 1r,788
$ 39,035
383,434
262
4'10,68't $
12,050 $
392,632 (s,198)
frz
$ 422,131 383,696 I 392,632$$(8,9s6)
2,710
2,709
-%
6S2,012
GS,858
1,007
2.714
2,3r3
(15)%
680,134
69,250
1,028
2,705
3,114
15%
9
\26)%
(4)
17%
668,803
68,050
,t,021
11,878
590
121)
'11,331
1209
7
76z4n 750.421 7e7,874 12,456 12, 7
1.7 %
0,9,/"
(2.0)%
1.7 ye
1.7 %
't.8 %
0.7 %
1_7 %
The change tn presentation oI rev€nue lExes was s lEsult of the adoption of ASU 2014-09 'Revenue From Contrects wlth Cuslornors' and all related amendm6nts ofi
January 1, 2018. This change had no lmpact on NGD m€rgin resulls. For acldilional infomation, seo Nole 2
Arnounis r€ported as mErgin lor each category of meters ars oporaling revenues, which ale nel of revenue taxes, less cost ofgas and envircnmental remediation
exp6ns€.
Oti6r margin adjustments include n€l r€v6nue rc@veries ol $6.2 million €rd revenue d6ferals of $7.9 million lor the years end€d December 31, 2019 and 2018,
respeclively, associated with the docline of the U .S. federal corporale incom€ tax rate
Hesting degr6€ days ar€ units of measurB r€flectihg tomporature-sensitive consumption of naturslgss, calculated by subhacting lhe average of a day's high 8nd low
tomperalurGs from 59 degrees Fshr€nheit.
Av€rage w€alher repres.nts the 2s-yoar average of hesting degrec days. Thtough Oc,tobor 31, 2018, av€rage weslher i6 cslculat€d ov€r the period 1986 _ 2010, as
clGt€rmined in NW Naturafs m12 Oregon general rato case, and beginninq November 1. 2018, av€rage weather is calculated over the period May 31, 1992 through May
30,2017, as determined in NW Natural! 2018 Ortgon genoral rale case
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 47 ol 229
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EXHIBIT 2
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FALLS WATER CO., INC,
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Table of Contents
BesiCcoliel3EC-Ee0@rsialsales
The primary factors that impact aesulb of operalions in the residential and commercial markets are a{stomer gmwth, Seasonel weather pattems, energy prices,
competition from othsr energy sources, and economic condiiions in our service 6r6as. Th€ impact ofweather on maroin is signifcantly reducad through NW
Nalural's weather normalizatlon mechanism in Oregon; approximately 82% of NW Natural's total custom€G are @vered under this mochanlsm. The remaining
custom6rs either opl out ol the mechafiism or are located in Washington, which does ngt have a similar mochanism in place. For more lntormation on the
woathor mgchanism, se6'Regulalory Matters-Rat€ Mechanisms-Wgather Notulallzelion Mechaflbrr' above.
NGD rosidontlaland commercial sales highlights include:
20't9 2018 2017
l&luoe9.&s!o$i
Rosidontial sales
Commerdd salEs
Total volumes
Oooladno revenue6:
ResidentiEl sales
Comrngrcial sales
Total operating revenues
UlEili
Residential:
Salea
Altemative revenues:
Weath6a normallzation
D6coupling
Amortizalion olrlterna0vo revenue
Total rosidential NGD margin
Commerclal:
Sal€s
Arbmatlvo Ev€nuos:
Weather normalization
Desoupling
Arnortization of alternative revsnuo
Total commerdal NGD ma,lln
Total residential and commercial NGD margin
457.2
2n.1
411.7
249.5
465.2
2752
734.3 661.2 740.4
$437.7 $
201.2
418.4 $
203.3
455.9
224.3
$638.9 $621.7 $6U.2
$272.3 $240.0 $242.1
(r.8)
(6.6)
2.O
7.6
(0.6)
1.S
(11.e)
(2.4)
265.9
115.8
248.9
103.7
417.4
101.5
(0.7)
(5,2)
(8,8)
2.4
7.3
(e.6)
(4.6)
11.'.|
101.1 '103.8 108.0
$s67.0 $352.7 $355.8
2Ote COmPARED TO iot8. Th6 incroases of $17.2 million in oporeting revonue and $14.3 million in totEl residential and comrn€rcial NGD margin were primarily
ddvsn by new cu6tofi6r ratEs from the 2Ol8 Orggon rale case and 2019 Washington rate case as well as Eales volume increases of 73.1 million lherms, or 11%,
due to customer growth and average woather in 2019 compared lo warm6r thah awrag€ wsathor in 20'18.
2O18 COI|PARED TO 2017. The decreases ot $62.5 million in oporating revenue and $3.1 million in total r6sidentlal and commercial NGD margin wero p.imarily
driven by sales volume decaeasos of 79.2 million therms, or 1 17., due to warmol lhan av6Ergo weather in 2018 compared to coldor than average weather in the
pdor p€riod, padially otrsot by customer growth.
lndustrial Sales and Transportation
lnduslrial customers have the optign of purchasing sales or trangportation servic66. Und6r tho sales seNice, the customer buys lhe gas commodlty trom NW
Natt ral. Under the transportation seNice, the customer buys the gas commodity direcfly from a third-party gas marketsr or supplier. The NGD gas commodity
mst is primarily a pass-through cost to customers: therefore, NGD prcfil margins are nol materially aflectod by an industdal customer's decision to purchase gas
from third parties. lnduslrial and larg6 commsrcial customeE may also sol6ct betwoen fim and intenuptiblo service options, with lirm sorvicos g€nomlly
provlding higher profit margins compared to int€ruptible services. To help manage gas supplies, industrial tarifs are dosigned to provido som€ certainty
regarding induskial customers' volumos by requiring an annual service elcction whici bocomes offoctiv€ Novembor l, sp€cial chargss for chang6s botw6€n
elections, afid in some cases, a minimum or maximum volumo requiromont bofore changing optlons.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 49 of 229
47
Table of Conlenls
NGD industrial sales and transportation highlights include:
2019 2018 2017
I&Ir@rllmrli.
lndustrial - firm 6alss
lndu!&l8l - firm tramponaion
lndu8trial - intgruptibl€ 6ale6
lndu8trirl - irtoruptlblB ban8portatlon
Total volumss
ldlEill
lndustrial - sales and transpodation
35.6
175.7
47,4
221.1
35.3
162,7
50.6
218.4
35.7
167.7
55.1
ul.4
467.0 499.9
$32.0 $30.8 $31.8
20lg COIIPARED TO 201E. lndustrial sales and hansportation voiumes incr6ased by 13.8 million thenns and NGO margin increased $1.2 lnillion due to 6n
incaease in manufacturing activity in NW Natural's service tenitory. The indeaso was partially offsel by a r€duction ln customer count, which was drlven by
custorngr eloctions to switch from industrial lo commercial rate schdules.
,Ol8 COXPARED TO 20i7. lndustrial sales and transportation volumes decreased by 32.9 milllon therms and NGD margln d€crcas€d $1.0 million due to lower
usago from warmer lhan avolage weathor in 2018 comparod to colder than average weather in 2017.
Miscellan60us Rgvenues
Margin from miscellaneous revonues includos fee income as w6ll as regulatory revgnue adjustments, which reflect cunent period defgrrals lo and pdor year
amortizations ,rom regulatory asset and liability sccounts, except for gas cost detenals which flov,/ through cost ofgas. Decoupllng and other regulatory
amodizations fom prior year deferrals are included in revenLres from residential, commercial, and industrial firm customers.
Margin from NGD miscellan€ous revenu€s highlighls includo:
20t9 2018 2017
Othor rcwnues $4.7
'
5.5 $3.9
2019 COf,PARED TO 2018, Margin from miscellanegus revenues rchained ffat due to c.ntinued ontitlement and curtailment rev€nue in f.st quart€r of 2019
relaled to the Octobor 2018 Canediah pip6lin6 6veht.
2018 comPARED To 2017. Margin lrom miscollaneous revenu€s indeased $1.6 million due to ancreases in entitlement and curtailment revenue due to $ystem
r€strictions for certain industrial and commercial cuslomers as a result of a Canadian pipellne ovent ln Oclobor 2018 that dlsruptod ga6 supply.
Oth€r R€oulated Services
Other Rogulatod Servicrs primarily consist of lease revenugs froh NW Nstural's North Mist storage facility as well as other l€ase r€venu€s for compr€ssed
natural gas assets.
Other r6gulated seNices revehue hlghllghts include:
2019 2018 2017
North Ml6t 6torag6 8arvlc6s
Other services
Total oth.r regulatod lcrvlcos
$11.8 $
0.3
s
0.3
$12.'t $0.3 i
2019 COT PARED fo 2018. Othor r6gulated seruic€s margih incrcasod $'1 1.8 million in 2019 compsred to 2018 due to tho commencoment of stoEge servicas at
the Nonh Mist expansion facility in May 2019. See Note 7 for more information regarding Norlh Mist expansion lease accounting.
Co6t of Gas
Cost of gas as reported by lh6 NGO segment includes gas purchases, gas wilhdrawn from storage invenlory, gains and lossos from commodily hodg€s, pipoline
demand costs, soasonal demand cost balancing adjustments, regulatory gas cost defenals, gas reserves costs, €nd company gas use. The OPUC and wlJTC
gen€rally require nalural gas oommodity costs to bo billed to customers at the aclual cost incurred, or cxp€ctgd to b6 incurod. Customor rat6s ar€ 6el each year
so thal if cost ostimates were m€t th€ NGD business would not eam a profit or incur a loss on gas commodity purchas€s: how6ver, in Orcgon wa have
EXHIBII2
PALFREYMAN, OI
FALLS WATER CO,, INC.
Page 50 of 229
48
Table of Contenls
tt|e inconlivo Bharing mochanism d66crlbed und€r 'REgulatory Matt6.s--Rate M€chanism6-Purcr,dsed Gas Adiustmen? 8bove. ln addition to th€ PGA
incenwe gharhg mechankm, gains and losges fiom h6dg6 contrec{s entercd into sfter annual PGA rrtgs 8re efrective ior Otegon cu6tomsrs arc slso Equired
lo bo sharod and th6r6fo.6 may impact n€l lncom6. Further, NW Natural also ha6I Ggulatory agroom6.t nh€roby it 6ams a rate of rclum on its invGtm€nt in
the gas roservos acquirgd undor th6 original agreqmont with Encana and includos gas trom thB amsnd€d gas reserves 49.€9menl al a fixsd rats of $0-4725 por
th€nn, whlch era also roflectBd in NGD margln. See 'Application of Critjcal Accounting Pglides and Estimabs-,/4ccounling tot Dotiwtive lnsbuments and
Hedging Acfvitios' bolon.
Cost of gas highlights inctude:
ln mllllons excepl wh.E lndlcatod 2019 2018 2017
Cost of gE8
Volumes soH (th€rms)
Av€aaoo co6t o, 968 (cents pr( trs.m)
Gain (loss) Lom 9a6 coBt incontivo shadng
255.7 $
747
0.31 0
325.0
831
0.39
't.2
t
$
255.'l S
81 8
0.31 $
(1.3)
2olo COIIpARED TO 20t6. Cost ol gas was flat compared to lhe prlor yoar, pdma.i,y du€ to the 10yo hcrease in volumes sold ddven by average woathoJ in 2019
compar€d to warmer than average weather in 2018 and custcmo. gro\,rrth. primarily ofset by I thr90 cent decreas€ in the avorage cosl of ges.
2Ol8 COIPARED TO 20t7. CoEt of gas docr6as6d 69.3 million, or 21%, primarily duo to tho '10% d.crEaso in volumes sold due to warmer than avsrags waathor
in 2018 coinpa.€d to coldor than avorsgs tvgather in 2017, and lowsr averago .!st ol gas colloctod from cuotomerE, pa.tially oft6€t by customer growth.
The gffect on net inagme hom NW Nalural's Oregpn ga6 cosl lncontlvo sh€dng mschanism rosutted in a margin lo53 of $1 .3 million in 20 1 I compsr€d to a slight
maEln los6 ln 2018 and a maryin gain of t1.2 mllllon ln 20'17- ln 20'19, aciual gas pricss wsre higher lhan thoro included ln ratss during tho period. ln 2018,
actual pric4s dosoly alignEd with estimat€d prbes includod in customer rates. ln 2017, actual pricos wer6 lol rcr lhan the ostimated prices included in customer
rates due to warm€r than aver6ge weath€r nalionany, which Esulled ln lorer nadonal natural gss cornmodity prioes, For a disctlssion of tho gas cost incenlive
shadno mgdlanism, see "Regulstoty Mattgls-Rato Meohanisms-Purchased G€s ,4diuslmerf abovg.
Othol
Oth6r activities aggregatod and repoded as othor at NW Holdings include NWN Ensrgys equity inv€st nont in Trail Wsst Holding, LLC (TWH), which is pursuing
th€ d€wlopmsnt ot s pEposed netural gas pipolins through its wholty-own6d Eubsldlsry, Trsll West Pipolino, LLC CfWP); NNG Financiell inv€stmgnt ln KslsG
Bosvor Pipslino (KB Plp6line); and NWN Water, whlch owns and continues io pursus inveslmsnts in th€ wat6. s6ctor. Other activiliss aggrogatod and rsported
as other at NW Naturat indude the non-NGD storege activity at Mist as wsll as asset managomont ssrvlcos and th€ appliance relall oenter opetalions. S€e Noto
4 for furthGr d igcusgion of our busln66s 66gm6nt snd oher, a6 wellas our dil6cl6nd lndlrs., wholly-owned subsidiaries, and Note 14 for fudh€r dotails on our
lnvestmont in TWH.
At Mist, NW Natural provides 96s storage sorvices to customers in the intorstals and htrestate markets usirE storage caPacity Olat has besn devoloped in
advance ot NGD customers' requirements. Pr€-tax in@m6 from gas stor.Oe at Mkt 8nd asset managem6nt s€rvlc66 ls subjecl to rovenue sharing with NGD
cusbmers.
Und6,thls rogulatory Incontivo sharing mg.haniEm, NW Natu.alr€tains 80% of pre.tax income from MiSt gas storage servlcos and essel msnagement servicss
wh€n th€ underlying costs olths capacily bging usod are not induded in NGD busin666 ralgs. Tho rom€ining 20% i3 crsditod to a dgfensd rggulatory account
for credit to NGD custorng.E.
Through Oclobor 2018, rvhen thg capsclty used was includsd in NGD rates, NW NatuJal r€talnod 33% of pretax incorne with the rsmaining 67% croditod to 6
delered regulatory account for crgdit to NGD oustomors. ln conjuncllon whh thc Orogon rate caa€, ef661ive November 2018 NW Natural rstelns 10% of pr6,tax
lncome trcm such storago and asset managomont se ices and 90% ls otedited to NGO busine6a customcrs.
The following table presents lhe rcsults of activilies aggrcqatod and rgportod as other lor both NW Holdings aod NW Natural:
ln milk ng oxcept EPS dal6 2019 2018 2017
l,lw Netrralolhsr. nel lncom6
Oth6r NW Holdings activity
i,lw Holdlng8 offlor - n€t hcom€
EPS - NW Holdlngs - other
$8.1 $
(3.6)
'10.6 s
(0.8)
11.2
0.4
$4.5 $9.8 s 't 1.6
$0.15 $0.34 $0.41
The sionifcant driverE of changes in othsr n€t incom€ discuss€d bolow apply to both NW Holdings and NW Natural
49
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 5't of 229
Table of Contenls
mlt CO PARED TO 2010. Other not incomo decroas€d $5.3 million and $2.5 million at NW tloldings and NW Naturel, .eipoc{v6ty. The d6cr6ass at NW Nalursl
wa8 primarily ddvon by lorsr asset management ruvenuos and lncreas€d a6sel management revenuo sharing wilh Or€gon customoE as a rcsult ol the 2018
Orrgon rate case. The decrease ftom other NW Holdings activity vi,as ddv6n by ln.feagos ln pDfe66ion6l s6.vic€ costs and expense3 assooiated wlth
dBveloping thB water buslnoss-
20lt CO]IIPARED To 2017. Other net income decreased comparod lo the prio. podod prlmarlly du6 to l4-2 mllllon ln highor incqme tgx gxpenso driven by 04.4
million in lnconl€ tax bonefits rocognizgd ln 2017 t om the enaclrnenl ofthe TCJA, psrtially offsel by a $2.8 millirn incroaso ln rov6nuGs trcm aEset managemenl
aqreemonts br Misl slorago and transportation capacity.
Consolldrtad Op$atlons
Ooorations and Maintonanc€
Operations and maintgnancs highlighB include:
ln ,,illions 2019 2018 20'17
NW N.trrl
Othc. NW Holdings qpo.alions and mainlsnance
t{W }hldho8
169.1 t 155.2 0
1.5
152.2
o.2
0
0 178.2
'
156.7 $152.1
ml9 CO PARED TO 2011. Op€ralions and mainlenanca expens€ increasod $21.5 million ar|d $13.9 million for NW Holdings and NW Natqral, rgspectively. The
incteass at NW Natrral was primarily due lo ihe following:
I $'12.5 million lncreaso lh psnslon 6xpon6€s, consisting ot:' a $4,6 million incrEase from .Bcovory ot amountE in NW Naturql's pension balanoing account upon .sceipt of 6n OPUC accoundng oder in March
2019, whlch wa6 otrB6t within NGD m€rgin and irrcome t€x b€nefits;. a $4.0 million increase fmm hlgher penslon costs as NW Natural began collecting ongoing pension costs thrcugh customar rate6 on Novomber t,
201 8 and began oollecling detenod pension costs through custorner .ates on April 1 , 20 1 9 rather thsn detoning a portion to the balancing account;
and
' s $3.9 million increase ftom a r.gulalory ponsion disallowance gs a result of the March 2019 OPUC ord6r in tho Orogon general rate ca6€.
Ths romaining chango was primarily attributsble to annLtal employee cost incroases.
The $7,6 million incroaso in othgr NW Holdings opsIations and maintenanoa expanse was primarily du6 to oxFronsss associaled wlth doveloplng the water
busln6as.
20lt COIIPARED tO ml7. Operatons end maintonanco cxp€ns€ increased $4.3 milliofl and $3.0 million ,or NW Holdings and NW Natural, roGp€ctively,
primerily du6 to ti6 following factors:. a $3.4 million incroase in NGO payroll and bongfits due lo increased hoadcount and genBral salary inseasos; ard' a $3.2 million increase in NGD non-payroll costs primarlly du6 to lncr6ases in general professional sorvic€s and contract labor.
D€linquent customer recelvablo balancas continua to romaln at historlcally low l6vsl6. Bad debt expense as a porc€nt of r6vsnues yvas O.'l% for 2019, 2018, and
2017.
D€preciation and Amo ization
Depreciation and amortization highlights include:
2019 2018 2017
NW Nahral
Oth€r NW Holdings depreoiation and amorlization
NW Holdhgs
90.4 s
1.1
85.0 $
0.2
8 r.0
0.1
$
$91.5 s 85"2 $81.r
The Elgnificanl drivers of changes in depreciatjon and arnorllzatlon discu6sed below apply to both NW Holdings and l.lw Natural.
mtg COIPARED TO m18. Depreciation and amortization expen66 incr6a66d by $6.3 nillion and $5.4 million for NW Holdings and NW Nahrral, respsclivsly,
primadly dus to NGD plant additions Blat included investmonb in natural gas kansmission and distribution 6ystemr supporting auEtomer grovrth, safoly,
rollabllily, taqility upgrados, and enhanc6d lochnology. ln addltlon, the
50
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC.
Pase 52 o1229
Table of Conlents
North Mist gas storage facility began opqrations and began dopr€clating ln Mey 2019. The increasa in othel l,lw Holdings deprecietion end emortilation was
primarily due to deprecistion expense at acquirod water and wastewater entities.
2o1t COxpAREo To 2017. Depreciation and amortization expens€ lncreas€d by $4.1 million and $4.0 million for NW Holdings 8nd NW Nahrral, r$pectively,
primsrily due to NGD plant addltions hat includgd lnvesknehb in natural gas transmission and distrlbutlon systems supporting customer growlh, 6afety,
roliabilily, fscilily upgrades, and enhanced tschnology
ASedrsloelExDerscl.NE!
Oth6r lncomo (exp6n6e), net highlights include:
ln millions 2019 2018 2017
Ponslon and o&s po6trsfframcnt co6lt
Deferral (amortization) of rcgulatory pension balancing account
Rogui.by dblllowsnce of p3nslon co€t8
Equity portion ofAFUDC
N6t lr €r€st lrEma (€resnse) oo dafcrrld rrguhiory accout8
Othor non-oporating
NW N8tural &l otlor lncomo (opan8o), nol
Other NW Holdings activity
NW HoldrEr tohlodlrr inconE (sxp6mo), n"t
t 03.3) $
(10.7)
(6.c)
0.7
7.2
(0.3)
(17.0) t
7.9
(!0.2)
4.1
4.'1
1.7
(0.s)
2.7
2.0
1.2
t (23.0) $
0.2
(3.6! $(0.2)
(0.1)
$(22.E) $(3.6) $(0.3)
Thr slgnificant drivers of changes in othcr inconte (6xponse) discuss6d b€low apply to both NW Holdings and NW Natural.
mtg COIPARED TO 20t8. Oth€r income (6xpons€), net, d€crgased $19.2 million and $i9.4 million al NW Holdings and NW Natu.al, rospectiv6ly. Tha decrsase
was primarily ddven by activity in NW Natural's pension balancing account as doscrlb€d b€low. ln addition, net interesl incomo on doterad rogulatory accounts
increised $5.5 mittiqn-p.imarii du6 to $5,1 million ot dsfongd oquity intorest income recogniz6d in 20'19 ln coniunction with amortizalion of tho ponsion
balancing account. lntorest income from the squity portion ot AFUOC docl€asod S3.3 million, primarily ddven by the placemont of th€ Norlh Mist facility into
servico in May 2019.
Plorlo!-E€jsosioc-Accoqol
F ". ,01 1 or.rSh O"t"b", 3'i, 2018, NW Natural had OPUC approvel to d€fer certain pension oosts in exce$ ot what was lEcovared in customer rates. Thls
peosion cost de6rral was record€d to a regulatory balancing account, which gtabilized the amount of ponsioo expeNe tecognized each yoar in lhe consolidated
itatements of comprehonslve incorne (loss). Total pension oost delenals, excludlng int€rost, were $10.3 million and $6.5 millloo tor the years ended
D€comber Sl, 20i8 and 20,t7, oI whicir $7.9 million and 4.1 million was recognizod in other hcome (expense), net, r6spoctivsly. ln Octob€r 20'18, the OPUC
issued an orde. lreezing th6 pension balancing account and directing that ruture pen6ioo expense would b€ .ecoverod through rates with an lncroase of S8.1
mllllon to revenug r€quhement.
ln March 2019, th6 OPUC hsu6d another order allowing for the applicalion of certain ddfensd r6von!6s and tax b6n6fits from the TCJA lo rcduco NW Natural's
pension rogulatory balancing account A coresponding totBlof$12.5 million in pension oxponsos u/srs r€cogniz€d, gl wfiich $7.9 million w€s reoognized in other
inmme lexpensei, net in $; consolidatad statomenls ot comprehgnsivo incomo in ths 6rst quarter of 2019, wlth ofisstting bon€fits recorded within operating
revenuei and income taxos. Tha order slso dlrocted NW Natural to rsduca the belanclng account by en additioosl, disallowsd, $10.5 mlllion, ofwhich $6 6
million w6s chargod to othor inoome (6xpsnse), net in the consolidat6d statomsds of comprohensive income. Amortization of the r6maining amount of the
balancing acoou;t began in lh6 Bec.nd quarbr of 2019 ln accodanco with the order. Total amortization oftho balencing account for the year 6nd6d
Decembi 31, 20'19, l-nclu6ive of the $12.5 mlllion recov€ry mentioned above, wa8 S'16.8 million, ofwhich $10.7 million vras recorded to other irrcome (expehse),
n6t. See Note. 10 and 'Regulatory Mattgrs-R6gulatory Proc€sdlng Updato6 - Pens,o,' Cost Ooforral and Pension Balancing Accourt? lo. ttbre inlormation
rogarding the pension balancing ac.ount
2OtA COIPARED TO 2017. Other incomo (expense), net, decraasod $3.3 million ar|d $3.4 mlllion at NW Holdings and NW Nalural. respeotively, pdmadly duo to
a $3.0 million increasg in ponsion and othar post eti.emont non-s6rvic6 costs and i0,8 million lowor gains Lom company-owrod life insuranca, partially ofisot by
a S1.4 mllllon lncreass ln O16 equity pgrtion of AFUDC.
51
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,. INC,
Page 53 of 229
Table ol Contenls
lnterest Exoense. Net
lntorcsl oxpense, net highlights include:
2019 2014 2017
NW Naturel
Oth6r NW Holdlngs lnterest expense
NW Holdhgs
41.3 $
1.4
37.0 $
0.1
$37.5
$42.7 $37.1 t 37.5
2019 COIIPAREO Io 2018, lntercst expense, net ot amounts crpitaliz€d increas€d $5.6 million and $4.3 million at NW Holdings and NW Natural, respectivoly.
The increase at NW Naturslwss primadly driven by $2.3 million higher interest on long t€rm debt b8lances, $1.2 million lower AFUDC debl inlerest incorne, and
$0.9 million higher commercial paper and line of credit interest. The additional increase at NW Holdings was drivon by lntorest on long-term debt at NWN Walor
and inlerest on NW Holdings'line of credit.
2018 COIPAREO TO 2017, lnterest exp€nse, net of amounts capitalized, decreased $0.4 million and $0.5 million at NW Holdings and NW Natural, respectively,
primarily due to a $2.3 million incr€aso in the intarost-rslated ponion of AFUDC, padially ofiset by increased commercial papor intorest exponses of $1.6 million.
lncome Tax Exoense
NW Holdings inqome tax exponse highlighb include:
2019 2018 2017
lncomg tax exponss
Elfects from the TCJA(1}
Adiultgd lrcoms bx 6xp6ns6
NW Nalural income tax expense highlights include
q 12.6 t 24.2 s 41.0
3.4
t 12.6 $24.2 $14.1
EfMh/s t8x rate 16,2% 26.4%
Adjusted efiective tax rate 16.2y. 26.4./.
lr)56€ ho Non-GAqP Reconciliations lsble atlhe beginning of llem 7 lor a roconciliation of tlis non-GAAP financialm€asure lo ils closesl U.S.GMP measure.
36.3%
39.3"/.
2015 2018 2017
lncoma tax o$rn8g
Effects from th6 TCJA(I)
Adjutbd lncome tax gxpgnEo
$14.1 $24.5 $41.5
3,0
3 14.1 $24.5 $44.5
The signmcant drivers olchanges in income tax expense discussed below apply to both NW Holdings and NW Natu.at,
2019 CO PAREO TO 20'lt. The efiective tax rate decreased by 10.2% and 9.5% at NW Holdings and NW Natural, respectively. The reduction was driven by the
relum of tax rofo.m benefils to cuslomers, including $5-4 million in tax benefits recognized in association with the OPUC 20'18 Oregon rate case ordor which was
offs€t by pension expenses. Se6 'Execulivo Sommary - Deleted TAA banalits and timing vaiance' above.
20lt CO PAREO TO 2017. Th6 offective tax rate decreased by 9.9% and '10.2% at NW Holdings and NW Natural, r6spectivoly, primarily due lo a dscline in the
statutqry income lax rate from 39.570 to 26.5% as a r.sult ot the TCJA enactment in ?017. lncomo tax expenso decreassd due to th€ TCJA and lower pre-tax
inmmo, partially ofisol by a benefit of $3.4 million r€cognizod in 2017 at NW Holdings and a benefit of g3.O million rocognizod in 2017 at NW Naturalfrom th6
remeasurement of defoned tax balancrs upon the TCJA onactment date. Excluding tho impact oI the 20'1? r€measurement benefils qf $3.4 million and $3.0million et NW Holdings and NW NatuIal, rsspectivsly, the adjustod effeclive tax rat€ decroased 12.9% al both NW Holdings and NW Natural due to the rtatutory
tax rate d8dining from the TCJA. See the Non-GAAP Roconciliations at the boginning ol ltem 7 for additional ififormation.
EtuivE hx rat 16.9% 28.4alo
Adjusted efiective tax rate 16.9% 26.4o/"(r)56€ th€ Non-GAAP R€conciliations table 6l lhe beoanning of llem 7 for a roconcilistion of this non€MP fnsncial measur€ lo itr closest U.S.Gq/AP measure
36.6%
39.3%
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 54 of 229
Table of Contents
E!D![!c-SdE!CU.aueLS!en9e
On June 20, 2018, NWN Gas Storage, a wholly owned subsidiary of NW Holdings, ontored hto a Purchase and Sal€ Agreement (the Sale Agreement) that
provid€s for the sale by NWN Gas Storage of all of its memb€rship interests in Gill Ranch. Gill Ranch owns a 75olo interest in the natural gas storage faoility
located near Fresno, California known as the Gill Ranch Gas Storage Facility. PG&E owns the remaining 25% interesl in lhe Gill Ranch Facllity.
tn the Sal6 Agreoment, NWN Gas Storage makes ropresenlations and waranties concerning, among oth€r things, Gill Ranch, the Gill Ranch Facility and Gill
Ranch's business and contractual r6lationships, and agrees b cause Gill Ranch to conducl its business and mainlain its propodies in the ordinary course,
consistent with material agreements and past practioe.
The Sale Agreement provides for an initialcash purchase price of $25.0 million (subject to a working capital adjuslment), plus potential additional payments to
NWN Gas Storage of up to $26.5 million in the aggregate if Gill Ranch achieves certain economic poformahc€ levsls for lhe frst three full gas storage years
(April '1 of one y6ar through March 31 ofthe follovJing y6ar) occuring afier the closing and lhe remaining portion of the gas stoGge year during which th6 closing
occurs.
The decision approving the transaclion wa6 issued by the CPUC on Oecember 12, 2019 and the transaotion is sLrbject to other customary closing conditions and
covenants, including the requirement that allofthe representations and waranties be hue and correct as of tho closing date except, as would not, in the case of
certain roprssentations and wafianties, be reasonsbly expected to have a material adv6ls6 oflect on Gill Ranch. The agreement, as amended, is currently
subjsct to termination by either party if the transaction has not closed by March 31, 2020. We continue to slrive lo close this transaction.
On January 29, 2019, PG&E fil6d voluntary pelitions for rolief und6r chapt€r '1 1 bankruptcy. W6 cannot lully predict the course of the bankruplcy proceedings or
the impact on the sale and will conlinue to monitor lhe situation closely.
The results of Gill Ranch Slorage have been determined to be discontinued opqrations and arc presented separalely. net of tax, from the results of continuing
opeaations of NW Holdings for all periods presentad- See Nole 19 for more information on the Sale Agreemenl snd the results ol our discontinued opemtions.
The CPUC regulates cill Ranch under a market-based rate model which allows for the price of slorage services to be set by the ma*etplace. The CPUC also
regulates the issuance of securities, system of accounts, and regulates intrastale storage serviceg. The Geologic Enorgy Menaggmont Division olthe California
Department of Conservation regulations for gas storage wells were finaljzed in June 20'18, and lh€ U.S. Department of Transportation's Pipeline and Hazardous
Materials Safety Administration (PHMSA)proposed new fedoral rogulalions for underground natural gas storage facilities, which were rlnalized during 2019 and
increasod costs for all storage providers. NW Holdings will continue lo monitor and assoss additional new regulations unlil lhe sal6 ls complete.
Short term liquidity lor cilt Ranch is supported by cash balances. intemal cash flow fiom operations, equity contributions from its paronl company, and, if
necessary, additional externaltinancing.
F'NANC'AL COND'IION
Crpltrl Structurs
NW Holdings' longFterm goal is lo malntein a strong and balanoad corEollrated caFrital stnEture. NW Natural targ€ts a rsgulatory capital stuoture of 50%
common oquity and 50% long-tsrm debt, which is consistent with approv€d .ogulatory allocedons in Orogon, which has an allocatioi of 50% common €quity and
50% long-tBrm debt without recognilion of short-torm d6bt, and Washington, which has an allocalion of 5Oc/6 bhq-l6rm d€bt, 1% Ehort-t6rm debt, and 49%
common equity.
\ryhan additbnal capital i8 roquired, d6bt o. €qulty soc,uritios are issued dep€nding on both the larg€t capital Structuro and markat co.dilions. Theso sourcos of
copitai a.q Elsg used to fund long-torm d6bt rstirsmsnts and 6hort-t6rm cqmmercl€l p€por maturldrs- Saq "Liquldiry r/,d Capt€, Resouroes' belov, and Note L
Achieving our targ€t capital strucluro and maintaining Buffciont liquidity to msot op€rating r.quir6monb is nEoessary to maintain altraqtive crodit ratlrEc and
provid€ acc€ss to lhe capital ma*stE at.sa8onabL cosb.
NW Holdlngs' consolldat€d capital struclure, exaluding short-{otm debi, was es tollows:
Decomb€r 3'l ,
2019 2018
Commfi cqulry
Long-tenn d6bt (including cunonl matudtios)
Tot l
,49.6%
50.4
50.9%
49.1
1m.0%100.096
53
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 55 of 229
Table of Contenls
NW Natural's consolidatGd long-term cepitel stuc{ur., excludlng 6hod-t6rm d6bt, wqs a3 followsi
D6c€mb6r 31,
2019 2018
Co.nmo .quity
LorE-t6rm d6bt (including drnEnt maturilies)
lot l
40.3L
50.7
'19.'a%
50.6
r00.0*r(x).0%
lrEluding short-torm dobt balancos, as ol Doc€mb€r 31, 20'lg and 2018, NW Holdings' consolidaled capital structure included common equity ot45.7% and
44,4%, long-t€rm d6bt ot 42.5o/" and 41.1%,and short-tem d6bt including currsnt malurlties of long{6,m d€bt ot 11.87o and 14.5.i6, r6sp€clively. As ol
Dccembor 31, 2019 and 20 t8, NW Naturgh consqlidalgd captlal structure includod .ommon oquity or 45.9% and 42.9%, long.torm dobt of 42.9o/o.nd 42-2.16,
and short-tBrm d6bt including curronl maturilies of long-lom d€bt of 11.2% and 14.9%, respectivoly.
Du.ing 2019, changes lo NW Natural'8 capital alructur6s \Nqre p,imafily due to oapitsl oontributions from NW Holdings and th€ issuancs ot long.torm dobt.
Chang€s to NW Holdings' c€pital structuro w€r6 p.imarily due to lssuanc66 of common oqulty st NW Holdings and the issuanc€ of long-term debt st NW Natural.
See turlher discugsion below in 'Cash Flows - Financing Activities" .
Llouldltv lnd Caollal R6aourc6r
At Decsmbor 31, 2019 and Dec6mb€r 31, 2018, Nw Holdings had spproximately $9.6 millio.r and S'12.6 million, and NW Natural had approximalely $5.9 mllllon
and $7.9 million, of cash and cash equivalonts, rospectivgly- ln order to maintain ouffqient liquidily during perirJds rvhen cspital markgts ars volatile, l{W
Holdings 6nd NW Natural may elest to mainlain higher cash balances and add shorl.t6.m bonowing capacity. tlw Holdings and NW Natural may also pr€-rund
thoir lasp€ctivo capital €xp€nditurcs r,/hen long-t6rm fix€d rat6 environrnenb ars attmclivB.
NW Holdlnos
For NW Holdings, short-term liquirity is primarily providod by cash balanc6s, dividends from its operating subsidiaries, in particular NW Natural, available cash
frcrn a multi-ygsr credit facility, snd short-tem crodit faciliti€s. NW Holdings also ha6 a unlvoEal shof rogistation stat€m€nt fl€d with th€ SEC for th6 issuance
ofdobt and oquity s€curities. NW Holdings bng{erm debt, if any, and oqulty bsuancss are primadly us6d to pDvkl€ oquity contrlbutlons to NW Holdlngs'
oporating subsidiari€s for op€rating and capltal oxpondituBs and othsr corporale purposes. ilw Hddings' issuanc€ ot 66curities i6 not subjecl to roguiation by
Elale public utility commissions, but the divk ends from NW Naturalto NW Holdings a.o sublsct to regulatory ring-rencing provisions. NW Holdings guarante€s
tho dobt of its wholly-ownod subGidhry, NWN Wator. S€€ 'Long-76mr Debf b€low for moro information r€garding IIWN Wat€r debt.
As pad oflhe dno-fonclng condi ons Egreed upon with the OPUC ahd WUTC in connection with the holding company reoEanization, NW Natural m6y not pay
divid€nds or nEke digtributions to NW Holdings lf NW Natural's cr€dit ralings 6nd common equity ratio, d6finsd ac the rstlo ot equlty to long{e.m debl, fall bebw
spocitied levels. f NW Natural's long-term socurod crgdit ratings are below A- ror S&P and A3 for Moody's, dividends may be issued so long as NW Natural's
common equity ratio is 45% or more. lf NW Natrral's lono ierm socurEd credit ratlngE arB below BBB for S&P and Baa2 tor Moodys, dividends may be i$ued so
long as NW Natural's common equity ratio is 46% or more. Dividonds may not b€ issued if NW Natural's long-torm sscurod c.edll.atlngs are BB+ or belorv for
S&P or Bal or bolo,v fot Moody's, or it NW Natural's common equity ratio is bdow 44%, where lhe .atio is measured using common equity and long-term debt
excludinE imputed debt or debl-like lease obligalions. ln each case, common equlty rallos erc d€lgrmlned based on a pr€cedlng or proiecled ,3-month sverage.
ln addition, th6ro arc certaln OPUC notlco requir€menl6 for dividends in excoss oI 5% of NW Nalural's r€tainod sarnings.
Additionally, l, NW Natural'6 common oquity (excluding goodwill and squity associated with non-rogulatod ass6is), on a prac.ding or prdeclod 13-month
awrags basis, is less than 46% of NW Natutal's capital struc{urs, NW NEtu.sl is rgquir€d to notify the OPUC, and if the common oquity ratio falls b6low 44%, filoI plan with the OPUC to rgstcre its oquity ratio to 44%, This conditjon is dosigned to gnsuro NW Natural contlnusE to bo adoquatoly capitaliz€d under thg
holdirE company struc{ure. Under lhe WUTC ordsr, th6 averago common oquity ratio must not sxcssd 56%.
At December 31, 2019 and 2018, NW Nalural satistied the ring-lencing provisions described above.
Bas€d on s€veral factors, including cunent cash roservos, committ€d crBdit facilitios, Its at llty to r6calv6 divid6nds trom its operating subsidiaries, in partisula.
NW Natural, and an exp€ctod ability lo issue long-term dobt and equity sesudties in tho capitsl ma*ets, NW Holdings believes ib liquidity is sufliciont to m6at
anticipated near-term cash requirements, including all conlrachial obligatlons, inveEting, and financing activities as dlscussed in 'Corrractual Obligatons" and
'Cash Flows" b€low.
54
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 56 of 229
Table of Contenls
NIY HOLDIIIGS DIV|DENDS. Ouarterly dividonds hav6 been paid on common stock 6ach y€ar since NW Holding8' p.edec6ssor's stock was first issued to the
public ln 1951. Annual common stock dividend payments per share, adjusted for slock splils, have increesed each year since 1956. The declarations and
amount of tutur€ dlvldonds to shareholdeB willdepend upon 6amlngs, ca8h frolrr6, llnanclal condltlon, NW Natural'8 abllity lo pay dlvldends to NW Holdlng8 and
olher faclors. The amount and timing ol dlviiords pafable on common stock is at the sole discrotion of the NW Holdings Board of Direclors.
Natural Gas DisEibution Segment
For the NGD buslness sogment, short-term bonowing roqulr€ments typlcalv p6ak durlng cold$ wlnter months $/h€n lha NGD buslnoss bono!,\.s money to oover
the lag bgtween natural gas purchasos and bill collections from customers. Short-tom liquidity for ho NGD busingss is primarily providsd by cash balances,
lntamal cash flow lrom op€ratlons, proc66ds from the sale ol comme,cial paper nstgs, as wBll as availabh c€Eh frgm multi-y6ar cr6dit tacilitiBs, 6hort-t6rm cr€dit
faciliti€s, company-own6d lif'B insuranco policies, th6 6alo of long-tom dobl and oqulty conlributioo6 from NW Holdlngs. NW Natural's long-term debt and
conbibutigns trom NW Holdings are primarily us€d to finance NGD capital exp€nditures, rsfinancg maturing debt, and provide temporary funding lor other
general corporalo purposos of th€ NGD business.
Based on its curent debt ratings (see 'CrEdl Ra[ings" belol r), NW Natural has bson able to issue commeroial paper and long-term debt al attrastive rates €nd
has not n66d6d tc borrow or issue lBtlers of credit lrom its back-up cIedil fadlity. ln the evert NW Natural 16 not able to isau€ n6w d€bt du€ to advorso mark6l
@nditions or other reasons, NW Natural oxp6cts that near-te,m liquidity needs can be met using intomalcash flows, issuing commercial paper, receiving equity
conHb{tions rrom NW Holdings, or, tor tle NGD segment, drawing upon a committed credit lacility. NW Natural also has 9 univer6al shelf regisratlon statement
flod wilt! the SEC fo. the i6suanc6 of secured and unsecured dobt securiti€s.
ln lh6 event senior unsecured lgng-term dobt Etings are downgraded, or ouktanding derivatlve positions exceed a certain credit threshold, count6rpartie6 under
dsrivatlvo contracts could roqulro NW Natural to post cash, a lettgr of cr€dit, or oth6r torms of collat€ral, whidr could 6xpo6€ NW Natural to additlonal cash
requirements and may trigger increases in short{6rm bonowlngs whllo ln a nql loss position. NW Natural was not roquirsd to post collateral at Decomber 31,
2019. Howwer, if the credit risk-relat6d conting€rd features underlying th6so contracts wBre tdggsred on Doc€rnbor 31, 2019, assuming long{erm debt ratings
dropped lo non-investment gradg ls\rols, NW Natural qould have bgen required tg poot 90.1 million in collaieralwith gur counteparlie$. Sea 'Credit Rating$"
below and Note 1 6.
Other ilems that may havs a signifcant impaot on NW Natural'6 liquidlty and capital rcsources include NW NaturEl's p€nslon contrlbution roqulrcmenls and
environmental expenditures.
PEils|ON COITR|BUT|ON. NW Natural expecb lo make conbibuton6 to its company-sponsorsd dofin€d b€nefit plan, which i6 closod lo n6w employees, over
the next seve.al years until the plan 16 fully funded under lhe Pensbn Proteciion Act rules, including tho rules issued under the Moving Ahead tor Prqgrg$s in the
21st C€ntury Act (MAP-21), as am€nded. See 'Application ot Critical Accgunting Policle6-Ac.orrrting lor Pensions and Posrl9tir€m€rl Bare,tlsl below and
Noto 10 tor more informalion.
E]{YIRO IEI{TAL EXPENDITURES. NW Natural expoots tO Continue Using CAOh ressuroes tO fund environmental lisbilities. NW Natural ha6 authorlzadons ln
Or€gon and Washlngton to d6fer costs related tq remediation of prop€rti€s that ar€ ownsd or t^,ero prevlously ownod by NW Natural. ln Oregon, a Sito
Remediation and Racov6ry Mechanism (SRRM) is cunenlly in place to rocovery prudently incuned cosls allocable io Oregon custorn€rs, subject to an eemings
t6sl. On Oclobor 21, 2019 th6 WUTC auhorized an Envi.onmenlal Cost Recovery Mschanism (ECRM) for recovery of prudonty incured cosb allocablo to
Washington custom€rs b€ginning Novgmbor 't, 2019. Se€ Note 18, snd 'Resun8 ot Oporations-Rogulatory Mstlsrs-Environmentdl Cost Deferal and
Roaovoq abo^/e,
Based on several factors, including cunent oredil ratings, NW Natural's commo.clal papar prcgmm, curont cash rosoryes, commilted credit faciliti$, and an
expected ability to issue long-term debt and r6ceive equity cont ibutjons ftom NW Holdings, NW Natural believes its liquidity is sutficient to meet anticipated
near-t6m cash roqukgments, lncluding allconlractual obligations, inwsting, and financing activities as di8cu8sad ln'Cont/actual Obligdlions'and "Cash Flows"
bolow.
tttY i{ATURIL DtvlDE DS. Th6 dodarations and amount ot future divid€ndr to NW Holdings will dopond upon oamlngs, cash fors, financial condition, the
satisfaction oI OPUC and WUTC rsgulatory .ing-t6ncing .ostrictlons, and oth6. tactors. Thr amounl and tlmiBg ofdividonds payable on common stock is subject
to approval oI the NW Natural Board of Dir6clo6.
ln October 20t7. NW Natural entered ifito a 2Gyear lease agreementfor a new oorporate oporstions center loc€tion in Porfland, Oregon, The exigling lease
expiros ln 2020 and afler an €xtenslve search and evaluation process with a focus on seismic preparedness, 6afety, reliability, lga6t co6t to custom€rs and a
continued commitment to NW Natural's employees and the communities NW Natural serves, ilw Nalural executed a new lease for suitable commsrcial ofllce
6pace ln Potland, Oregofi. Paym6nts under the lease are expgcted to commence in the third quarter of 2020 and lotalesumatad base rant payments over the
2o-year life of the l6ase are approximstely $180 million. NW Natural hes tho opdon lo ortond tho torm of the leaso fot two additional soven-year periods.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 57 oI 229
OFFaALAI{CE SHEET ARIIANGEiIEi{TS. Except for cortain leas€ and purchaso commilmonts, NW Holdings and NW Natrral have no material off-balanca rheet
tinancing an"angements, See'Contractual Obligatons" below.
Tab e of Contenls
Addilionally, the l6ese was ahalyzed in consideration o, build{o-suit leas€ accouniing ouidance with tho conclusion that NW Nalural is the sccounting owner of
the asset during construction. As s result, NW Natural rocognized $25.5 million during 2018 ln property, plant and equipment and gn obligation in other non-
cunenl liabilities for the game amount on its consolidated balance sheet. These accounting transactions are non-cash in natuB, and a! such, arG nol lncluded ln
th€ cash ,low analysis and capital exp€ndlhir€s fo.scasts below, and have no impacl on short-te.m liquidity. When the new lease accounting standard, ASC 842,
became effective for NW Holdings and NW Natural in 2019, lhe a*sociated build-to-Eult asset and liabillty wsre de-recognized in accodance with the new
6tandard. See Ngte 2 lor rnore infqrmalion on the impacls of the new lease standard.
Contraclurl Obllqallons
The followlng tabl6 shovrs contreclusl obligations from continuing operations at December 31, 2019 by maturity and type of obligation:
Paym€nts Oua ln Yaars Endlng D€c€mber 31,
2020 2021 2022 2023 2024 Therealler Total
l.lw Netu.al
Short-lerln debl mElu.ities
Lono.t .m d6bt mat rltbr
lnteresl m lorg-tarm debl
Poalrotrorher{ h.IEfft psyrEnb(}
Operating l€as€s
Gs purdEggs@
Gas pip€line capacity commitments
Otttor ArdEro loanmlrtr$antso)
Other longFlerm liabilhios(')
tlw NstrrEl Total
Olher (NW Holdings)
Short-t rm dobt malurtt s
Shod- and long-term obligations{s)
t{W Holdlngs Td€l
33.2
27.5
6.8
25.2
252
7_1
a21.7
343.9
162.i0
130.9
90.0
2E.1
7.0
72.8
1.8
72.5
0.t
71.0
2.O
$125,1
75.0
36.1
25.8
4.4
86.2
81.1
'18.3
60.0
3r1.9
26.7
6.7
2.9
74.5
0.9
530.4
125.1
E4!L7
509.6
300.0
1G2.9
69.t
902.3
,1,6
18.3
$s t I $$
452.O 206.8
35.8
t.11.9
0.3
21.0
1.3
230.3
0.3 0.3
13E.5 1,792.3 2,S61.6
u.0
39,r1_1
$ 477.3 I 242.1 I 1122 $ 230.6 t 138.8 3 '.7S3.4 I 3.OA.7
ls)
ln addition to known contraciuel obligations liEted in the above tsble, NW Natural has also recognized liabilities for tuture environmental rcmediation or action.
The exact liming o, payments bcyond 12 months with respect to thoso llabiliti€s cannol be reasonably €stimated due to numemus un@rtainties sunounding the
course of environm6nlal r€mgdiation and the preliminary nature of site investigations. See Note 18 for a further disc!ssion ofenvironmgntal rcm€dlation cost
liabilities.
At Oecember 3'1, 2019, 626 of NW Natural's natural gas distdbution employe€s were members ol the Office and Professional Employees lntemational Union
(OPEIU) Local No. t 1. ln November 20'19, union 6mployo6s ratllied a n€n collectiv6 bargaining agreement that took sftect on December 1, 2019, expires on
May 31, 2024, and is efiective ther6afier from ,€ar to year unless 6ith€r party sorvos notic€ of its lntenl to nogotlate modifications to th€ coll6ctiv6 bargalning
agroomont. Ths remaining tsrms oftho collectiva bargaining agroGment include the following itoms: I 1.5% wage increase effective Decembet 1,2019. a2.0'/.
wag€ increase elfectivo June 1,2020, and schodulsd wago increas€s effective June 1 oleach subsequent year of 3.5%; cornpetitive hgalth bengfits, including
l5% to 20% pr€mium cost sharing by employees; a 401(k) conlribution of 4% tor employeos hired att€r our p€nElon plan was closod on Oecember 31, 2009;
and a 40,l(k) match of 50% ofthe tirsl 8% of saving6.
Short-Term Debt
Tho primary sourca of short-lonn liquidity for NW Holdings is cash balances, divid6nds Ircm its operating Eubsidiaries, in parlicular NW Natural, availabl6 cash
from a mulli-year cr6dit facility, and short-tam credil facilities it may enter inlo from time to time.
Postretir€rn€nt b€n€lit paym€nts pimadly conaisls of two NW Natural items: (1) ostimatod p€nsioo and olher poslr6lir6m6nt plen paym€n16, which ar€ lunded by plan
ass€ls and fuluro cash co.rlribulions, and (2) required payrl€nts lo the Weslem States mulliemployer ponsion plan du6 to NW Natural's witMrawal from tho plan in
Oocembe.20l3. See Note '10.
Gas purcftssgs include conlracls whlch us6 pric6 forhulas tied to monlhly index prices. Tho commitrnent amounls presenled incorporat€ th€ Oocomb€r 2019 lilst of
nEnth ind€x price for each 3upply basin from whlch gas ls purchas6d. For a summsry of ges purchasa and ga6 pipBlins capacily commitmBnts, 6€e Note I 7.
Olher purcha6o commltmonts priharily con6ist of remsinirig balsnc€s under existing purchaso ordors,
peyrh€nts ar€ unlikely to all occur in the n€xt '12 months.
Sho - and long.t€rm obligations indud€ 6horl- and loog-term debt obligations and oth€r immalerial liabililies.
56
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 58 of 229
Table of Contents
The primary souroe of short-term liquldity for NW Natural is lrom the sale of commorcial pap€r, available c€sh trcm a muhi-y€ar crodit facilily, and short tem
cr6dit facililiGs. NW Natural has a separate commerclal pspsr progrsm snd separato bank facilities. ln sddition to issuing commerci8l paper or bank loans to
m6et working capital requirements, including s€asonal requkoments lo frnance gss purchases and accounts reoeivsble, short-lerm dobt may 6110 b€ used to
temporarily tund capltal r€quirem€nts. For NW Natural, commercial paper ahd bank loans are pe.iodically r€frnancod through the sale of long-term debt or equity
cont butlons trom I'lW Holdlngs. Commercial pap€r, when outstending, is sold through t o commercial banks under an issuing and paying agenry agreement
and ls suppodod by on6 or morc unsecured rovolvlng credit facilities. See'Credit Agreemenb" below.
At Doc€mber 31, 2019 and 20'18, NW Holdings had short-torm debt outstanding of $149.1 mlllion and $217,6 million, r6sp€c1ively, and l.lw Natural had short-
term d6bt outstandino of $125.1 million and $217.5 million. rospectiv€ly. The weighiBd avorage interest rate on short-term debt outstanding at Dec6mb6. 31,
2019 and 20'18 was 2,0% and 3.00/0, respoctivoly, at both NW Holdings and NW Natural.
Crodlt Ao]tementa
NWXddiDes
NW Holdings has a $lOO million crodit agro€ment, with a foature that allows it to request incrsass6 in th6 total commitmsnt amount, up to a maximum of $150
milion. The maturity dat6 of the agr66ment is Oatobor 2, 2023, with available extsnsions ot commitrnonts for two additional oney€ar periods, subject to lender
approval.
Atl l6nd6rs und€r th€ NW Holdings credit Egreement are malor financial instilutions wlth committed balances 6nd investment grade credit.atings as of
Decembor 31, 2019 as tollows:
Lender ratino, by c€tegpry Loan Commltment
Total
$100
s 100
Basod on cr€dit malkel conditions. it b possible on6 or mor€ londlng commitrnonts could b6 unavailablo to NW Holdings if the lendsr defaullod due to lack of
funds or insolvency; hor\rov€r, NW Holdings doos not b€lieve this risk to be imminonl due to the lend€B'strong inv6otment{rade crodit ratings.
The NW Holdings crodlt agr€€msnt p€rmits the issuanc€ ol l6tt€r6 of cJ€dit in an aggr9gate 6mount of up to $40 million. The principal amount of borrovrings
und€r the credit agroement is duo and payabls on the matudty date. The crsdit agreement requires NW Holdings to maintaln e consolidatod indebtBdnoss to
total capitalization ratio of 70% or less. Failure to cornply with this covenant would entitlG th€ lenders to terminate lheir lBnding commitments and accelerate the
maturity of all amounts outstanding. NW Holdings was ln compliance with this covenant at December 31, 2019 and 2018, with consolldated indebtodn€ss to total
capitalizstion ratios of 54.3% and 55.6%, respectively.
The agreement also requires NW Holdings to maintaln d€bt.atings (whidl are defined by a fomula using NW Natural'E credit.atings in lho evont NW Holdings
does not have a credit rating) with Standard & Poo/s (S&P) and Moody's lnveslg.s SeMce, lnc. (Moody's) and notify lh6 lenders of any change in its senior
unsecured d6bt ratings or 6€nlor sodrred debt ratings, as applicablo, by EUch raUng agoncles- A chan96 in NW Holdings' debt ratings by S&P or Moody'6 i6 not
an event of default, nor is th€ maintenance of a spocifc minimum lev6l otdobt rating 6 conditbn of drawing upgn the crsdit agroemant. Rathe., int6,ost.atos on
any lgans outstanding undor the crsdit agresments are tied to debl ratings and therslor6, a chango in tho debt rating would incroas6 or decroass tho oosl ofany
loans under the credit agae€ments wh€n rEtings are changod. NW Holdlngs do€s not cunently mainbin ratings with S&P or Moody's.
lnterest charges on the credit agreement are indexed to the London lnterbank Orr€rod Rat€ (LIBOR). The ag.semenl contains a provbion lo transltion to an
equivelonl rcplacemant rat6 upon the phase-out of LIBOR ln 2021.
NW Holdings had $1.0 million and $2.8 million of letters of credit issuod and oubtanding in 6upporl ofacquisltions of wabr companies, separate from the
afo.emontioned cr€dlt agr€ement. at December 31, 2019 and 2018, rospoctivoly. Tho $ 1.0 million letter ol credit outstsnding al NW Holdings a5 of
December 31, 2Ol9 for purposes of facllitating lhe Suncadia acquisition was extinguished aftor th€ clos€ of the transaction on January 31, 2020.
NW Natural
NW Natural hss a multi-ygar credlt agreement for uNecured revolving lqans totaling $300 mlllion, with a feature that allo ,s NW Natural to request inoreases in
the totelcommitment amount, up lo a maximum of $450 mlllion. The maturity dele ot lhe Egreement is October 2, 2023 with sn available Gxtension of
commitments for two addittonal ong-yG8r periods, subiect b lender approval,
57
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,. INC,
Page 59 ot 229
Ieue-erceIe!.$
All lgrdors undqr lhe NW Nalural credit ag.semgnl aro mai)r financial institutions with commitsd balancos and invsstm€nt grsd€ cr€dit ratings as ol
D6c6mbor 31, 2019 as follows:
Lond.r .rting, by cat gory Loan Comiit flanl
M/Ae
Total
0 3{r0
$300
Basod on crodit market conditions, it is possible on€ or mo.e lending commitnenls cguld be unavailsble to NW Nsiural it the lende. detaullgd due to lsck ot
fund6 or lnsolvencyi howqw', l.lw Natural do€s nol bsllovs thls dsk to bo lmmlnonl duo to th6 l6nd€r6' strong inv6striront{6d6 crodll ratingE.
Tho NW Natural crodit agr66m6nt p.rmit6 th6 issuanc6 ol l6tt6rs of c.edit in an aggrggate amounl of up to $60 millign. The principal gmount of borrowings under
th6 cEdit aglE6m6nt h duo and payabl6 on th6 maturity dato. Thoro wrre no outslanding balanc€s under lhls c.rodit agrqement orlhs prior crsdit agroomgnt at
Docember 31, 2019 or 2018. The crgdit agrgemgnt rcquires l{w Natural to maintain a consolidated indebtedness io total capitalization ratio of 70% or lsss.
Feilut€ to c.mply with thl8 covenent would ontltle thg lenders to torminate their l.nding .ommilment6 and acc6le.at6 th6 maturity of all amounts oulEtanding. NW
Natural was in compliance with thb cov€nant at December 3,l, 20tg and 2018, with consolidatsd indobtednBss to total capitalizetion ralios of 54.1V. and 57.1'h,
rospoctlvelY.
Tho agrsement also requires l.IW Naturalto m€intain cradit ratings with S&P and Moody's and notry the lsnders ofany chango in NW Natrral's senior
un€ecurod d€bt ralings or Eenlor securod d€bt ratings, as appllcabl6, by 6uch rating agencies. A change In NW Natural's d6bt raling6 by S&P qr Mogdy's is ngt
an event of default. nor is the maintenance of a spocific minimum lev6l of debt raung a condltlon of drawlng upon the credit agroemont Rath€r, lntgrost ratos on
any lqans outslanding under the ggrgemenl are lied to debt ratings and thereforo, a changB in lhe dsbt mting would incroase or dgorgase lhe cost of any loans
under th. crodlt agraomenl wh6n ratlngs aro chang€d. Soo'Credt RatiIEs'b€low.
lnlorost chargsq on ihe credit agrgement are indexed to LIBOR. Th€ agregnent conhins a provision to transition to an squivalent rgplacomont,ate upon the
phaslorrt of LIBOR ln 2021.
Crsdlt Ratlnos
NW Hddings doos not cunontly maintain ,alings with S&P or Moody's. NW Natural's cEdit .alings .16 a factor of liquklity, potonlially afiBcling acoass to thE
capital market8 includlng th6 comm6rcial papg. market. NW Nstu.El's credit ratings also have an impacl on the cosl o, funds and tie nsed to post collaleral
undBr dorivativo contracb. The following table summarizes NW Natural's cunenl crodlt retlngs:
s&P ti,lood/s
Cdrm.rdd DqDqr (!ho.l.bm d€bt,
Ssnior B3qrlad (long-tem dabt)
S6r$r lnlGrcd (lon!"fo.m dou)
Co.por6b credit rating
RleEt orriod(
4.1
rra
P-2
A2
B.|l
$dLsbbb
ln May 2019, Moodfs revisad NW Natur6l'6 ,atings outlook from negative to stabls. ln addition, the senior seqJred (long-torm dobt) rrting changed lrom A1 to
A? and tha sonior unsocured (long-t6m d6bt) rating was rovised ftorn A3 to Baa'l.
Tho abovo dedlt.atlngs and ratlngs outlook aro dopend€nt upon a numb€r of ractors, boti qualitative and quanlitative, and are subject to change al any time.
Thg disclosure ofor retsrsnco lo these credit Etings is not a .ecommondatbn to buy, ssll or hold NW Holding6 or NW Natural s6curiti6s. Each rating should be
ovaluatgd lndopsndently ot any othsr rqting.
Ar pan of the .ing-lenoiog conditions sgreed upon with tho OPUC and WUTC in conneclion with lhe lbtding company rsorganization, NW Holdings 6nd NW
N.tur6l are roquked to malntaln sBparate cr€dit ratings, long-term debt rEtings, and pretered stock ratingE, if sny.
58
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC.
Page 60 of 229
Tabie of Conlents
Lono-Torm D6bt
Ths following NW Natural dobenturos were retired in the periods indicated:
Y63r EfldEd Decsmber 3 1 ,
2019 2018 2017
l{W Natural FiJ MorQage Bonds
Sedes 7.00% due 2017
Sod.E 6.60t6 &io 20t8
S€d€s 1.55% due 2018
Sodos E.3'l% due 2019
S.ri.s 7.63% duo 2019
To[al
$40$
75
$
t0
20
$30$07$40
ln Jun6 2019, NWN Wator, a wholly-owned subsidiary ot NW Holdings, anterod into a twoy6ar term loan agreement ror $35.0 million. The loan car.ied an
inter€st rEte of 2.35% at Oecomber 31, 20i9, whlch is ba6€d upon the ono-month LISOR rEle. Th6 loan is gu6rante6d by NW Holdings and requi.€8 NW
Holdings to maintain a consolidated indobtodness to total capitalization ratio of 70% or less. Failure to comply wilh this covenant would entille the lenders to
terminate their londing commltmonls and accelerate the maturity ot all amounts oubtanding. NW Holdings was in compliance with this covenant at
Oecember 31, 2019, with a consolidated indebtedness lo total capitaliza tion ratio of 54.3%.
ln June 20,l9, NW Natural issusd $140.0 million of FMBS consisting of $50.0 million with an interest rate of 3.141%, due in 2029. and $90.0 million with an
interest rate oI 3.869%, due in 2049. ln September 2019, NW Natural retired $10.0 million ol FMBS with an interest rate qf 8.310%, and retired $20.0 million of
FMBS with an interost rate of 7.630% in Doc€mber 2019.
$75.0 million of FMBS with an inleresl rat€ of 5.370% malurod in Fabruary 2020. No oth6r long-term dobt i6 schedulgd lo maturo over the n6xt tw6lve month6.
SBs'Financial Condition-Contactual Obligatbns' above for long-tem dgbt maturing overthe next five years,
Bankruplcv Rinq-fancino Restrictlons
As part ofthe ring-foncing condilions agreed upon wilh the OPUC and WUTC in connection with th€ holding company r6o.ganization, NW Natural i6 roquired to
hav6 on6 diGctor who is independent from NW Natural management and ftom NW Holdings and to issu6 on6 share of NW Natural preferaed slock to an
indop€ndont third party. NW Natural was in complianog with both of these dnyfeflcing provisions as oI Deosrnbor 31, 2019 and 2018. NW Natural may file a
voluntary petition for bankruptcy only it approved unanlmously by lhe Board ol Dhectors of i.lw Natural, including the indep€ndenl director, and by the holdor of
th€ prefsred share.
Crsh Flows
Oooratino Activities
Changos in our operoting cash flows arg primarily affscted by net incom6 or loss. changes in working capital r6quiromonts, and other cash and non-cash
adjustments to oporating rssults.
Op6rating activity highlights include:
l,tw Holdings
201s 2014 2017
Ca€h provlded by opor.ling adlvfil.s $185.3 S 168.8 I 206.7
20't9 2014 2017
C.sh provld€d by opor.ting a.tivttes g 186.2 I 173.5 I
Ths signillcant d vers of changos in cash provided by operating activities discussed below apply to both NW Holdings and NW Naturai.
206.5
59
EXHIB'T 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 61 of 229
Table of Contenls
2019 COI.PAREO TO 201t. The sEnmcant factoB oontributing to the $16.5 millbn and 312,7 million irrcreases in NW Holdings and NW Nstural cash flovr
providod by operating aclivities, respecllvoly, nore as follows:
gn increase of $27.5 million at NW Holdings 8nd $24.9 millign st NW Natural due to net income lax refunds in 2019 compared to payments in 2018. The
rsrunds wore primarlly du6 to bonus doprociation takon oi NW Natural's No(h Mist gas storago expanslon whlch was dac€d lnto sorvlce ln May 2019, as
wsll as $6.0 mlllion in income tax6s paid in 2018 and refundGd to NW Natursl in 20'19;
an incrgaso of $10.6 million ,rorn cgllectiong of both cunent and d6t6ngd pondqn expenEes ss I result of l.IW Natural'5 Orogon rai6 cas6; and
an incrqas€ of $4.6 million dug to lowgr canldbutions pak, to qu8lifisd dofined bengfit po.sion plan6 in the clnant period compa.ad to prior poriods; psrtislly
oitset by
6 n6t dec.6a8c o, $28.5 mlllion st NW Naluraltrom changes in .Bc€lvabl6s, Inv6rtorioa, and 6ccounts psyablo, primarlly r6f,€c ng hcBassd gE6 purchaso
expsndilures from avsrags weather in th€ curent period compaEd to w€rmer.lhan avorage wsathor in the pdor pe ld as wsll as hlgher gas costs than
those included in orstqmer rates.
201! COXPARED TO 2017, The significant fac{ors contributing to th6 $37.9 million and $33.0 million d6croasas in NW Holdings and NW Natural cssh fiow
provid€d by op€rating a.tivitio8, resp€ctively, wsrc as fgllows:
a docroas€ of$31.5 million in cash flow benetits from .hanges in defersd gas cost balances primarily du6 to higher gas prices in fl6 fourth quartor of2018
and low6r cur6nt y6ar PGA rateE rofio€ting over-collgctions ot cerlain lixgd costs from customerE in the p.ior year wh6n vvealh6r wa8 coldgr than avorag6;
a dscreas. of $12.6 million due to S27.4 million incom6 tax€s paid in 2018 duo to thg ollmination o{ bonus doprociation a6 a reEult of the TCJA, comparod lo
incom€ taxes psid ol $14.8 million in 20'17; psrtially offsot by
a not indease of$10.2 mlllion from changes in woaking capital related to r6coivabl6s, lnvgntories, end accounts payablo aefiBcting warmer than average
weath€r in 2018 compared to tlle prior poriod; and
an increa66 of $3.9 milliofi due lo a deareaEe in cgntributions paid to qualified defined benefrt pension plgns.
Durlng the year ended December 3'1, 2019, NW Natural conhibutod $11.0 million lo its qualified definod benefit ponsion plan, comparod to $15,5 million lor ?018
sM $'19.4 million in 2017. Tho amount and liming of future contribulions will depend on msrket inl€r66t r8l6s and inv6strn6nt .€tums on the plan6' asr6ls. Soo
Not6 10.
Bonus incom€ tax dopreciatlon ot 50% was availabls ln 2017 for a larg6 portlon of capilal exp€ndltu.os, and bonus d6preclstlon ot 40% wa8 avallable ln 2019 tor
a large portlon ol No.th Mist gas storage expansion capital expenditur€s for federsl and Oregon puDoses. This reduced taxable income and providod cash f,ow
b€nefits in 2017 and 2019. As a resuit ol the enastmenl of the TCJA on Deoamber 22, 2017, bonu3 depreoiation was elimin8ted for other NGD blsinegs
pmperty acqul..d end placod In 86Nlce att€r Dec6mb6r 31, 2017. Accordingly, bonus dopreciation was not available for such prop€rty ln 2018 and 2019, and we
do not anticipate similar cash llow beneills relatod to bonus dopreciation in tho tuture.
W6 have leaEe and purchas€ commitmenls relating to our operating ac{ivities that are financed vi,ith cssh fiows from operations. For informalion on cash llow
r€quk6m6nts r6lat6d to l6as6s and other purdraso oommltmonts, so6 "Flnancial Condllion-Contreduel Obligetions' above and Not6 17.
lnvestino Aclivities
lnvosting aclivity highlights include:
lh millons 201S 2018 2017
C6h ur.d ln he.dnO !.ihdd.!
CapiLl oxp€ndilur€6
s (300.8) $
(223.5)
(217.5) a
(2r4.6)
12.t1.21
(213.3)
ln millions 2019 2018 m17
Ca!fi ur€d ln hvrdrg la0viiirs
C+ltel €xp€ndllur66
(aE.s) t
(214.3)
1211.z'.t
(213.3)
$(2.a.r) $
(221.4'
201, cOf,PAREo TO 2016. Cash ussd in investjng activities inc.eased $86.3 million and $4.6 million st NW Holdings and NW Nalural, respectively. The increase
at NW Natural was driven by contnued capital expendilures tor customer growth, systBm r6lnforc€ment, 8nd tochnology, as w6ll as l€asehold lmprov€m6nt
additions at NW Natural's new corporate operations center. The increase was partially ofisol by lower capital expenditures due to the completion of ths North
Misl gas storagE oxpanslon ln May 2019. Th€ incr€a66 al NW Holdings was driven by $55.9 million higher expenditures fo, acquisitions, net ot cash acquirod.
60
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 62 ol 229
Table of Contenls
2013 CO PAREO fO 201?. The $3.3 mlllion increase in cash used in invegting activilbs Et NW Holdings was primadly duo to continuod capital expendituros
prirnarily rolated to NW Natursl's North Mist gas storage expanslon faclllty 8s wsll a3 cu8tomer gloMh, Gystem reinforcement, tochrlology, snd tacllities. Tha
additional inc.ease in cash used in investng actlvilies at NW Naturalwas primarily due to NW Natu.al's initial c€sh contribution of $20 million to its Alon
subsidiary, and now parent, NW Holdings.
NW Holdings capital expendituros in 2020 aro an clpated to b€ between $240 million and $280 million, oI which betwsen $230 million snd 1270 million are
snticlpated to occur at the NGD businoss. The total capital inv€6ufl6nt for th€ fivo-yoar p€dod ,lom 2020 to 2024 ls .xp!ct6d to range from S980 million to $ 1.14
bllllon, with $950 milllon to $1.'10 tillion relating to h6 natu.al gas dlstibution sogmGnt and $30 mllllon to $40 million r6lated to maintonanoe capital expenditur€s
for wat6a utilitios w6 curontly own or hava undor a purchasa and salo agrooment.
Tho timiog and amount of th6 coro capital expenditurss and projocts for 2020 and lhe next five ygar6 could chango basod on rogulation, gro$tth, and cost
6stimat6s. Additional investnorts in our inkastructus during and ait€r 2020 that ara not incoDorated in the Estinatgs pmvidgd abovs will dopond larg€ly on
odditional regulations, gronth, and expansion opportunities. R6quir€d funds for the lnvestments aro gxp€c16d to be lntsmally genereted or fnanced with lorg-
torm dobl or equlty, 66 appropriete.
Financino Adivitias
Financing actlvlty highlights includo:
llw H&kcs
2019 2018 2017
Crth FoYlbd byfil.nd4 .cdrdt a
Chanoo in 3ho.t-t m debt
Ch.ngE h lonlFbnn d.bt
Chsnge in cohmon 6tock l6€uod, ngt
Carh ttll&lld prymanta oll cofiror !bc*
t rr5.5 I
(68.5)
1,15.0
93.0
ar.3
57.6 S
163.3
(4r.0)
?A
0.9
80.o
5t.3 5/a-0
2019 2018 2017
Cadb pao{tdad byftdrdno r.dvidr!
Chang€ in Bhorl-lolm debt
Ctrqrfp ln hmtsbnn &bt
C€sh dividond paynenb on comnon 6tock
3 tr.g t
(s2.4)
t 10.0
53.4
60.6 S
163.3
(47.0)
38.4
7.1
0.9
60.0
54.0
2otg COXPARED To 201!. Cash provided by financing aclivitiBs incle.sod $57.7 million and decreased $14.9 million at NW Holdlngs and NW N.tural,
respectively.
Th6 dscreas6 in cash providod by financing activltlos at NW Naturalwas primarily drivGn by $255.7 miuion in highgr rgpaymenls ol short-tarm dobt compared to
tho prior pariod and g15.0 million hlghor cash dividends paid. Th6 d6cr6as6 was partially ofi86t by net lssuancss ot $110.0 mlllion in long-t6rm debl in th€ cunent
poriod comparod to n€t rspaymBnk of$47.0 million in lhe prior poriod as wellas a capital contibutioo tom NW Holdings to l.JW Natursl ot $93.0 million.
Th€ incrsaso al NW Hgldingc wss prims.ily due to proca€dG of S93.0 million trom tho Juns 20'19 lssuanco ot NW lloldings common stock,lhg issusnce of $35.0
mlllion of longFterm d6bt at NW Natural Water, and short-term d6bt issuanc€s of $24 million at NW Holding3. These increases wero padlally ollset by th. dobl
aclivity at NW Natural described above.
ml8 COf,PARED TO 20t7. ThB $50.4 million incroaso In cash pmvided by financing activities at NW Holdings was primarily due to 9162.,1 milllon hlghe. shott-
term debt issuances, partislly offset by $107.0 million lowBr net prooeeds ,rom long-term debt activity in 2018. tlw Natural cash providod by financing activities
was $12.0 mllllon hlgher ln compadson to NW Hgldings primarily du6 to th€ paymcnt of th6 Novembe. 15, 2018 divldond to NW Holding6 sharBholders u6ing
NW Holdings tunds.
NW Natural's pension costs 9r€ delermined in a@ordanca with accountlng standards for componsstlon and retiremont banefits. Ses "Apdication ot Critical
Accounting Policies and Estimates - Pensio, s and Postrclitument Benalfs" below. Pension expense for NW Natural's qualmed defrned b€nefft plan, whlch is
alloc€ted between operations and melnlenance 6xpenses, capital expenditures, and th.ough Oc,tob€r 3'1,2018, the dolorred regulatory balancing aocount,
totaled $'16.5 million ln 2019, a dec.ease ot $4.2 million ftom 20i8. The fair ma*ot value of pension assets in this plan incressed to $313.1 million at
Decembe, 31, 20'19 from $257.8 milllon at DBcembor 31, 20,l8. The increase w8s due to a gain on plan assets o, $65.i million and $11.0 million in employer
contdbutlons, partially offset by benefit payments of $20.8 million.
61
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 63 oI229
Table of Contents
Contributions made to NW Nahrral'6 compsny-sponsorod qualified delined benefit pension plan are based on actuarial assumptions and estimatos,lax
regulations, and tunding requiremsnls under feder.llaw. The quaffied defin6d benefit pension plan w€s unde unded by $164.3 million atOecember31,20'19
NW Natural plans lo make contributiom during 2020 ol $29.0 million. See Note l0 for turther pGnslon dls€losures.
Conlinoent Lirbllhi..
Loss contingoncieE are recorded as liabilities wh€n it is probablo that a liability has been incunod and th6 amount of tlle loss is reasonably estimable in
accodance with accounting standards for conlingenci6s. S€€ 'Apprica$on of Citical Accounting Policbs and Estimatos" below. At D€csmber 31, 20'19, NW
Ngtural'c total ostimated lisb,lity related to environm6ntal sites was $136.0 million. Sos Not6 '18 and "R6sults of Operations-RegulEtory Motters-Rate
Mochanisms-E ryilon mental Cost Oefetal dnd Recovey' above.
NW Holdings is not cunently party to any dirocl claims or litigation, lhough in th€ tuture it may b6 subject to cleims ahd litlgation arislng ln th€ o.dinary clurse of
business.
Now Accounting Pronouncements
For a descriplion of recent accounting pronouncomonts that may have an impacl on our fnancial conditign, results ofoper8tions, or cash flows, see Note 2
APPL'CANON OF CR'IICAL ACCOUNTING POUC'ES AA'D ES'IffATES
ln proparing financial slal6m6ntrs in accordance wilh U.S. GAAP, management exercisos judgment in th6 selection and applicalion of accountlng princlplos,
including making 6stimat6s and assumptions that affect reported amounts of assots, liobilitios, revenues, exponses, and rslated disclosu.es in the financial
statomqnts. Mansgamonl considors crilical accounling policies to b6 those which ara mo6l important to the repres€ntalion of fingncial condition and results of
operations and which requho manag€mont'a mo6t difllcull and subjoqtive or oomplex iudgments, induding accounting ostimates that could r6sult in matorially
dilfgtehl amounts if reported und€r difturent condilions or ussd differcnt assumplions. Our mosl critic€l gstimates and judgments for both NW Holdings and NW
Natural lncludo accounling for:. regulstoryaccounting;. rovenue racognilion;. dorivativ€ inskumonts and hodging activiti€s;. pensions and postretirement benefits;. income taxes:. environmental contingenci€s; and. impairment of long-livod assets and goodwill.
Manegomont has diacussed ils currenl estimstes and iudgmenls u3ed in lhe application ol critical accounting policies with the Audit Committees of the Boards of
NW Holdings 8nd NW Natural. Within the conlext of critical accounting policles and estimates, management is not aware of any reasonabiy likely events or
ckcumstan@s that would re6ult in materially ditferent amounts being reported.
ReoulatorY Accounttng
The NGD segment is regulatod by th€ OPUC and WUTC, whlch establish thc rates and rules goveming s€rvices provided to custom€rs, and, to a cerlain ext6nt,
sot fotth sp€cial accounting trealment for csrtain regulatory transactions. ln general, tho sam€ accolhting principles es non-r€gulat€d compani€s reporting under
U.S. GMP are used. However, authoritativ6 guid6nce for regulated operations (regulalory accounting) requires different accounting treatnenl for regulaled
companies lo show the etrects of such regulation. For example, NW Natuml accounts lor lhe cost of gas using 6 PGA delenal and cost reoovery mechanism,
which is submitted for approval annually to lhe OPUC and WUTC. S€e 'Results of Operations-Regulatory Matters-Rate Mechanisms-Purchasod 6es
Adj stmenf above. There are othe. expenses and revenu6s that lhe OPUC or WUTC may require t,lw Natural to defer for recovery or retund in tuture periods.
Rsgulatory accounting requires NW Natural to account lor these types of defenod 6xpense6 (or dGf€rr6d revenues) as r€gulatory as6ets (or regulatory liabilitieE)
on the balance sheot. When tho r6covory of th96o regulatory a6s6ts from, or refund of.egulatory liabilitios to, customers is approv6d, NW Natural rocognizos tho
exp6n6e or rov6nue on the incofllo statoment at tho same limo tho adjustment to amounts includod an aates qharg€d to customers.
Tho conditions lhat must b€ satisf€d to adopt th€ acco!nting policios and practicas oI regulatory accounting inolude:. an ind€p€ndonl regulator sets ralesi. the regulator sets the rat6s to cover specific cosls of delivering servioe; and. ths 6ervice tenitory lacks oompetitive pressures to reduce lates belo\ / th6 rat€s 6et by the regulator.
62
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO . INC
Page 64 of 229
Table of Conlents
Bocsuse NW Natural's NGD opgratbns satsry afi three conditions, NW Natural c4ntinues lo apply regulstory accounting lo NGD op€ralions. FutuE accounting
changgs, r6gulatory chang6s, or cfianges in the compotitive onvironmsnt could rgqulrs NW Nahfel to discontinue the application ot regulalory sccounting for
6om6 or all of our rsgulst€d busin€ssss. This would requlre the writo-off of those rsgulatory ass€ts and liabilities that would no longer be probable of r6covery
from or refund to customers.
Bassd on cun€nl accounting and regulato.y compotitlve candilions, NW Natural beliot/es it is r€asonable to expect cpntinued apdication of r6gulatory
acoounting for NGD aclivitios. Fudh6r, lt Is roasonable to expgcl the recovery or r9fund of NW Naturafs rsgulatory assats and liabilitios at Dscombor 31, 2019
ttuough futur€ cuslomer tates. lf it ls detsrminod that all or 8 porlion ot th6so r€gulalory ass6b or liabilities no longer meet the crit6ria for contlnu€d appllcatlon of
rsgulatory accounting , then NW Natural would be required b vr,rite"ofi th€ not unrecoverable balances against 6amings in tho p€riod 6uc-tl dotorminatio.r is
mad6. Th6 noi balanc€ in rBgulatory asset and liability accounts was 6 not llabillty of $285.3 million and a not liability of $245.3 million as ot D€c€mber 3'l, 2019
and 2018, respeotively. See Note 2 for mo.e det8il on r€gulatory balances,
R6v.nuo Recoonhlon
Revenuos, which are derived prlmarily fmm the sale, trEnsportation, and slorag6 of mtuEl ga6, are recognizod upon the delivery ol gas commodity or services
mnd€lad to customors.
Accrued Unbilled Ravenus
For a dsscription of the policy rogarding sccrugd unbillad r6venu9, most ofwhich rslat6s to the NGO busines at NW Natural, ses Noto 2. Th€ following tiabls
prssents changes in k6y mgtrils il lho gstimatod perc6ntag6 o, unbilled volumg ot Dec€mber 31 wao adju6tod up or down by 'l%:
2019
lh hit ons Up 1%Down 1%
Unblbd rl\r!nu8 lrlcrrlso (docrBsoIrl
Margin lncroas€ (d6creas6)(1 )
t{st lncorlo bolora tar ilctBEEa (dscrgaso)(t)
11) hdds6 lmpsct ol rolulak y m€cnr sm! lrdLrdhg .b@dhg m€drrfsm 6nd oxdudc8 lll€ irpi]d d utbll.d Ev.nE tm mld $rvh.r.
3 0.9 $
0.2
0.1
(0.e)
(0.1)
(0.1)
Dr v.tlve lnstrum€nb .nd Hedolno Activltlos
NW Natural's gaB acquisition and hodging policies set fo(h guidolines for using linancial de.ivative instruments to suppot prudont tisk management strategios.
These policigo specmcally prohlblt tho us6 of dorivatives fqr trading or 8p€culatlv6 purposos. Flnancial dodvativ€ contracts ara utilizod to hedge a portion of
natural gas sal€ r6qulremonts. Thsse @ntracta includo swaps, options, and combinations o, option contracb. NW Natural primadly ucos thoss derivalivo
finsncial instrurnonts to manage commodity pricB variability. A small portion of t{W Natural'o derivalive hodglng stralogy involvos loreign curoncy exchange
contrac'tt.
Derivawe instrumgnb are rocordod on tho balanc€ sheet at fsir value, lf cortain rsgulatory condltlois ere met, then lho dorivativo instument fair value is
rocord€d togethor wlth 6n ofisotting €ntry to a regulatory asset o.llablllty accounl pursuantlo regulatory accounting, and no unrealized gain or loss 16 rccognized
in curent income or loss. See "Regulatory Accourling' above for additional information, The gain or bss from the talr valuo of a dorivative instrument subject to
regulatory defenal is included in the rocovery from, or refund to, NGD business clstome6 in tutur€ p6rlods. It a derivative contracl is not subiect to regulalory
defe.ral, lhen the accounting tr6atm6nt for unrealized gain6 and lo6s6s 16 iscorded ln accordance with accounting stBndards for derivatives and hedging whlch i6
oithor in cunont income or loss or in accumulatod other mmprehensive iocome or loss (AOCI or AOCL). D6.lvatlvg conlracls outstending at December 31, 2019,
20 t8 and 20 17 were measurod at falr value using models or other nrarlGt acceptod valuation melhodologies dB.iv€d from observabls morket data. Estimatos of
falr valuo may change Elgntficanfly from period{o-perlod depcndlng on ma*et condilions, nolional amounts, and pri9€6. Those changos may hav€ an impact on
rosults of opsrations, but the impact would largoly b6 mitigatod du6 to th6 majority of dorivative activitios b6ing subioct to regulatory doforral treatment. For mor6
information on dgrivative ac,tivity and associat€d rogulatory lrgat nent, see Not6 2 and Noto '16.
The following tablo summaizes []e amount of losses rsatzod from commodity plicg transactgns fgr th€ last threo yoars:
2019 2018 2017
NGD buslnoss net galn (loss) on:
commodlty svap8 $ I 7.9 S 7.4 S
Realized gains and lossss from commodity hodgos shown abov6 wero rocorded in @61 otg99 and wer6, or will b€, included ln annual PGA rates
63
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 65 of 229
o.8)
Table of Contenls
Panslon3 and Poilrstlremsnl Bcnofrts
NW Nalural maintains a qualifiod nonrontributory defined benefit pension plan, non{usllrled 6uppl6m.ntal pension plans tor eligible executive otficeB and
cartain key 6mployee6, and other poshetirement employee beneft plans covering certain non.{Jnion employ6a6. NW Natu,al abo has a qualified dofined
contribution plan (Rotkement K Savings Plan) for all ellglbl€ omployees. Only the qualmed defined benefit pension plan and Retirement K Savings Plan havo
plan 6ssets, which are held in qualified trusts to tund the respecti\re roti.Em€nt bsneft6. Th6 qualii6d d6fn€d b6n6fit retiroment plan fo'r union and non-union
omployoos was clossd to n€w partlcipanl8 severqlygars ago. Non-union and union emplo)i6es hirod or ro-hir6d afro. D6comb6r 31, 2006 and 2009,
.esp€ctivsly, and employoos o, cortain NW Holdings subsldlad6s arg provldad an 6nhan6d Relirsmcnt K Savings Plan beneti(. Thg pootretirem6nt WolfarB
Boneft Plan for non-union employegs was also clos€d to nsw participants s6v6ral yoars ago.
Nel periodic pgnsion and postr€tiremsnt b€nsft costs (roliromsnt b€nofit costs) and projoct€d benofit obligations (benefit obl\lations) aro determinod using a
numbsr ot kgy assumplions including discount rates, Iat€ of comp€nsation inGsasos, letiremenl ages, monelity r6t€s and 6n exp€ctod long{orm r€lum ofl plen
a6sets. Se€ Nob 10.
Ac.ounting standards also requir€ balance sheet rccognitbn ol unamortized actua al gains and losses and prior servlce cosb in AOCI or AOCL, net of tax.
Hgwever, the retirement benefit costs related to qualifed deflned bgnefil pension and postretirement beneft plans are generally .ecovered in rates charged to
NGD custom€rs, which are sel based on accounting slandards for pensions and postrelrcmont bsnefit exp€nses. As such, NW Natural received approval from
the OPUC to rocognize lh€ unamoniz6d actuarial gains and lossos and prior sarvico costs as a rogulatory ass6t or rogulatory llablllty basod on exp€c16d rat6
r6cov6ry, .ather fhan including it as AOCI o. AOCL under common 6quity. 566 'Rego/atory Accoarntil,g' above and N ole 2,'lndustry Rogulation".
ln 2011. NW Natural recoivgd rogulatory app,ovalfrom the OPUC and began dorening a portion of pension 6xp6nse abow or bslow lho amount set in ratss to a
.ogulatory balsncing account on the balance she6t. As parl ot gene.al rate case procesdings, on October 26, 201E, thg OPUC issuod an order to frsezo NW
Naturel's ponsion balancing account Es of Ootober 31, 2018, ln March 2019, th€ OPUC lssusd an ordor resolvlng th€ romsinlng op€n lt6ms for NW Natural's
2018 Orsgon gonaral rate cas€ rcgerding recovery of th€ pension b8lancing acoount. At Dec€mber 31. 2019, the cumulalive amount detered for tuture penslon
cost r€covgry wa6 $54.2 million, including accrued intercst. The regulatory balAnclng account lndudes the recognition of sccrued interest on the accounl balance
at NW Natural's authodzod rat€ of rctum hom 2011 through October 31, 2018, and at 4.3% thar€afrer, Soo 'Rggulatory MattoG - Rate Mschanisms - Pensrbn
Cost Delaml and Pension Bdldncing Accounf abovg for more information.
A numbe. of facto6, as dlscussed abo,/e, are conside,ed in developing pension and postretirem6nt bonBfit essumpfions. For the Decsmber 31, 2019
measurement dato, flw Natural reviewed and updated:. th6 w6lghtod-avorago discount rate assumptions tor pensions docreasod ftom 4.20016 for 2018 to 3.i60/6 to.2019, and our w6ightod-average discount rato
assumptions for olhor postrotir6mont ben€fitE d6crea6ed ftom 4.13% for 20'l8 to 3.11ol" lor 2019. Th€ n6w rate assumptions lver€ det€rmined for 6ach plan
based on a matching ol benchma* inttrost rates lo the sstimatod cash fow6, which rellect the timing and amount of future benefit payments. Benchma*
int€resl rates aro drawn from the FTSE Above Median Curve, which consists of high quslity bonds ratod AA- or highqr by S&P or Aa3 or higher by M@dy's;' the expocted snnual rato of tuturo compensation lnc.ea!€s for bargaining unit employeos, which was updated from a rangs of 3.25% to 3.50% for 2018, to
the 2019 essumption of 6.50% in 2020 snd 3,50% th€r€aftor. Th€ incroaso was a resull of a ne! / mllective bargalnlng agrooment th6t took elloct Oecehber
1, 2019, The assumed range of 3.25% to 3,50% fo. noh-bargalnlng employees remained unohanged;. th€ expected longFtenn retum on qualified defined benelit plan assots decreesEd from 7 .s0y. to 7 .25.k1' the mortality rate assumptions Yuoro updatod RP-2014 modality tables using scale MP.20'18 to Pri.2012 mortality tables usino scalo MP-2019, whichpartially ofl6ot th6 incresse of our projected benefit obligation; and. other key a*sumptions, rvhich were based on actual plan experience and actuarial recommendalircns.
At Docombor 31, 2019, th€ n6t pen6bn liability (bonefit obligations l6ss ma*et valu€ of plan as66ts) tor NW Natural's qualifod defined bonetit plan incrgased
S l.9 million comparod to 2018. Tho increase ln th€ het ponsion liability is primarily due to the $57.'t million incroase to th6 p€nsion b€n.flt obllgatlon, partially
ofisot by a $55.3 million inqrease in plan assets. The liability for non{ualm€d plan6 incr6as€d $3.0 million, and the liqbility for othor postretirsment b€nolits
incr€assd $1.4 million in 2019.
The expec{ed long-toim ret6 of relum on plan assets b determined by averaging the expectod earnlngs tor the targst 66s6t portfolio. ln developing expected
retum, historical actual peformance and long-lem retum projectionE ate aralfred, which gives oonsideEtion to lhe cunent asset mix snd target asset
allocalion.
64
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 66 of 229
Table of Conlsnts
NW Natural beliews its pension as6umplions ane appropriate baEod on plan design and an ssseaament of markot conditions. Th€ tollo! rlng shows th6 sensitivity
o, retlrement benellt costs and benefit obltl€tions to changes in cortain actuarial assumptions:
Ddl.6 in millions Change ln Assumption
lmpact on 2019
Retirsmsnt Bon€fit
Costs
lmpact on Rotir6m6nt
Benofit Obligalions at
Dec.31,20i9
Discountrate: 10.251y"
AuElifiod dofrnod bonrfl phm I t.4 $ 16.2
Non-qualified plans 0.8
Olhcr po€tr"drlm€nt b.olnts 0.1 0.9
Exp6c16d long-torm r6tum on pl.n asssta: (0.25)%
Ouatri6d dotrl3d b€n ltt plms 0.7 N/A
ln July 2012, Pre6ldent Obama tlgn8d MAP-21 into law. This leoislstion dtangod sevgral provigions afecting p€nsion plans, induding temporary tunding rellef
.nd Pension B€nelit Guaranty Corporatlcn (PBGC) premium incrEases, which shlfrs the l6vsl ol minimum requked oontributions from lh€ short'term to th€ long'
torm as ulsll as increasing th; oparatlooal coBts o, running a psnslon plan. MAP-21 esl,Eblished a new mlnimum and maxlmum coridot for sogment rat€s based
oo a 2$year avsrago ofbond yields, which resultod ln lowsr minimum contributions requi.ementq than lhos6 undor previous regulatjons. MAP-21,6s amended,
provides for th6 cunsnt conidor to b€ ln ofiBct through 2020 and subsaqu€ntly broadrn on an annual bssis lrom 2021 hrough 2024.
65
localoslaltr
Valuation Allowanc€s
Det6fi€d tax assets are r6cognlzed to the extont lhal thos6 assots aro bolieved b be more likely than not to bG .€eliz6d. ln making such a doterminatlon,
available positive and negatlve evtdenc€ ls considered, including futur€ rsveGals of oxlstng taxeblo t6mporary dlfrorencas, proiected future taxable income, tax'
planning strategies, and rgsults of rgcBnt op€rationE. NW Holdings aod NW Natural hav€ dotermined that all record6d deloned tax assots aro more likely lhan
not to bo reallzsd as of Dgcsmb6r 31 , 201 9. Soo Noto 'l '1 .
Unc€rtain Tax B6nefits
The calculation of tax liabilities involves doeling with uncertainties in the applica on of complsx tex laws and regulations in the jurisdictbns in which we operate.
A tax benefit ftom a materiql uncertaln t6x position will only b€ recognlzed , rhon it is more likely th€n not thgt the position, or somo portion thsroof, will be
sustained upon examin6tlon, Including r$olution of any .elalod appeals or lltigation procesges, on lhe basl8 ofthe tschnical nlerib. l'lw Holdings and NW
Natural participate in the Compliance Assurance Process (CAP)wilh lho lnlemal Rovanuq Sorvics (lRS). Under he CAP program companies work with the IRS
to id€ntify and resolve material tax matters before the f6deral lncome tax r6tum is filod each year, No resorves for uncortaln tax benefib were reooded during
2019,2018, or2O'17. See Nole 11.
Tax Leoislation
When Eignmcant proposed or enacted qhanges in income tax rulea o@ur we consider whsthor thers may be a matorial impact to our rinaoclel positbn, results of
operatiofis, cash flows, or whelher th6 changes could materially afecl exl8tng essumptionE used in msking estimates of tax lelated balances.
On}ec.mbet 22,2017, H.R.1 - tur Act to provlde for rscoociliation pu,susnt to ti ss ll and V oflhe concurent resolution on the budget for fscal year 2018, also
known as the Tax Cuts and Jobs Act (TCJA), was enacted. The TCJA lo ,ers tho U.S. federal corporsto income tax ratg to 21% from the 6xisting maximum rate
ol35%, of,edtue ,or our tax year bsginning January 1, 2018. The TCJA includes specifia provl6lons rolatod to rogulatBd public utilitigs that g6nerally provk e lor
tha conthued dBductibilig of interest expon6? and th€ €limination ol bgnus deproclation. Cortaln ,ate nomalization requi.ements for accol6raled cost rocovery
benellts rslatod to rggulatd plant balances also continuo. S66 Not€ 11 for moro iniormation on how ws arg impactod by tho TCJA
With r6sp6ct to oth6r tax lBgislation, th6 final tangibls property regulatione applicable to all ta&a!r'ors w6re iasued on Septemb€. 13, 20'13 and wsra gBnerally
efective for taxablo ysar8 b;ginning on or aftsr January 1, 2014. ln addilion, procodural guidance rglated tg the ragulations was issued undsr which laxpayerr
may make accoundng methoi changes to comply with the rogulations. We havo gvaluatgd th6 t€gulalions and do nol anticipale any mat6,ld lmpact. Howevor,
unit of.proporty guidanco applic€blo to nEtural gas distribution nGtwo*6 has not yet been issu.d and b expec{od in the n€ar luture. Ws will turther evaluato the
efieot of these regul8tions ;iler thls guidance is issued, but beliove the drrent method is materially consistsnt wilh lh€ now regulstions and do mt expect thls
addltional guld6nc6 to have a material efect on our linancial slalemenb.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 67 ot 229
Table of Contenls
Eeeshlery.MaSels
Rlgulatory tax asrets and liabilities are rgcorded to the extent it is probablo thBy will ba Gcovorablo from, or r6fund6d tg, custgmers in the futurg. At
Dscembot 31. 2019 and 2018, NW Natural had n€t r6gulatory incomg lax aEseb ot $19.4 million and $21.4 million, r.sp6ctiv€ly, rop.esentlng tuturo ,6ta
r6covery of deferrod tax liabilities rssulting ftom difior.nces ln NGD plant financial stat6ment and tax bgses and NGD plant r€moval costs. Thcs€ r69ulalory
assets a.9 (rrnontly b€ing rocovored thrgugh customer ratos, At D€csmber 31, 2019 and 2018, rrgulatory incomo tax 6ss6t6 of $2.5 million and $2.3 millioo,
,espoc{ivoly, wer. rccordod by tlw Natu.al, rep666nting prgbable t ture ratg recovery of dofBnod tar liabilities rosulting from the squity ponhn ot AFUDC.
At Docambot 31, 2019 end 20'lE, r€gulatory liabilily bslances, representing the estimatsd net bonoft to NGD customers rsoultlng ftofi h6 change ln dofengd
laxes as a result of the TCJA, of $205.0 millkxl end $217.'l mllllon, rerp6ctively, wgre recorded by NW Naturai. These balanc€s includo a grcss up for incom€
tax66 ot $54.3 mlllion and $57.5 million, rospoc-tivBly.
Tho TCJA includes sp€cific guidance for determining lhs shonesl tlm6 pdrlod ov€r whidl the porlion of lhis regulatory liability resulting from accelerated cost
rscovery of NGD dant may accrue to the benefrt oI customers lo avoid incu.ring fsdeBl normallzalix p€nalties. However, it is anticipated that until such time
that customers receive the dl.€ct bgnefit of thls rsgulatory liabilily, the b€lance, net of ths additional gross up for incorno tax6s, wlll contlnuo to provldo an indireat
b6n6fit to cu6tqmets by rgducing the NGD rate baso rvhlch detsrmlnos customor Etes fgr aervlce. Regulatory orders vyere issued by Orsgon in March 2019 and
by Wa6hlngton ln Oclobar 2019 addressing tto p.ovision oI those TCJA tax b6n6fits to custom66. S66 "Rogulatory Matters-Rggulstory Procagding Updatss-Iax
Rgfom Delenal lot mor€ information.
NGD rat€s in sfscl for Orogon th.ough Oclobgr 31 , 201 I €nd for Washington through October 31 , 201 I lndud6d an allowanc€ to prcvide br the recovsry of the
anticipatgd provlsion for income tarss incurgd as a result of providlng rogulated services. Ths provision for income tax€s during thos6 podods lncludsd an
allowanc€ for tedoral income taxes detsmined by utilizing th6 prs.TCJA f€deral corpoGt€ income tax rste of 35 percont, NW Natural recorded an Edditional
regulotory liablllty in 2018 8nd 2019 reflectlng the defe[al ot estimated rato ben6fit for customors duo to the ngwly enact6d 21 p€rc€nt lederal corporate income
tax late. AE of D€cember 31, 20lS and 2018, regulatory liabllltles of $1-7 mllllon and $8,3 million, rcspectively, were recorded to lEflect the eslimatod rEv6nue
doiBnal beneflt 10 b€ provided to Oregon and Washington customors.
Envlronm.nLl Contln06nclcB
Environrnental liabililiBs are eccount€d tol ln accordsnce with ac@unting gtanda.ds under the loss contingency guidance when lt h probable that a liability has
been in({ined and the amount of the loss is rcasonsbly estimsble. Amounts recorded for environmental contingencies take numemus factors into consid€ration,
induding, arnong other variables, changes in onac{ed laws, regulatory orders, e60mat€d rsmsdiation costs, interest rates, iNurarce proceeds, participalion by
ober parties, timing of payments, and the lnput oI logal coun6sl and third{a,ty experts. Accordingly, changes in any o, thes6 vgriables o. other tactual
clrcum8tances could hsve a material impact on the amounts rucorded for our a vironmental liabilities. For a oomplete discussion of environmenlal accounling
policies reler io Noto 2, For a dlscu6sion ol cunent envirqnmental sites and liabilities reler to Not6 18. ln addltlon, tor information r€garding th€ regulabry
t 6atmenl ot theso costs and i.lw Natural's rogulatory recovery m€chanism, see "Results of Opsralione-Regulatory Mattors-Rato M6chenlsm€
-E,vhonmonlal Cgst Delgnal and Rocovetf abova.
lmprlrmcnt of Lono-Llv.d Asscts rnd coodwlll
t9$LlivsC-e$etr
WB rsvicw tha carrying valus of lgng-livod assets whenever evenls or changes in circumstancos indlcate the qarrying amount oI the a$ets might not bo
rgcowrablo. Facto.s that would nec66sltata an impairment assessment of long.lived a8sets include a sionifcant adv3rsa chango ln the €xt6nt or manner in
which lhe as86t i6 used, 6 signifcant adverso change in legal faclors or buslnsss cllmaie lh6t could sfiect th6 value of the asset, or a significant dectine in th6
observable markei valuo or exp6ct€d future cash flows ot the asset, among others.
Whsn such factors arc pG6ont, w€ asseEa the recgversbility by determining whothor tho canylng vall,6 of th6 ass6t will be Gcoverod through sxgcd€d future
c€6h iows, An ass€t is dst€mined to b€ lmpalrod whon th6 carrying value ot lhe asset exc66ds ths oxpoct€d undlscountrd futuro cash tlows trom th6 uss snd
evontual diEpo6itign o, ihe assot. lI sn impairmont is indicat.d, wo record an impairm€nt loss for the diffgreno€ betw€sn th6 carrying valu6 and th6 fair value of
the loog-lived 8sssl6. Fair valuo is estimatod using appropriste valuation methodologiB, which mey includo an 6stmat6 of di8counted c66h f,qws.
ln tho rourth quarter or 2017, we tscognizsd a non-cash prE.tax impairmont of long{iv6d a6sgts at the Gill Ranch Fscility o, $192.5 million. We d6t6.minod
drcumshnces existBd that indicatgd the carrying value of the assets may not bs r€covorablo- Thos€ circumstanc€s indudod th€ completion ol a cqmprghgngive
strateglc l€vl€w prcce6q that gvaluated various altsmslivss including a potontial sal6, s6 well a9 contracting for availabl6 storago at lowDr thEn anticipatod
values for the coming 6lorag6 year. Given these @nsideralions, msnag6m6nt wa6 r€qulr€d to re-€valual6 thg estimated cash flows trom oor int€rests in ths Gill
Ranch Facility, and delermined that thoso 6stlmat6d c€rsh flows were no longer euficienl to co\rer the carrying v6lue of th6 ass6ts.
66
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Pag6 68 of 229
Table of Contents
We uged the income approach to gslimat6 iair valu€, u6lng the eslimated futurc n€t cash flows. W6 al8o comparod th6 r€8ults o, tho incom€ approach to our
own raoent sale e)earienco and rocent market comparable transactions ln order to ostimate fair value, Many lactrors and assumptions impact lhe net cash flows
usBd. The mosl signilic€nt and uncedain estimates lncluded our forecsst otgas storage pricing, our sbility to succsssfully idenliry and oontract with highor-value
customer8 in and/or nearthe nodhem Callfomla markst that Gill Ranch sgrv€s, and oxplorlng th€ posslblllty of provldlng energy storage ssrvicos such a6
compress6d gas enorgy storago (CGES). After completing the stralegic evaluation, which lncluded a potentlal sale in the fourth quarter of 2017, rye lowered our
views of a near.tem market rBcovery and decreased the likelihood associaled with sqfitrading with higheFvalue custgm€rs. These a$anges wsre the mogt
significant estimates that caus€d ou, cash flov, proiocllons to decroase to a polnt whero thay were no longer suffdsnt to cover the carrying value of the a66ot.
On June 20. 2018, NWN Gas Storago, NW Holding6' wholly-ownod 6ubsidiary, ent6red into a Purchsse and Ssle Agre6mont lhat provides lor the Eale by NWN
Gas Storsge ot all of the membership inta.gsts in Gill Ranch. As a rosult of our sbatsgic shn away from Califomla gas storago op€ratlons and lho Slgnificanca of
cill Ranch'r linancial resultE in 20'17, we conoluded that the pending sal€ o, Gill Ranch quslifiGs as asssts and liabilities held for sah and discontinued
operations. As auch, the assets and liabilitigs a8sociatod with Gill Ranch havs basn cla86ifed as digcontinuod op6,ations aaa9l6 and di6@ntinued operations
liabilities, r€spectively, and, ths resuhs ot Glll Ranch ars pre€€nl€d soparately from th€ rasults of continuing operations, nat of tax, as discontinued opera0on6 for
the consolldated rgsults of NW Holdinos in all periods presented. The expenses inoluded in the rosults of discontinued operations withln the oonsolidated resufts
of NW Holdings are the direct operating expenses incunod by Gill Ranah that may be ressonably segregsted trom the costs of our continuing operations. See
'Results of Operations - Pending Sale ol Glll Ranch slorago' abovs, Nole 4, and Note 19 for additional lnfomation.
Goodwill and Business Combinations
ln a bugine$ combination, goodwill is initially meaaur€d aE any exce8s of th6 acquisltion{alg fair value of th€ consldoratlon transfened ovEr the acquisition-date
falr velue of the n6t identifiablo asEets acquired.
Tho carying valu6 of goodwill i6 r6vlowod annually dudng lhe fourth qua.tEr uslng balanc€s as of Octobor l, or wh6n6v6r evBnts or changos in circumstanco
indicats that such carrying valuos may not be rscoverable,
NW Holding$ and NW Nahrral ea.ly-adoptod ASU 2017{4, 'SimpllMng the T€6t ror Goodwill lmpalnnont'ln the thlrd quarter of 20'18. The ASU rGmoves St6p 2
hom th6 goodlvill impalrmeni tsst ard undor the amended guidance an ertity should porform its annual goodvrill lmpairment tsst by comparing the fairvaluo of a
repoding unit with it3 carrying amount and rgcagnizo an impairmont charg6 foa th6 amount in whicrl th6 carying amounts 6xc66d th6 fair valu6 ol the r6poding
unlt. ln ac.ordance with the updated guldanc€ pcrASU 2017.04, NW HoHings'and NW Natural'S policy for goodwill assqssmsnts b€gins wilh a qualitativ€
analysis in whicfi ovents and circumstanc€e are ev€lualed, including macroeconomic conditions, industry and market oonditions, rsgulatory environmonts, and
the overallfinancial performance of the repgrting u[lt. lfth€ qualitadvo a6Se8sm6nl lndicatsE that thg c€rrylng valug may be al rirk ol recovsrabllity, a
quantitativo evalugtion is performed to measure fl6.€rrying valuo against the fair value of lhe reporting unit. This evaluation mey involvo th6 essessment of
future cash llows and other subieclive factors for wiich uncertainty exisb and could impact the estimation ot future cash f,ow8. Theee faotcrs include, but are not
limited to,lhe amount and timing of future ca6h flow6, fulure groMh rat65, and the dlscount rEtg. Urfore6een €vonts and changes in clrcumstances or market
condilions could advergely affect th6se estimabs, which coold result in an impaiment charge. A qualitativB asse$med was performed during tho tourth quader
of 20'lg which indicatod a quantitative assessment was not requiredi thus, no goodwill impaiment was recordgd. See Note 2 and Note 15 for additional
infg.mation.
Busingss combinations are a@ounted for using the acquisition method. Th6 cost of an acqulsition 16 mearurad a6 ths aggr€gat€ ofth€ consideration tran5fsra6d,
measursd at lalr value at the acqulsition dale, and the tai. value of any non-conlrDlling inlerost in the acquir€B. Acquisition-rolated costs arB sxponsed as
indned. When NW Natural acquires a business, it assesses the financial asseb aoquired and liabilities 883umed for appropriate classific€tion and designation
io accordance with the contraotual term6, Gconomlc clrcumstences and p€rtln€nt condltlons 6s ot lhe 6cqulsltlon d€te. Wh€n lh€r€ ls cub8tanti8l ludgm€nt or
unc€.talnly around the fair value olacqulred assets, we may engage a third party expe.t to assist in determining the fair values of certain asseb or liabilities.
67
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 69 of 229
Table of Contenls
ITEM 7A. QUANTITATIVE AND QUAUTATIVE DISCLOSURES ABOUT MARKET RISK
NW Holdings and NW Natural a.o expqsed to variou$ forms of market ri6k indudlng commodity supply ri6k, commodity p.ice .isk, interosl rate ri6k, forgign
clnqncy rlsk, cr€dit rlsk and wseth€r rlsk. Tho tolloirlng doEcdbcs NW Holdlngs' and NW Naturall exposu.e to thss6 rlsks, as appllceblo.
Commodltv Supplv Rlsk
NW Natural enters into spot, short ierm, and long.lerm natural gas supply coflhac{s, along with .ssociat€d pipeline transportation contlacts, to manage
commodity supply risk. Hbtorically, NW Natural has ananged for physical delivery of an adequate supply of gas, including gas in Mist storage and off-system
8b.age facillties, lo rneel exp€cted requlremenls ot core NGD customgrs. l.lw Natural'6 long-term gas supply contract6 are prlmarlly ind6x+as6d and subi€ct to
monlhly re.pdcing, a strategy that is intended to substantialiy mitigate credit exposure to physical gas counteDartiBs. Absoluto notional amounb under physlcal
gas contracb related lo open pocitions on derivative instruments were 512.8 million therms 8nd 472.3 million therms a6 of December 31, 2019 and 2018,
rosPodiv€ly.
Commodllv Prlca Rllk
Natural gas commodity pric€s ara subjed to market fluctualions due to unpr€dichbl6 faclors including wealher, pipelioa bansportation congestion, drilling
technologies, market speculstion, and other ractors $at affect supply snd demand, Commodity prioe risk is managed with fnancialswaps €nd physical gas
r€86rv€8 fmm a long{erm lnv€Stm€nt ln working lntel€sts ln 9a8 lea86s opel.atgd by Jonah Energy. Thes€ financial hedge contracts and ga8 r€a6rvos volume3
are generally includBd in NW Natural's annual PGA fling for recovery, subiect to a regulatory prudence rcview. Notional amounts under financisl derivalive
contracts were $123.3 million and $77.7 million E6 ot Dec€mber 31, 2019 and 2018, respectively, The Iai. value ot financial swaps, based on m8.ket pricas at
Dec6mbor 31,20'19, was an unr6all2od gain of $5.6 mllllon, which would result in ca6h inflows of $1.2 mllllon ln 2020, $0.7 million ln 202'1, and $3-7 mllllon in
2022.
lntrr.st Rate Rbk
NW Holdings and NW Natr.al are sxposod to inter$t rate risk primarily asociatsd with new dsbt financing noeded to fund capit8l requirgmsnts, including future
contractual oblEEtignE and maturities gl long-igrm and shqrt-tem debt. lntergst rate .isk is primarily mgnEgsd through the isouanc€ ol fixed-rate debl with
verying maturiliss. NW Holdings and NW Natural may also enter lnto fnEnc.lal dorivatlvo lnstrumenb, lncludlng lntar€st lats swap6, option6 and other hodging
instruments, to manage and mitigate interest rate exposure. NW Holdings and NW Natural did not have any intorest rato swaps oubtanding g3 ol Decembsr 31,
20'19 or 2018.
For"lqn Currrncv Rlak
The cDsts o, certain pipeline and off-system storage seNices purchasod from Canadian suppli€rs aro subloct to changss in the value oI thB Canadian d,lrroncy
ln relation lo the U,S. cu.rency. Foreign curency forward contraqts aro used to hsdgo against f,uctuations in sxchango ratss for NW Nahrral's oommodity-rslated
d€mand and rgsorvation charg6s paid in Canadian dgllarE. Notional amounts unde.lorgign qunency lorward controqls werg $6.7 million and $6.9 million eq of
D€ce bor31,20tg and 2018, r63pectively. lf all of thB foreign curronry forward contracts had boBh setued on D€cemb€r 31, 2019, a gain ot $0.1 million would
have been r6aliz6d. Se6 Not6 ,|6.
Cr.dlt RlBk
CeCilE&cslle&-NruleLrcls-SsDdien
Cortaln gas 6uppli6rs havo eithBr r6lativ6ly low credit ratingE or are nqt rated by maior credil rating agencies. To msn€ge this supply risk, NW Natural purchasgs
gas tom a number of different suppliers at liquid excfiango points. NW Natural Gvaluates and monilors suppli€rs' crcditworlhiness and maintains lho abllity to
roquhE additignal fnsncial assu.ances, induding deposits, letterE of credit, or surety bonds, in caso a sup,plier defaults, ln ths event oI a supplier's iailure to
deliver contmcted volumes of ges, the NGD buslhess u/olld noed lo r€placa lhos6 volumes at pEvaillng markol pricer, whlch m8y b€ hlghor or lowor than th6
oiglnal haNac{ion prioes. NW Natural expocts theso oosts would be subiect to ib PGA shadng mechanism discussed abov€. Sinco most of NW Natursl's
commodity supply contracts ar€ priced al the dally or monthly market lnd6x pric€ tled to liquid exchange polnts, and NW Natural has adoquate storage iexlbillty,
NW Natural bolieves it is unlikely a supplier default would ha\re a mabrial adve.se eflect on its jinancial condition or rosulls of op€rations.
Cradit Exposure to Financlal Oeaivative CountBroartles
Ba69d on estimated fair value st December 31, 2019, NW Natural's overall credit €xposure relating to c,ommodity contracts is considered immaterial as it r€llecb
amounts owed to flnancial dorlvativ6 countE.partieE (6e6 table below). Hqwever, chsnges in natural gas pric€s could ,esult in countgrparties owing NW Nahr.ol
money. Thersfore. NW Natural's financial darivativos poliry requiEs counterpartles to havg at least an lnveslrn€nt{rade credlt ratlng at the tim6 the dodvetlve
instrument i6 entered into 8nd specific limib on the contract amount and duration bas6d on 6ach counterparly's crodit rating. NW Natural activsly monitoB and
managos dsdvativo crodit exposur6 and plac€$ count0rparti66 on hold tor lrading purp666 0r requires cash cqllat6.al, lett6rs of crodit, or guarant66s a8
circumElancas warant.
68
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 70 of 229
Ieue-glgeltefls
Ths following table summadzes NW Natural's ovsrall fimncial s$/ap and option q€dit gxposure, bs8od on 6stlmatsd fair valu6, and the con€sponding
counterpany credit ratings. Th6 tablo uses crBdit r6ting6 from S&P and Moody's, rofl6c{ing the highsr ol the S&P or Moody'3 rating or a middle rating if th€ sntity
i6 Bpllt-rat€d wlth more lhan one ratim level ditr6l€nc6:
Financial D6rivaliv6 Po8ition by Credit Rathg
Unrsalizod Fair Velu€ Gein (Ldss)
2019 2018
Totd
$4.0 I
1-6
(6.3)
(1.5)
5.6 S o.8)
ln most cases, llw Natural also mitigates he credit risk olfimncid derivalives by having master netting anangsmsnt8 wlth counterpa.ties which ptovide lor
makino or recoiving n6t cash sgttloments. Generally, transactions or lhe samE type in the sam6 curency that have settlement on ihe game day wilh a slngle
counto.party aro netted end a single payment ls dolivo.ed or.eceived deponding on whidl party is due tunds.
Addltionally, NW Natural has mastBr contracts in place tvlft oach d.rivalivo counErparty, most of which indude provisions for posting gr calling lor collateral.
Gonorally, NW Natural can obtain cash or marketable s6curlll6s as collatoral with ono day's notlca, Variout collatoral managomont strategios aro us6d lo rcduce
lhuidity risk, Tho collatoral provisions vary by countorparty but aro not expgcted tg reEr/tt in the signlficanl postlng of collate.al, if any. NW Natural has performed
sb6ss tosts on lhe porffollo and concludod the liquidily risk ftom collatdal calls b not matorial. D€rivative credit oxposurs is primsrily with investment grade
countorpartios rated AA-/AaS or higher. Contrads are divorsifiod across counbrpartiss, busins$ types and cauntrie6 to rsduc€ cEdit and liquk ity risk.
At O€combor 31, 2019, financlal dorivative credit risk on a yolumetdc bssl6 wes goog.aphic€lly concentrat8d 38% in h€ Uniied Slates and 62% ln Canada,
basod on counterpadios' location, At Dec6mber 31, 2018, fnancial dedvative crsdit risk on a voluligtric bash was g6ographlcally concentretod 33% in the
United States 8nd 67% in Canada wltfi our counterparties.
Credit Exoosure to lnsurance Companies
Credit exposure to insurance companles for loss or damage claims could be material. NW Holdin$ and l.lw Natural r6gularly monitor tho financial condition of
lnaurance companles who provide gEneral liability insu.anc€ poliry covorage to NW Holdinos, NW Natural, thet predecessors, snd their sub6idlari€6.
Worlh.r Rl.k
NW Natural has a weother normalization mechanism in Oregon; howsvsr. it is exposed b weather risk primarily llom NGD business opsrations. A larga
perc€ntsge ol NGD margin is volumo driven, and curEnt rates are bsed on an assumpUon ot average weather. NW Natural's weather normalization
mochanlsm ln Oregon ls tor residontial and oommercial customers, which ls intondsd to stEbilhe the r€covory of NGD business fixed costs and reduce
fluctuations in customers'bills due to coldor orwannarthan averago weather, Customers in Oregon aI€ allowed to opl out of lhs waather normalization
rnechanism. As of Decemter 31, 2019, approximably 8clc of O,egon customers had optgd out. ln addition to the Orogon customers opling out, Washington
Gsidontlal and commerclal qJstomers aoount fo. approxlmatoly 11% of our total .ustorner base and ar€ not @vercd by wegther nomalization. Tho
combination of Oregon and Washington customeG not cov6red by a woather normalization mechanism i$ 18% of all rosldontlal and commercial clrstomers. See
'R6sults ot Op6rations-R6gulatory Mattors-Rate Mechanisms-WARM abov6.
69
I
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 71 o1229
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
fABLE OF CONTENTS
Table ol Contenls
1. Manaoement's Reoorts on lntemal Control Over Financial Reoortino
Reoorts of lndependent Reoistered Public Accountino Firm
Coololidaisd Financlsl Statements:
Pago
2.
3.
t1
B
134
$s
Consolidated Statements oI Comorehensive Income lloss} of Northwest Noturel Holdino Comoanv for the Y€ars Ended Dec€mber 31.
2019- 2018. and 2017
Consolidated Statements of Shareholders' Eouitv ol Northwest Natural Holdino Companv for lhe Years Ended Dec€mber 31. 2019. 2018.
and 2017 r9
8S
c2
sil
ET
c0
.1!e
Consolidated Statements of Comorehensive lncome {Loss} of Northwest Natural Gas Comoany for the Years Ended December 3,|.20,|9.
2O1A. and 2017
Consolidaled Statements of Shareholdeis Eouitv of Northwest Natural Gas Comoanv for the Years Ended Deccmber 3'1. 20'19. 2018. and
?,972
Noles to Consolidated Financial Statements
4. OuarterlvFinanciallnformation
5. Supplernentary DatN for ths Yoars Ended Decembor 31, 20'19, 2018, and 2017:
Financlal Strtsn6nt Sch6duls6
Schedule I - Condensod Financial lnformation of Northwest Natural Holdino Comoanv at December 31. 2019 and 2018. and for the Ysars
Ended December 31. 2019 and 2018
Schedule ll - Valuation and Qualifuino Accounts and Reserves of Norlhwest Nalural Holdino Companv and Northw€st NalLrral Gas
Comoanv for the Years Ended December 31. 2019. 2018. and 2017
Supplemenlal Schedules Omitted
Allother Schedulos are omitted becauso of tho absonce ofthe conditions under which they are required or because the rsquired information is included
6ls6sh6l€ in lh€ fnancial slatehents.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 72 oi 229
70
Table of Conlents
I{W HOLDINGS NANAGEffE'VTS REPORT ON INfERNAL CONIROL OWR FINANCIAL REPORflNE
NW Holdings rnanagBment ls Bsponsible for establishing and malnbining adequate intomal control over financlal .eporling as dBfin6d in Rules 1 3€-l 5(D or 1 s-
ts(f) uoder the Seoldties Exchange Ac4 of i934, as amended. NW Holdings' intsrnal conhol over fioancial reporting b designed tg provido reaoonable
assurance rcgatdlng the reliability of tlnancial reporting and the preparation of financial statements for oxbmal ptrposes ln accordanco with gerErally sccaptod
accounting principles ln 0,16 Unlt€d Stabs of Amedca (U.S. GAAP). NW Holding!' intomal conbolovor financlal ropolling lncludos those policios and proceduros
that:
(i) portain to lho mainbnancs ol r€cords that, in reasonaHo dolall, accurately and falrly ref,6c1tha bansactions and di8positlorts involving oompany assetg;
(ii) providg reasonable assuranG ttEt transactions arg rgcorded a6 nscesoary lo pgrmit th€ preparatlon of inancial statarnents in aocordanca wi0r U.S. GAAP,
ard that r€caipts end expendituros are being madq only in eccordanco with outhorizations of managsm.nt and th€ NW Holdings Board of Diracto6; and
(iii) provide reasongble assuranc€ rogarding pr€vention or timely deteqtlofi ot the unauthorized acqui6itlon, u66, or diSposllion of NW Holdings' assets that oould
hav€ . maledel sffEct on th€ financid statsmgnt8.
Becauss of it6 inherent limitaiioo6, intBrnal conkol over financial reporting may not prewnt gr dei6d mlsstatolnents or traud. Also, protsctims of any evalualion
ot offoctlvonGss to futur6 pariods ar€ subject to lh6 risk that controls may bscom6 lnsdrquals bscauso of changos in conditions, or that the degGe q,
complianco with the policies or procoduG8 may det dorata.
NW Holdings ma.agoment assssssd thg etfuGliv6n68s of NW Holdlngs' iniomal contrcl over linancial rgporting as of Docember 31, 2019, ln making lhis
asssssrnsnl t{W Holdings management usgd tho critoria sei forth by tho Committes of Sponsoring OEanizstions of the Treadway Commlsslon (COSO) in
lntemal Control-lntegrated Fft mewo * (20 1 3).
Bag€d on NW Holdings managlemente assessrnont and thco crit€da, NW Holdings managemenl has conclud6d that it malntaln€d glbcfve lntomal conllDl over
financlal reporling a6 ot Docemb€r 31,2019.
The efectivefless of inlemal control ov€r llnancial reporting as of December 31 , 201 I has been audited by Pri6watsrhousecoopers LLP, an independont
rogistorod public accounllng llrm, a6 stated in their report which appea6 ln thls annual report.
/s, Drvid H. And6rs6n
David H. Ande6on
P.ssident and Chi6f Execuliv€ Officar
,/a/ Frenk H. Bul*heftimEver
Frank H. Burkhartsmeyer
Senior Vice Prcsident qnd Chi6f Flnancial ofiicer
March 2, 2020
71
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO., INC.
Pase 73 of 229
Table of Contents
M NAruRAL ITANAGEMENr'S REPORT ON
'NIERNAL
CONIROL OyER HNANCIAL REPORNNG
NW Natural manag6m6nt Is r66ponsibl€ fo. eetabllshlng and maintalnlng ad6quet6 lntemal cortrcl ov€r financial reportlng as dollned in Rules 1 3a '1 5(f) or l 5d-
15(0 under the SeoJrilies Errchangs Act oI 1934, as amended. NW Natural's lntemalcontrd ovor financiel reporting is dBigned lo provide reasonable
as8urance regarding th6 reliabillty of ,inanclal roporting and the proparalion of fnancial statements lo1 ext€mal purpoGas ln accordanc€ wlth gen€rally acc6pt6d
accounllng prlnciplos in lhe Unlt€d Stat s ol Am6dca (U.S. GAAP). NW Naturel'6 lntomal conlrol over llnanclal roporling indudos thos6 policies and procodures
thet:
(i) pertain to the maint6nanc6 of records that, in roasonable detail, accurstoly and tuidy rofl€ct thB bansactions and dispositiorB involving company aasob;
(il) Eovide reasonable assunlnco that iransadlons ers recordqd aa necassary to permlt th6 prepara0on of llnandal staiEmenls in eccordence wilh U .S. GAAP,
and thst rec€ipts and expenditurss Ero being made only in accordance with authodzations of management and th€ NW Natural Board ol Diroclors; and
(ill) provlde reasonable assuranc€ rogardlng prevanton or tlmGly dstec{on of lho unauthorizsd acqulsltlon, u6e, or dlsposi{on of NW Natural's assets thal could
have a matedal efiec{ on the financlal statements.
B€caus6 of ils inh6r€nt limltatioos, intarnal control over fnancial Gporting may not provont or detect mlsstalomonts or t'aud. Also, projectiom of any evaluallon
ot offectiverross to fuhr.e perbds a.e Eubjoct to lhe risk that controls may become inadequate bsqause o, chsnges in condilionB, or that tho de9r66 of
compllance wlth th€ polldqs or proc6duro6 may d6t6rlorato.
NW NahJrEl management asos666d the eftgctiwn66€ g, NW Nqtural's intemal cgntrol orer financial reporting as of Dec6mbo,31, 2019. ln makiog this
sss€$smenl, hlw NatuEl managEmenl used thr critoria sot fonh by lhs Commiltos of Sponsodng Organlzalions of ths Tr6adway Commissioo (COSO) in
lntemal Conttdlntognted Fm,]rowotk (201 3).
Bas6d on NW Natural mamgements assossment and lho6s criteda, NW Natu.al manag€m€nt ha8 concludsd that it mainlainsd €fioc{ive intemal confol over
financial reportlng as of Decombor 31, 2019,
/s,/ Devid H. Andersoo
David H. Anderson
PrEsldenl and Chl6l Executlvo Officer
/6,/ Frenk H. Bu*harlsmever
Frank H. Burkhortsmoy.r
Sonior Vics Pr$ldont and Chisf Financial Officst
Marsh 2, 2020
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 74 ot 229
Table of Contenls
REPORT OF INDEPENDENT REG'SrERED PUBUC ACCOUNIING FIRII
To the Board ot Directors and Sharoholders of Northwsst Natural Holding Company:
Oplnlons on the Ftnt rcra, S&tBrreaas trrd tDl€m.t Contol owr Fln.ncr.l RoPotttng
We have audited thB accompanying cgisolidat€d balanco Sheets of No.thwasl Natural Holdlng Compeny and its subsidiaries (the 'Companf) as ol December
31, 2019 and 2018, and the related consolk et6d statemenls oI comprehensivs incoma (loss), of sharsholders' €quity and of cash f,ows for each of the three
y€ars ln th6 pGrlod ond6d D€comb6, 31, 2019, including the rolatod not68 and financial stat€m€nt schodules list6d in th6 accompanying lndcr (coll€ctlvoly
rofored to as lhe 'consolidated frnancial statemonts"). Wo also have audit€d ttlq Companfs intomal control ovor financial r6porling as of Decamb€r 3'1, 20'19,
basgd on critBria ostablished in lnlemal Conhol - lntegrated Framewod (20'13) issued by tho Committoe of Sponsoring Organizations of the Troadway
Commis6lon (COSO).
ln our oplnlon, the consolidatod financial statements rglered to abov6 p.€8ont hirly, in all material .e8pod6, tho financlal posltion otthe Company as of
December 31, 2019 and 2018. and the results ol lts op€rations and its cash foi/$ for oach of th6 throo )rears in lhe period andsd Decomber 3'1, 2019 in
confomity wifi acc4unting p.incipleS g€nerally acc€pted in the Unit€d States ot Americs, Also in our opinion, the Cgmpany maintained, in sll mat6rial t€rpoctE,
efiectivs intemel conlrcl ov6r fmncial r€porting as of Decomber 31, 20i9, ba86d on critgrla establish€d ln lntamal Conhol - lntegrated Frem€work (2013) issued
by tle COSO.
Change in Aacounting Pinciple
As discussod in Not6 2lo the consolk ated financial statarnonts, th€ Company chenged the manner in whidr it accounts for loasos in 2019.
Baslt lot Optnlons
The Companys managomont is rssponsible icr lhgse consolk ated fnancial statem€nts, for maintaining effocti\re intsmal control over ftnancial repotting, and for
its assessmont ofth€ effecliv€ness ot intornal conhol ovor financial reporting, includgd in the occompanying NW Hgldings' Managemgnfs Reporl on lntsmal
Conlrol ovor Flnancjal Reporting. Our resporcibility ls tg expre86 gplnionS on tho Company'8 coll8olldatEd financial statoments and on the Company's int€rnal
oonhol over financial rBporting based on our 6udlts. We a.e e public acoounling frm reolst€rsd with th6 Public Company Accounting Overs ght Board (United
Statss) (PCAOB) and ar€ requlrsd to be independenl with respect to the Compeny in accordance vi,ith the U.S. fudo.al secu.itie6 lawB and tho sppllcable rule6
and regulalions of the SBcurities and Exdrange Commlssion and th6 PCAOB.
Wa conducted our audits in accordarrcs with the standards ofthe PCAOB. Those stendards lEquirs that wo plan and porform tho audits to obtain r€asonablo
a8sursnce about whether the consolldabd fnancial statements are foe ot material misstatement, whethe. due to engr or frEud, and whether etfectivo intemal
conbol over rinanclel r6porling was mainhined in 6ll mate.ial respecls.
Our audits of the consolidated finanoial statements included perrormlng prccsdures lo assess lhe risks of material misstatement of the consolidated tinancial
statements, whether due to enor or lraud, and performing pDcedures lhal rBpond to those risks. Such prooedures indud€d examining, on a lesl basis,
evldonc€ regardlng the amounb and disclosures in the comolidated fnancial stalements. Our audits also included evaluating ths accounting principles used and
signmcant estimates made by management, as rv6ll as evaluating thE orra.all prosenlalion o, ths corBolidated financial sialements. Our audit of intemal cpntrol
gverfinancial reportlng included gbtainlng an undBrstanding of iniernalcontrol over financial reporling, assessing the risk that a material weakness exislE, and
tsstlng and evaluating the deslgn and operaling efiecliveness of internal cqntrol ba6ed on the as8e856d risk. Our audib al6o lnclud€d perfomlng such other
prcc€dures as we oonsid6r6d nscessary in lh6 circumstancos. We bellovg that our audits provido a r6asonabl6 basis for our opinions.
OeflntaloD and Lhntt ,Jons of lntornrt Con,rol ov.r Frn ncl.l Raporalng
A company's intemal control over financial r€pordng is a process design€d to provide .easonable asBUranco .egarding lhe reliability orfinancial .eporting gnd the
prcparatjon offinanclal stat€monts for extomalpurpgse8 in accqrdance with gonerally acc€pt€d accounting prlnclplos. A company's Intornal control ov6r
fin€ncial roporting includes thos€ policies ard proc€duros that (l) pgnaln to ths malnt6nanc6 of rocords that, in rsasonabls datail, accuratoly and Iairly rgf,ect the
Uanoactions and dispositions of th9 a8s€ts ot thq company; (ii) provido r66sonabl6 assuranc€ that transactbos are recordgd os necassary to psrmit proparation
ol fnancial statomqnts ln ac4ordanco yi,ith generally accepted eccounting prinaiple6, and Orat r€colpb and oxp€nditures of tho company are bsing mado only in
accordanc€ with autho.izations ot management and dirsctoro oflhg companyi and (iii) pmvida reasonablB a$uranc€ rcgarding prevenlion or timsly dgtection of
unautho.ized acquisitton, use, or dispgsitlon c lhe company's assots that could hav6 a matedal sl?sct on tho linarcial statementg,
Becauo€ of its inhg.ent limitations, internal controlovor financial reporting may not prevent or dgtect misstatemsnts. Aiso, proioctions olany avaluation ot
ofioctiveness to fulurc periods are subject to the risk that conbols may b€come lmdequate b€cause of changos in condilions, or that th€ degree of compliance
with the policies or prccedures m€y detedorate.
73
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 75 of 229
Table of Contents
Crtflc.l AudL N.ft*t
The critical aud[ manors communicat€d below arg matters arising from lh6 cunont pgdod audit of th€ consolidatod tinancial slai6m€nt6 lhat yrore communicated
or requirod to bo oommunicated to tho audit commltt€e and thal (i).etats to sc€ounb or dbclosur€s that ars matarial to ths consolidatod linanciel statements
8nd (ii) involvsd our espacially challenging, subj6cii\r6, orcomplex judgmenls. Ths communlcqtlofi of critic€lsudit mgtters doss not altsr in any way ouropinion
on th6 consolldat€d linancial stEtemenb, taken as a u/hole, and we are not, by communic€ting thc cdlical audil matters b6low, providing separste oFrinions on
th€ cdtical audit mattars or on lhe account6 or disdosur€B to wtlich they rel6te.
Accounting fot tho Efrocts ot Regulatory Mafters
A8 d€scribed ln Nole 2 to lhe consoridated financial statements, the Company has operalions that aro 6ubj6ct to lhs ac on8 of rsgulators where Etes are
dsslgned to r€cover spocific costs of prcvldlng r€gulatory 6ervic€s, which requires Ole Company to record regulatory assets and liabilities. As of Doc€mbor 31,
2019, Olere were $385.1 million of regulabry assets and $670.4 mllllon of r€gulatory liabilities. The Company's Natural Gas Oistribution segment is regulated by
tho Orogon Public Utility Commission and washington Utilities and Transportation commisslon, which Gslablish the rat6s and rules gov€ming services prgvided
to customels, and, to a certain extent, set forth sp€clal accounting tr€atm€nt for certain regulatory transactions. R€gulatory acoounting requires mamg6m6nt to
account fo. delered expenses (or dslened r€venues) as ragulalory ass6t6 (or r6gulatory llabiliti€s) on tho balanco she6t. When the .ecovery o, these rsgulatory
assots fiom, or rafund of rogulatory liabilities to, cusbmers is approvod, managomenl rocognizes the expsnso or rovenu€ on tho lncomo 6tat6m6nt at th€ 6€me
timo the adjuslrnent to €mounts includod in rato6 chargBd to custicmers.
The principal consideralions for our detemlnation that porformlng proc6duros rolating to th6 Cqmpany'o accounting for lhe effeots of r€gulatory rnattGrs is a
critical audit mattal ar6 th6re was a Eignifcant amount ofjudgment by managoment in assessing lhe potontial outcomos and relat6d accounting impactc
asaociatBd tyith tho ongoing accounting appllcation of r6gulated gperations, inqluding altemativs rsvenu€ progEms, d€fBrral and amortization accounting, and
the rssults of eamings tests. This in lum led to I high degrge of auditor judgment, subiectivlty and ellod in performing procedures and evaluatang audit evidenco
obiain€d relatod lo ths racovery ot regulalory asseb and th€ settlemed of Egulatory liabilitiss.
Addr6ssing th€ matter involved p€rformirE proc€dures and evsluating audit evidenca in connoction with torming our ovorall ofinion on lho consolidated linanclal
statemsntg. Th96e procedures included testing th€ 6ff6ctiv6n6ss of conlrols relaling lo management'g aEsessrngnt of regulatory proco€dings 8nd tha ongoing
accounting applicalion of rggulatad operationE, including altsmativs revanue prcgrams, defsraland amodizadon ac@unting, and th€.ssults ofoamlngS te6ts,
and including the probability of recovsring incur€d cosb and r€latod accounting and disdGure impacb, Those procedures also included, amono olhBrs,
evaluating (i) tho reasonablensss of managemenl's assessment rogeding the probability ol recov€ry of regulatory assetg snd sei ement of regulabry liabilities,
8nd (ii) the sufiiciency of the dlsclosur€s in lhe con6olidaled financial statemenb, Testing the regulatory sssets and liabilitio$ end ongoing accountlng appllcation
of regulated operations in\rolved consid€ring the provlslons and tormulas outlined in rate orders, other regulatory conespondence, and application of relevant
r6oulatory pf€c€dents.
Valuation ol Acquircd fanglblg As$ts tor Sqnnrcr Envirgnmental, LLC
As de$cribed in Note 15 lo the consolldated tlnanclal 6tatements, in May 2019 the Company complet€d the acquisition of Sunri\rer Wator, LLC .nd Sunrlvor
Environmental, LLC for cash consideration of $55.0 million, subjscl !o do6lng adjuslrnents, which resulted in $14.0 million of tqngiblg asseb being record€d. The
Sunriver acquisition mal th6 crhsrie ofa busin66s combinalion, and 69 such a preliminary allocation of lhe considoration to the acqulaed assets bas6d on lh6h
r8tlmatod fair value a6 gI the acquisition date was performed. Tha fair value detomlnatlon was made uslng existing regulatgry cqnditions for assets assodated
wilh Sundvor Wale., LLC aE w6ll aE 6xi6ting market conditions and slandard valuation approach€s for ass6b assoclatEd ni$ Sunrivor Environmental, LLC in
order lg gllqcate valuo as delermined by an indBpond.nt thlrd party assqssor for certain ass€t6, which involved the use of managenoni judgment in determining
tha signillcant ostimat€s and asaumptions u6ed by Ore assessor, with the romaining diff6r€nc6 ftom the considcration transf6ff6d b6ing rocorded as goodwill.
The principal considorations for our dotemination th6t p€rrorming procodur€s rglaling to the valualion of acquked tangiblo assets for Sunriver Envircnmental,
LLC is a critical audit metler are (i) the,e was a high degre€ ol auditor ludgmgnt and sutt€clivity in applying proccdurs relating to the tair value n€asursmsnt of
tangiblo assots acquired dus lo lhe signmc€nt amount ofjudgment by managoment when devslopino th€ estimato; (ii) signlricant audit otfort was r6quired in
evaluating lhe estimab ot the appraisal valuos of the acquired a6s€ts: and (lil) tho audlt efiqrt invqlved the usg o, prolessionak with sp€cializsd skill and
knowledge.
Addrossing tho mattqr ln\rotvod porfoming prqcadures and evsluating Budit evidenc8 in connection wilh forming our owrall oplnlon on tho consolidated tlnancisl
stat€mgnt8. These procedurss inoluded testing tho ofioctivenass of conlrols rglatiru to buEiness combinaiion acquisition acoountirE, including contrcls over
managsment's valuallon of tho tangible assets, as well as controls over the eslimate of the apprebal valusE ol th6 acquirBd proprly. Thesg procedures algo
induded, among othors, reading the purchas6 sgr€ement and testing managemeni's proo*s for estimating the tair valua ol the acquired langible assots.
Professionals wlth sp€cialized 6kill and knowledge were used to assist in the svaluatior of manag6m6nt'6 valuation method and the reasonableness of the
estimatB ofthe appraisalvalues ofthe acquir€d assets.
/8/ Pric€wabrhousecoopers LLP
Pordand, Oregon
liatch 2, 2020
We have served as the Company's auditor slnc6 ,|997.
74
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 76 of 229
Iehle-cfcarie[lr
REFIORT OF INDEPEINDENI REG'STERED PUBLIC ACCOUNIING FIR'T
To the Boa.d of Directo.E and Shareholder of Ngrthw66t Naturel G.s Company:
Oplnloo oo thc Fii.ncl.l Stt.€,menla
ws ha\r6 audit€d tho accompanying cofisolldatrd balanoe shggb of Nor$we6t Natural Ga6 Company and lts subsldiaries (the 'Compan/) as gf December 3l,
2olg and 20'18, and the relatod consolldatod statemonts ql comprghonslve incorno (lo6s), of shatGholdors' oquity and ot c€sh flows Io. sach of lh6 thro€ yoars in
th€ p€riod ended D6c€mbor 31, 2019. ircluding th6 rolatod not6s and financial statement schedule listed in thc accompanying lndox (collocdvoly referrod to as
th€ tonsolidatod linancial stat6nEnts"). ln our opinion, $l€ consolidated fnancial statem€nt6 pr€s€nt faldy, in all matorial respocb, tho financisl pqcition of the
Company as of Dscember 31 , 2Ol 9 and 2O'l 8, and the resule qf its opo.ations 6nd hls cash f,ors ior €ach of tho three ysaB in the psriod €nded Docember 31 ,
2Ol I in conlomlty wlth accounting principl€s gonorally accopted ih ths unitod statss of Amedca.
Change ln Accounthg Pdnciple
As discussed in Note 2 to th6 consolidated ,lnancial 6iaigmont6, tho Company .fiEngsd the mann€r in rvhich it gccounts for leas€s in 2019-
B.''ls lor Oprnlon
Thes€ consolidated linancial stabmonb are the responslblllty of th€ Company's mEnaggment. Our responsbility is to exprsss an oplnlon on lhe Company's
con6olldat€d Unanclal stal6m6nb based on gur audlts. W6 are a public accounting firm registerEd tYi0t the Public Company Accounling Oversight Board (United
Sral.s) (PCAOB) and ar€ roquirsd to b6 ind6p€ndent with respect to 0le Company ln 6ccordanc6 whri the U.S- t6dGral socurities laws snd the spPliq€ble rul€€
and reguhligns of he Sesurities and Exchange Commi66ion and th€ PCAOB.
We coriducted our auditE o, th66o consolidatgd finsrtcial statsmant6 ln accordanca with th6 standards ol the PCAOB, Those 6tandard8 roqulrs that wE plan and
porfom ths audlts to obtaln .?asonable a6suranc6 aboot whothor the cDosolidabd financhl statements are fr66 of mstarlal mlsstatomont, whether due to enor
or fraud. Tho Company ls not Equired to have, nor were we engaged to porrorm, an 6[dlt ot lts Intcmal control ov6r finanoisl reporting. A8 part of our audits tlrg
are Gquired to obtain an undoEtanding ot int€mal contol over financlal r€porting but not for ths purpose of oxP.e6sing an qdnion on th6 qffac{iv6noss of th6
Companys intemal oontrol ovcr financial r6portlng. Ac.odingly, wc expross no such odnion.
Ou. auditE included psrforming prgcedures to ass6s8 the risks ot material mioslatem6nt of th6 con6olldatod flnancial statsmanb, whothgr due to 6rf0r or rEud,
and perfgrming prgc€dures ihat respond to those ri6ks. Such procgduro6 indudod rxamining, on E test basis, gvidsnc€ regarding th6 amounts and discloGlros
in th6 consolidatod financlal stat6m6nb, Our audits aho lncludod ovaluating ths accounting principlss used and sonificant eslimatrs mado by managsrngnt, as
woll as evaluating tho overall prssentatlon of th€ consolidaled fnancial statements. Wa boll6\r€ that ou, sudit$ pmvid€ a reasorsble bssis fgr oul oplnlon.
/d Prk€Yraterhous6coop€rs LLP
Portland, Oegon
March 2, 2020
Wo hav6 s6N6d as S16 Companys suditor slnco 1997.
75
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Page 77 of 229
Tab e of Contenls
ln thousanals, excepl pet share dela
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Year End€d Oec€mbor 3'1,
2019 2018 2017
Op€rallno ,€venues
Opsrating sxp€ns6:
Cost of gas
Opsratlons and rnaintonanco
Enviaonmontal rcm6diation
C'onoral taxss
Rovonue tax€s
Deprociation and amortlzadon
Other operating expensos
TotBl oporating ep.n8o€
lncome from opeEtions
othor lncomo (aresnsr), not
lntsrssl erp€hs€, n6t
lncom! baforo lncomo taxeg
lnmmo tax expense
tlet lncome lrom condnuing opgrstons
Loss from discontinuod opolatlons, net of tax
tlot incom. (loss)
Other comprehensivo lncome (loss)l
Changa in €mploy€o b6n6fit plan liability, net of taxos of $956 for 201 9, ($166) for 201 8, and $735 for
2017
Amortization of non-qualifed employee benslit plan liability, nel of t6xes of ($172) tor 2019, ($278) for
20'18. and ($374) tor 2017
Comprshsnsivo income (h€s)
Avoaage common shares outstanding:
Badc
Dilut6d
Eamings ftom continuing opo.adons per sharg of commor slock:
Basic
Dilutsd
Loss from discontinued op€letions per 6hare of common slock:
Basic
Diluted
Eamlngs (lo8s) p€r shar6 ot common 6tock:
Basic
Dlluted
S€e Not6s to Consolidaled Financial Statemenls
t 74{,,372 $ 706,143 $ 755,038
2il,911
178,191
12,337
32,384
30,325
9,1,496
3,250
6()2,898 573,981 804,136
255,519
156,698
11,127
32,1f2
30,082
85,156
3,227
324,7S5
152,358
15,291
30,539
143,474
(22,838)
42,685
132,162
(3,601)
37,059
81,053
150,S02
(2es)
37,526
2,953 91,502 113,081
12,642 24,191 41,008
65,3t 1 67,31t 72,073
(3,s76) (2,742) (127,696)
61,735 64,569 (55,623)
(2,65s)
476
476
774
(2,050)
572
I 59,5s8 $ 65,819 | (57,110)
$
$
29,746
2S.85S
28,803
28,873
28,669
26,753
2.r9 $
2.19
2.34 $
2.33
2.51
2.51
(0.12) S
(0.12)
$2.07
2.O7
2.24
2.21
$$
(0.10) I
(0.0s)
(4.45)
14,44),
(1,94)
(1.93)
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 78 oI 229
Tabl6 of Contonts
tn th?{/d t,ds
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
Arr Dscamb€r 31,
20ls 2018
AllotB:
C{rlrtnl s8€b:
Acaoarnb l€cahreua 87,137 66,970
Alouanc€ br uncolaclhlo lccountg (673)(9r,)
Drrrva0vo lmtumonts 0,802 9,00'tWffid'f;r'lrrffir
15,218 16,647Gat Eaona8
Othar qJnsnt ass€ts 38,004 ,172
Tolal (irror{ E8sots 293,692 295,94'l
Prcp. y, plant .nd oqulpiEnl 3.476.746 3,,(t,t,rl90
Tolrl pIoperry, plrnt lrd oquipm'|t, not 2,436,809 2,121,372e+q,w##Hffi rrr-+;r1*"
R.gul.tory .t!ob 343,146 37't,786
s#&tf,ur
Ottlrr k[estrncnts 61t,333 63,558B4ffi i!ii"{5rt"?+:-
As$ts mdcr sal.3-typc lc.r.r 148,310i,ffi $FFrd,i,1-isg.ffifl.i*tr:ll!,1i*fs.
Oficr non+unfil assats *,& 14,149ffi,sffi"$ eiffiWEffiiiiffirr
Totals€8GtB $ 3,428,454 t 3,212,62
S6€ Not6 6 Consolidatod Flnanci€l St8tcmonb
77
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 79 oI229
Tabl€ of Contenls
NORTHWEST NATURAL HOLDING COIIIPANY
CONSOLIDATED BAI.ANCE SHEETS
Asr D.cembsr 3t,
t lboi*rda m1g a)18
Lldltr.q and €quity:
Curltr lbblllt r:
flffi
Cu.rar{ m!tud0o8 of long-t on dobl 75,109 2S,969
Trxa! accnrad t 1,s71 't 1,023Fffi ffi,ffi eli;.:..ii-*&Bt"tlS$*rr.ritli'#t,i+ai
Rrguhbry llaultlo3 1,1,657 47,1*fffi ietq].!*..#;Smi&$;ill;:Wi#fG;@rffi:ffi
Op.flfng lcsa llabllti6s 2,101
i7i,irs.fi'
Dl8contttu€d opora0m8 - nrlrld liabllities 13,700 r2,959
Longrtorm debt 805,955 70/d,217
Drftmd t x ll.bllltG€2S5,643 280,i163
ll''
Pcoalon 8M oth€r poslndrrment b€oefil llsHlltlc8 2?a,129 221,Mfffi ,.i:.d|:iij.d&;Mi,.,t€i*m#'#fi,q*m$.iffi k$tg.t#.ffi
Oprathe loasr lhultbs 841
ffi,:iil-i,,,,
Totaldcfonrd qtdiE {ld odror mn-c{nfft lisbilitio8 1,211,321 1.26,1,807:+r;ii{t$&F,,*6-W,Sff{i&ffi
Eq.ITI
Rrtahrd .amlng8 318,450 912,192
Totel eCutty 865,999 782,634
tr$.ilff gFffi * BFi;.,1,-;l-tr i. l i':,-Fir:i:'s. .r- iir 1' .,l'3ti$1:, 1)',t{;r
S6. Notss b ConsolldatEd Flmnchl St trm.nb
78
EXHIBIT 2
PAIFREYMAN, DI
FALLS WATER CO., INC,
Page 80 of 229
ISE-c[.Cc!e&
h,M
NORTHWEST IIIATURAL HOU,ING COilIPANY
CONSOLIDATED STATEMENTS OF S}IAREHOLDERS' EQUIW
CdntErSd(Rlt h.d
Esnfr!tr
Acax M Otrr
Confathorh.t
lEofll. (LBr)
Totrl
ECrrly
ColnpIrhf,dv. hEr. (h.!)(55,C43)(r,{67)(57,fl0)
Sbddndoorpffido.r 2,&2,82
Brhc. t t,.€n$.a 3t, 20i7 l.ta,8dt 9,2349 (Era3E)717.7t6
Oh,ld.nda on conmor .io.( 8f .00 F. *sr (5{,7S}(r,736)
tt..x.3r.d Frtlf b*!dy b.r.d dor !,1r5 5,175
VrlI of dll* ttn tuitd 6r Dds ooglbL*n rFa!8,545
Collpltftfi.tua fE m (loa.)61,7S5 (2,175t 58,556
8[od(+G.d oomFnlrtEn 2,e1 2.601
ls|lnca or aomrur aba& nat d hltrEa codr 91,058 02,956
Bdanc. at D.o.mt r 31,20to t 558.28:l t 3r8I50 I (r0,73s) $ 865,900
S!€ tlo[.3 b Comold$ld Fh aH Stabmd B
lg
EXHIBIT 2
PALFREYMAN, DI
FATLS WATER CO., tltc.
Pagc 8t o1229
NORTHWEST NATURAL HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Yasr Erdrd D.6mbrr 31 ,
h ltfru,.,,att 2019 2016 m17
Opcradng adMtbr:
AdF!fifib io ircondh n6l lncomo (lo$) b calh provlded by opors0ont:
R.gulabry amo(Eeuorl ol lss rsssrws 19,172 '10,684 16,353Wi.$mffii. *t${'i:i1ffi:'+j ;iitrt*ffiH$ir:rffiffitrffi
OuallfiGd dollnod b!.rsft psnsbn dan €xponso 16,1197 8,108 5,364
D€6arsd ervlmfl msntrl €xpo{diturB, net (16,226) (14,528) (13,716)
Rogldsbry rownuo drhral fom th" TCJA E53 7,s2S
Othsr 13,007 t,596 2,102
Rso.lv.bL., nol 5,E 14 l8l 3,2a2HLffiq{iiffi,#,ffi
lncomo and othtr tax6s 4,528 O6,gOf) 6,73i1PS,***ffi ":;iHffi i*+-€*f w,&Hifr fi *&'*Sx*ii.,&,+*ffi
lntglsd acfilsd 145 526 807F"B :ffi
OocoLdlng mechsnbm 18,661 4,151 ,t,il36
i#-:iif ffiffi1+lHt.'i:,iiirir-*,3#r4tr,$#q*Siffi #.s[4::i.',**.mi,-ft m{4ffi #mi
DiEcfi tinuod opcratixrs 712 (o{5) t07,r8o
lnr/ldhg ac&itl$:&trmffiE$irlt B r*#.*q ffiiu,t,
Acqubltbn8, nat ot cssi acqulrld (s€,7E6)(873)
ffi&-qu$i*i.?,:,,,:.9.,.$Jji',.!tE.-d.*?.ti+4#t4tiil $il{A;ir;rg'lffi--E$ffi*i*tr8'#
Olh.r (2,88s)'l,8s8 (5r1)ffif4*ri*;.-tf.:fuI;#!'i:l};l,:gi::ei!
Crlh ulrd ln lnv€Bdng artlvitles (303,78r) (217,4s3) (211,1t21
80
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Paga 82 o1229
NORTHWEST NATURAL HOLDII{G COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Y.r End.d Mrgi,
?ols 20tt ?o17
Fh chl rclhtrc.:
Pro6adt llonr rlo.* optolB a[attaad 2,015 t,tto 4,619
Lo€.bnn(blh.d r75,0m 50,m0 r@,mo
Chfilo h .lrdt't rnr dotd (68,620) t63,Cr4 000
Sbck Frdl.r.. rthd b.cqd. ofi.g,ssr)
C.$ Fot ld.d by fnaldle ra0vltbt Ir5,4$ 57,843 7,ill0
Crdr .d h .quh*r{l, b.gar5fio oa P.rlod t2,6gl t,o2 3,521
hbr!.t p!id, n t oa o.pl*.tbn S ,11331 t 36,324 3 34,87
Sr€ lbha b
8t
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC.
Page 83 of 29
NORTHWEST NATURAL GAS COIIPANY
coNsoLlDATED STATEMENTS OF COMPREHENSTVE TNCOME (LOSS)
Ylll End.d Dccdr$.r 3 l ,
ir rloiraards mlg mt8 2017
;.t:*i:,;rF.,r*#+ffi Mttffi 8sCototg!8 255,135 255,713 325,019ffi-i+u{hnF
EnvllDnttll il rllrudhlbn 12,391 11,121 15,291
Rlwnu€ trxla ),325 30,082ffi:p##,,&.' .iir*+i!e*;ii-,ffi9m1s+j:.ffi1:. ffifrFm:
Olhrl opr]adrE cxp€nEo! 3330 3223
1i,B'F,&:,4,iWi&Cr
lrcornc lirom opaGtlooE 117,*133,099 1il,52,.ffi,-,-"#asfsil#*iif.{
lnbrlGt rxpcnla, nct 41,339 38,992 37,526ffi frdl,ffi$S+:'ni ; 1*ffiffiffifi
lncorna tlx rxparBe 14,065 2,1,,t50 41,478
jir.)L-1....:,,&ffitE*?qffi ii't i.ffi
LooE ftom daconttruod oporatorE, net of tax (1,723) (127,3,4ii);i!:i:,.*,rtf,i#tg#affi,if*ffi
O0lcr @mpt!ftonlh.6 ircoi!6 (los!):#
&nortlz8don ot mrFqu.mad snploylr brnGfl pbn lhblly, i|ct of tar66 o, ($!72) ror mlg, ($278) ior
2018, and (3374) lbr 2017 176 774 5712
ffiHf,ffiHffiffiF'+Iffi'-.r.:+r : :;.:\;1li{;:.9,.q.:, .: -,, .
Sco No(64 b Consolidaled Flnarrcisl Sbt mentB
82
EXHIBIT 2
PALFREYMAN, DI
FAILS WATER CO., INC.
Pag6 84 of 229
NORTHWEST NATURAL GAS COIIiPANY
CONSOLIDATED BALANCE SHEETS
AE oa lhcsmblr 3l ,
,n t ot,,!€ndg 2015 201E
Aaa€t8:
Cumnl r!!€tr:
Account8 locsiYstrle 06,823 66,824Effiffiffi:i,ffi-ffi,ffifllry $ii*ilffii
Rocclvebbs trqrl smlhb8 7e7 it,'l06
*&idE"lf$ft ,{;,t##-ffi fl *rr.nr1$4#ffi
RcAulsbry asscb 41,929 41,930
lnvantoriac ,l:},896 41,',126ffiBr,,girc' +ir*sr|ffi.
Olh€r cunar{ ralei3 33,258 25,U7
Non cunDnt e&Ete:
Oth6r non cunant asrot8
ffi$i*I##ffiffi,:ffis#ry.f* s'_sfffi
L€8E: Acamul€tod dop€dathn 1.Gta,593 992,655ffi.=lr,';iGaaresorvss '18,39,f 66,197
{g*.r-
Derivdtua lnsbumonts 3,337 725
F$ffiffiifr:',:Jirifr4$" :t:iffi?fllig$s,i{.ffii
Opsrathg losa dght of uss aes6l 2,7@
38,ffi2
lflil;:,*i+,*l
13,736eY.ffi;'jlfi
Tdrl .ss.t!$ 3,32r,,167 $ 3,192,736
Sa. NotG io Cfilolldltod Fkrandsl St8bmente
83
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 85 of 229
NORTHWEST NATURAL GAS GOTPAI{Y
CONSOLIDATED BA,I.ATTCE SHEETS
Ar ol D.a$rt i ti,
bffi 20r9 20tt
lablfiCrlld.q SArlldffi!:
Cuttfif r$ffx oa lf,lgFarr dd f1,fil 23,eu
P.yd.. b .afdre 'l,6at 6't3
hrstErrad 7,41 t,zf!
Ouh,r0vc hatufia|rb 2,000 E,A1
Otr. qrt t LDm.i Gt,438 dt,txtT
Lfie-lrmdd 7@,(lt 70a,t3a
Dctltarl io( t$St .xE,,T 2e4,7ilD
P.{!.loll d dl.f poffilm* b]l.fit hlaffill 21b,1D 21.0E0
hrSEh..Ltfdr TN
Tobld&ord ('rds lI t drarnoo.(,fiflt o.b$al 1fiiw Lzfe,ot
E{,ry
R.hfrd.dr*{o 513,372 as,ao4
Tobl.q{y 822,r98 7t5,GC0
S!. i,lot b Cfi.o]d& Fh.noal6!tl!Eob
u
EXHIBIT 2
PAFREYT/hN, Dl
FAI-TS WAIER CO., INC.
Psgr 86 ot 229
NORTHWEST NATURAL GAS COUPAI{Y
CONSOLIDATED STATEMETIIIS OF SHAREHOLDER'S EOU]TY
ktar'Eifltd'Cotlnoo 8bd( Rdl|t.d Ermfp
Acgl llLd OUl.i
Col!I.thrrt$,.llEr.(l-6)ToC
E$*v
Coirptdr€r'tatrn ktcomc (lo.l)(66,443)('r,487)(57,fi0)
S'bd(.b@d oo.l|paurtor 2,E,lil 2,82
BahlE !t Orc.rtlblr 31, 2Ol7 a4t t85 fln,349 (r,138)t12,7t6
Dhrldai& on cqrmn abck (4'r,035)(4r,(x15|
Shrt3 b.l,.d Frslnl b ba.d PLrfl)
B.hr. .t o.c.II$.. 3l , 20tE
3,075
afr,182 a08ra04 o,188)
3,075
,15,668
OlvldJlda oo comnron abd((63,312)(63,32)
Rde..ffic.ton d trr( .Ibd, fom [,l. TCIA t,36E (r,368)
(r)E od(+r.d ocrFmdorl L lrard on !bd(.Edl oi iw ialtrd b t afiad h drlr d NW Hd(59..
Sr ils. b Conffi flll.dd Sri.llxnlr
86
EXHIBIT 2
PALFREYTTAN, DI
FALLS WATER CO., INC.
PagB 87 of 229
NORTHWEST NATURAL GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Yoar Ended Oecemb€r 31,
,n lhousaads 2019 2018 2017
Op€rating activitios:
Net incom€ (lG8)
Adjustm6nts to reconcil6 n6t lncome (loss) to cssh providod by operations:
Doprsclalbn and amorlizatbr
Rsgulatory anrortization gf gas reserves
Dctonod incom€ laxes
Qualified defined benefit pension plan expense
Conldbstions to quallfiod d€fin6d bsnafit plnsloo plarE
Detered environmental expenditues, net
Envkfi mental rsmediation exp€nsr
Regulatory rov€nuo dofonal ftom th6 TCJA
Rggdatory dlsallowanco ol ponslon cosb
Other
Chsru€o ln assets End li8blliliss:
Rsceivables, net
lnv€ntodss
lncomo and other taxes
Accounts paysblo
lnterest accrued
Ir€f6n6d ga6 costs
Oecoupling mechanism
Ohor, ngt
Discontinued oporations
Cash providgd by operating 6ctivit€6
lnv6sting activides:
Cadtal oxp€oditures
LGas6hqld improvemgnt expendituros
oth6r
Disconlinued operations
Cash u8€d in investing activiti€s
Financ.ing actlvltl6sl
RopurchaslE rCatod lo Stock-bssgd componsatbn
Procoeds ftom 6lock optjons exercisod
Long-trrm dobl lEssod
Long-term d6bi rclired
Chengc ln shori-tr6rm dsbt
Cash cohlrlbutions received f.om paBnl
Cesh dlvldend paymenis on commoo stock
Olh€r
Dlscontinued operalions
Cash provided by fnancing activitios
lnqrass (docl€ase) in c€sh and c€sh €quivalonts
Cash and cash equivalents, beginning ot period
C€sh srd cash squlv€lonts, end o, psriod
$ 68,S74 $ 66,326 $ (55,623)
90,i105
1S,172
4,046
16,4S7
(r0,970)
(16,226)
12,337
E53
r0,500
12,317
9,2U
(5,s€o)
496
08,8)
168
Q3,4f 1l
18,661
(2,30s)
84,986
16,684
r2,330
8,108
(r5,s40)
(14,s28)
11,127
7,929
81,02i{
16,353
r5,894
5,364
(rs,430)
(13,716)
t5,2S1
863 2,003
(3,920)
3,212
(7,854)
'13,937
500
(14,3e5)
4,497
(3,958)
3,184
3,215
5,601
6,730
3,3S2
807
17,122
4,436
(8,2e1)
126,371
188,176 173.508 206.,189
(221,380)
(1E,812)
(2,885)
(214,328)
(4,415)
8S8
(20,617)
(213,32s)
Gnl
\270)
(243,0771 (238,462) (214,172t
140,000
(30,000)
(92,400)
93,155
(53,372t
(2,510)
1,368
50,000
(97,000)
1E3,300
(2,034)
4,8r9
'100,000
(40,000)
900
(s3,s57)
(2,s09)
(38,387)
(1,53S)
(7,951)
54,873 69,791 7,4'19
(2,028't
7,947
4,837
3,110
l27ol
3,380
s 5,9t9 $ 7,947 $ 3,110
Supplemgntal dlsclosuro of cash fon, lnformation
lnt€rest paid, net of c€pitalizalion
lncomg laxgs pak (rsfunded)
39,327 $
2A7e
35.305 $
dxrfii 2
See Notes to Consolidated Financial Statements
$
PALFREYI\,IAN, DI
FALLS WATER CO,, INC,
Page 88 of 229
u,7a7
14.780
86
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 89 of 229
Tahle of Conlents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OREAN'ZANON AND PR'NGIPLES OF CONSOL'DANON
On fuober 1, 2018, we compleled a rsorganlzation into a holding compeny structure. ln lhls reolganlzatlon, shaBhold6r6 of NW Natuaal (the pr6d6ce6sor
publicly held parent company) bec€me shareholders of NW Holdings (m a oo6-for-one basis; maintaining the sam6 number of sh.res end owno,ship p€rcsnhge
Es hqH ln NW Natural immedlat€ly prior to tho reorganization. NW Natural becsme a wholly-owned subsldiary oI NW ttoldln$. Additionally, oertain subsidiades
ot NW Natural wore transfoned to NW Holdings. This rBorganizalion was accountod for as a transecdon among ehthl6s urldor cornmor coflbol. As roquir€d
unde. accounlng gukJsnce, th€se subsk{aries are prBsonted in this report a6 discontinued op€railons in the consolldated rosulb ol NW N.tural. Ssg NotB 19 for
addllional lnformatlon
Th3 sccompanyinq consolidatod fnancial statgments rsprgrent Oi9 respeclivg, consolirated financial r€sulb of NW HoHings and NW Natur.l and all r6sp6ctiv€
cDmpanies that oa.h rogistrant dlrocdy or Indlroctly conuols, oither lhrough majoity owneEhip or glherwise. This is a combined report oI NW Holdings ard NW
NatuGl, which indudsg Ggparate consolidatsd ,inancial sktsmonb for cach rrgistranl.
tlw Natural's Egulated natural glas di$tdbution sclivilies sra rsport€d ln tho natural 96o dlstdbution (NGD) sogment. The NGD segment is NW Naturafs coIg
oporatlng business and serves rGidsntial, commercial, and indusbial customors in Orogon and southwDst Washington. Ths NGD ssgment ls lh6 only r6porlabl6
segmont fot tlw Holdlngs 8nd NW Natural. All other actlvities, water businesses, and other lnvestmenta are aggregatod and leported as othsr st th€ir respeclive
regist'ant.
ln .dditon, I'IW Holdings has roportod dlscontinu€d operafon6 re6ult6 relsted to Ore pending sale qf Gill Rench Storag€, LLC (Gill Ranch). All p.ior period
amounb haw been rekospectivgty adjusted to r8flect lhis charEe bofi in opera0onal rosults and r6portabl€ E6gm6nb lor t{W Holdings and NW Natural,
r€spodivoly. Th6ss rodasslllcations and the Gorganization qstivities described above had no offocl on th6 prior Fa/s consolidatsd rBsults ol oporalions,
financial conditioo, or cash ilovrs. S6e Not€ 19 for addltlonal lrformation.
i{W Holdings' direct end indirsc-t wholly-owned subBidiari€s as of the filing date of Otis report inqludo:
Norlhr66t Natural Ga6 Company (NW Netural);. Norhwest Energy Corporatbn (En6rgy Coe);. NWN Gas Reserves LLC (NWN G€s Re$rve-s);
NW Natural Enoroy, LLC (NWN En€ryy);. t{W NaturalGas Siorage, LLC (iIWN Gas Storage);. Gill R6nch Storage, LLC (Gill Ranch), whlci ls pres€ntod 6s a disconlinu6d op6rallon;
NNG Financial Corporatlon (NNG Financial);. KB Pipoline Company (KB);
NW Natural Wat€r Company, LLC (NWN Water);. Falls Water Co., lnc. (Fall$ Water);. Salmon Vall€y Waler Company;. NW Natural Wstsr of Orsgon, LLC (NWN Watsr of Or6gon);. Sunstono Wat€r, LLC;. Sunstone lnfrastruoturs, LLC:. Sunrivar Water, LLC (Sundver Wate.);
' SunriverEnvironmental,LLC(SunriverEnvironnrental):. tlw Natural Wator ol Washlngton, LLC (NWN Water qf Washington);. Casoadia Water, LLC (Cascadia Water);. Cascadia lnftasbuchrr., LLC:. Suncsdia Watar Company, LLC (Suncadia Wetsr);. Suncadia Envlmnmont€l Cgmpsny, LLC (Suncadia Environm€ntal);. i.lw Natural Water of ldaho, LLC (NWN Waler of ldsho);. Gem State Water Company, LLC (Gem Stab Water);. Gsm State lntrastructur6, LLC;and, l{W Natural Water of Texes, LLC (NWN Wat€r of T€xas);. Blue Topsz Watar, LLC;and. Blu€ Topaz lnrrastructure, LLC.
a7
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 90 of 229
Table of Contenls
lnvsstnents in cprporatg joint v€nturBs and partnerghips Oral NW Holdlngs do€s not dlroc{y or lndlroctly control, and tor which it is not ths primary b€neficisry,
lncludo NNG Flnancialt lnveshnent ln Kohc.Boaver Plpsline 6nd NWN Enorgys investnent h Trail West Holdings, LLC (TWH), which are account€d tor und€r
tho equity m6thod. NW Holdings and its direc{ and indi,cct subaidisries ars oollectiv€ly refonod to herein as NW Holding6, 6nd NW Nstural end ils diract 6nd
indirect guhidiarios ars oollectiv6ly rste[€d to heroin as NW Natural. Tho consolidat€d linancial statemaots of NW Holdlngs snd NW Nalural arc prB3ontod after
ellmination olall intercompany balances and transadions.
Ouring Ole s€oond quarter of 2018, wo moved forward with our lgng-term 6trategic plan8, wfiich include a thlfi away ftom tho California gas stor€gs business. ln
June 2018, NWN Gas Storag6, a wholly-owngd Eubsldlary of NW Natural at lho lim6 and no$r a wholly-owned subsidiary of NW Holdings, ontorod lnto a
Purchas€ and Sal6 Agr.enFnl that prcvldes for th6 sale ot all of tho mernborship ln(eiBsts ln ib *tlolly-ownod subsidiary, Glll Ranch. Wo r.coivBd .ogulatory
sppmval for Oto sale in Dscemb6r 20'19- We havo conclud€d that the p6ndng salo ol Gill Ranch qualmas as assds and liabilitio's held for sals and discontinued
op6ration6- As such, th6 rosults of Gill Ranch havo be6n pro$6nt6d as a discontinuod oporation for NW Holdings ior all p€tiods pr666nt6d 6nd for l.lw Natural up
until th€ holding company roorganization was €fi€ctivo on October 1, 2018 on the consolidatsd statgments ol comprah6nslw lncoma and c€sh flows, and tho
assob and liabilities associatsd with Glll Rancfi haw begn clas6ifi9d as disaontinued opsrgtonc ass€ts and lisbllitl$ on tho NW Holdings consolidated b€lance
shgqt. See Note 19 tor addltional information. Addhionally, we rce\raluated reportable segments and conoluded that the remaining 948 6torage adfultles no
longer met th€ requiremenb to be separat€ly repoded as a segment. lnteBtate Storsoe Seryic€g iE now reponod in Othcl undsr N\n/ Natural 8nd i'lw Holdings
as applicable, and all prior period6 rBflect tlis ciange. See Not€ 4, whlch provldos sagm€nl Iniormation.
Notes to the consolidated linancial statgments r€fect the activity of continuing operatioG ior both f|w Holdings and NW Natural tor all periods pGsented, unless
otherwise noted.
2. S,GNIFICANI ACCOUNNNG POL,,C'ES
!!!-ef-Er{rE!&c
The preparetion otfinanoial ststements ln conformity with generally accepted accounting pdnciples ln the Unltod States of America (U.S. GAAP) requirs8
managemont to mak6 6sllmat0s and assumptions that afi6c1 raportsd amounts In the consolldatBd financial statemenb and accompanying not€6. Actual
amounts could diffor from those g3tirflat66, aM changBs would mosl likely bs r€portod in futurc p€riods. Msnagom€nt bell€vos tho ostimates and assumptions
used 6ra t€6aombl6-
hdxrESlcdele[
NW Holding$' pdncipal businoss is to opsrste 6s a holdiBg compeny for NW Natural and its othsr subsidiaries,
NW Naturafs principal buslness i€ 016 diEtribriion oI natural gas, wfiich h r€gulalod by th6 OPUC and WUTC. NW Natural also has natural gas storags 6ervia$,
which ar6 rogulat€d by the FERC, and to a Gertain oxt6nt by th6 OPUC and WUTC- Addltlonally, cartaln of i{W tloldings' subsidiaries own water busin6ss€6,
which ar6 rGgulatod by tho public utility commission in the sht€ in whicfr tho water utility i8 locatsd, which i8 cun6n{y Orogon, Washington and ldaho.
Accounting recqrds and practb€s of thg .egulated businoEse€ confqm to the r6quirem6nt6 and unlform syst€m of accounts prescribod by these regulabry
authorltiEs ln accordanco wlth U.S. GMP. The busln€sses ln which .ustomer r6tes are reoulated by the OPUC, \ryUTC, IPUC, and FERC hsve approv€d co6i-
bassd rat€s Mrich are intended to allow such businessos to €am a tEasonablg rehlm on inwsted c€pilal.
ln applying regulalory accounting principles, NW Holdlngs and NW NatJral capitalize or d6f6r cartain costs and revgnues as regulatory assets and liabililies
pur$uant to ordors ot the applicable slats puHic utility commission, which provide for the .ocovery ot rovenuoa or oxp€nsos fom, o. refunds to, utility oustomers
in Iuture period8, induding a Etum ora carrying charge in aeJtaln cases.
88
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 9'l of 229
Table of Contenls
Amounb NW Nahrral deforod as Egulatory a6ssts end llabllities were es iollow8
R69ulstory A$€tB
2019 2014
Corant:
UrElL.d l@. q! dortvCivsll)
Gas cosla
Enrrbfi|lnbl co.b€l
DecouPlh8(3)
Prlrliqt b.hno&lgo
lncorYE tirxes
olh.r{l)
TotEI srner*
tloi}qnl!'lt
Unlealized lo$ on derivalivesll )
Pdtshrl bebndrEs,
lncoms trates
Pa.Ehn .nd oOEr po.figlirom€r b€rEfit liabllhh!
Environmontal costsG)
GE o6b
DecouplhgGr
Ofldo
s 2,000 s
20,t40
1,fa2
1,969
5,030
2,209
,t,010
12,3Er
2,873
5,@r
9,140
2,218
s,71?
$41,929 $4 t,s30
$609
4A,X1
17,113
173,N2
87,624
2,866
13,36'l
$ 343,146
$ 3.025
11,',173
'19,185
174.SS3
76,149
9,978
2,95
1t,734
$ 371,786
Roguhiory Lleb{ltlos
20'19 2018
Cur€nl:
Ge Goot!
Unrealized gain on dedvalivesll )
huplhgirr
ofua{.)
Total drnEnt
i,lolia mnt
Gas co6ls
UnaElbad grln on dorivaliv€lll)
DocouPlhg{3'
lrEalr. tlxlEo
Accflred a6s€t r€movEl coslEl7)
o{1d{!)
Totial mn-{rirent
t 1,Ut I
6,622
,4,631
8,435
23,s/r6
17,1U
8,740
2fi4
$
18250
44,657 $,17,436
s 2.013 $
3.337
6,376
t9E,210
401,893
13,8n
552
7
225,M
380,464
,rlll
$ 625,717 $ 611,560
UnGellzod gaim or loss6s orr dsrivalives are non-cash it€mg and. tharoforo, do not oam e ret6 of r6tum or e cerrying cheE€. Th6se ernounG Ere le@v6rabls through
nalural gas dlstrlbutlon El6s as pErl of tho annLial PurEhas€d Gas Adjuslrn€nt (PGA) mochanlsm tvhon rcslized et 66ltl6nr6nl.
Refer to the Environm€nlal Cosl Dolerral end R6cov6ry tebl€ in Nole 18 for s dB6criptioo ol onvkonmental costs.
This d6fenal ropr€6ents the margin adiuglmonl resulting from diffsrcnces betweon eclusl and erp€ct€d volumes.
Reter to Nole 10 lor infomation rEgading the defenBl of pension expenses.
Balances consist ol doterals and amortizetions under approvEd rEgulatory mechanbms and tyrically 6am a aato of rctum or caryino charco.
This balanc€ .epr$enls ostimatgd anrounls assoclatod with th6 Tax Cuts and Job6 Act. Soe Note I .l .
Estitmtod costs of rerytovalon csrlsin rogulatod properties ar6 collected thrcugh relos. See 'Accouhlih1Polidoa-Plant. Properly, and Accrued Asset Removal Costs'
The amortization period for NW Natural's rggulatory assets and liabilities ranges from less than one year to an indotormlnablg period. R€gulatory d€fonals for
gas costs payable are generally amortized over '12 months beglnning oach Novemb€r 1 following the gas contract yoar during which th€ dofered gas msls are
raa:orded. Slmllarly, most other regulalory defened accounts ar€ amonized ovor 12 months. Ho\ r6v6r, cartain rcgulalqry account balancgs, such as income
taxea, environmonlal costs, p6nsion
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 92 o1229
89
EXHIBIT 2
PALFREYMN, DI
FALLS WATER CO., INC.
Page 93 of 229
Table of Contenls
liatilities, and accruod sssol rernoval costs, aro large and tend to b€ amortized ovor longor p€riods onco NW Nafural has agrsed upon an amortization period
with the respective regulatory ag€ncy.
We believe all costs incurrcd and doferred al Oecember 31, 20,19 are prudent. All regulatory assets and liabiliti€s alE reviowBd snnually for recoverability, or
mor6 often if ci.cum6tance6 \rrarant. lf we should detorminolhal all or a portion ofthese regulatory aEsets or llabilitles no longGr me€t ths crit€ria for continued
appllcation of regulatory accounting. then NW Naturalwould be required to wdte-oll the net unrscoverable balances in the periad such determination is made.
Roqulatory interesl incom6 of $19.6 rnillion and $7-6 million and rggulatory interost exp€nso of $12.3 million and $5-9 mllllon rvas ,ocognlzgd within othor incoms
(6xpons6). net tor lh6 y€ars end6d Dec6mb6r 31, 2019 and 2018, r6sp6ctiv6ly.
Environmental Reoulatorv Accountino
See Note 18 ror inlormation about tho SRRM and OPUC ordo.s regarding implementation
Ugr3leellIaircslrIdldr
NW Natur€l and NW Holdings consider the applicability and impact of all acoounting st ndards updates (ASUS) issued by th€ Financial Accounting St€ndards
Boa.d (FASB). ASUS not listod bolow woro assgssod and detsrminod to b6 either not applic€bl€ or are oxpoc{6d to have minimal impact on consolidatod
financial posilion or rasult€ ot operations.
Recentlv Adooted Accountino Pronounc€ments
ACCUiIULATED OTHER COITPREHENSIVE ll{ColilE. On February 14, 20'!E, tho FASB issuod ASU 2018-02, "lncome Statement-Reporting
Comprehensive lncome: Reclassifcation of C6rtain Tax Effocls from Accumulated Oth6r Comprchsnslvo lncomo.' This updato r{as issuGd in r€sponse to
concems from csrtain stakoholders regarding the curent roqukements under U.S. GMP that defenod tax assBts and liabilities ar6 adjusted lor a change in tax
lau6 or ral€s, and lhe efi.ct is to b€ included in income from conlinuing operations in the perigd of the qnaclment date. This requiroment is alsg applic€ble to
ilems in accumulatod othBl comprehonsivo income wh6r6 the relatod tax offocts were originally r€cognizod in othor comprohonsivo incomo. Th6 adjustrnent of
defensd taxes due to the new corporate income tax rate €naclsd through the Tax Cuts and Jobs Act rICJA) on Oscombot 22,2017 tocognizsd in income from
c4ninulng oporatlons cau86s the tax eflscls of items within accumulated other compreiefisive income (rGforred to as stranded tsx eflects) lo not rcf,ect the
appropriate tax rate. The amendmenls in this update allow but do not require a reclassifcation from eccumulated oth€r comprehensive income to retained
eamings for stranded tax etfeots resulting from the TCJA and require certain disclosures about stranded tsx effecb. NW Natural adopted and applied the
6t ndard in tho first quaner of 2019. NW Naturalelec{ed to reclassify the stranded tax effocts of the TCJA ol $1.4 million hom accumulatod olher comproh€nsivo
loss to retained oamings in tho period of adoption. Going forward, orlI policy is lhat, in the event that rogulation changes result in stranded tax efiects, such
arnounts will be reclassified from accumulated other @mprehensive income (loss) to retained earnings in lhe final period that the related deferred tax balance
rEmeasurement is oxpected to impac{ income ftom continuing operations.
DERIVATMES AND HEDGI}{G. On Augusl 28, 2017, the FASB issued ASU 2017-'|2, 'Derivatives and Hedging: Targetod lmprovements to Accounling for
Hodging Activiti6s.'The purpose oflhe amendment is to more closely align hedge accounting with companies'risk management Btrat€gies. The ASU amonds
th6 accounling for risk component hsdging, lhe h€dged it6m in fair valu€ hedges of interesl ral6 dsk, and amounts ercludod from the assgssm6nl of hedgs
efiectivsness, The guidanc€ also amends lhe recognition and pr€sentation ofth6 6ff6ct ot hodging instrumonts and indudos other simplifications of h€dge
accounting. The am€ndmohts in thls updatc wer€ etl6c{v€ beginning January '1, 2019 and were applied prospectively to hodging instruments. Th€ adoption did
not h6ve an impact on the fnancial slatements or disclosures of NW Holdings or NW Natural.
GOODWILL. On January 26, 2017, the FASB issued ASIJ 2017-04, 'Simplitying lhe T6sl for Goodwill lmpairm6nt.' Ths ASU r6move6 StEp 2 from Orc goodwill
impairment tesl and under the smendod guidance an ontity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with
It6 carrylng amount and recognize an impaimenl charge for the amount in which the carrying amounts exceed the fair value of the reporting unit. The
amendments in this standard are effective fo, us beginning January '1, 2020 and eady adoptlon is pemitted for inteim or annual Ooodwill impairmenl lests
p€rformed atter January 1, 2017. NW Natural early adopted ASU 2017-04 in ths quarler onded September 30, 201E. The adoplion of this ASU did not materially
atrect the financial statomonts and disclosurgs of NW Holdlngs or NW Natural.
LEASES. On Fobruary 25, 2016, the FASB issued ASU 20'16{2, 'Leasa6,'which rovisgs the existing lsase aqcounling guidancg. PuGuant to lh6 now Etandard
(?SC 842"). less€€s are required to recognizo all leasos, including opereting lea66s that ar€ greatgr than 12 monlhs at lsase comm6nc6m€nt, on th€ balanc€
8h66t and .ecord correspondihg dght of use assets and loase liabilitiss. Lsssor accounting will remain substanlially the same under th€ new standard,
Ouanlitative end qualltative dlsclosur€s ar€ also requked tor users ot th6 financial slalemonls to hav€ 6 cloar understanding ofthe nature ot our leasing
activities.
We elected the alternative prospeclive transition approach lor adoption b€ginning Januarl, 20'19. All comparative p€riods prior to January 1, 2019 will r€tain
the fnancial reporting and disclosure requiremenb ofASC 840'Leases" ('ASC 840"). There was no cumulative efrect adjustment to the opening balance of
relained earnings recorded as of Jafiuary 1, 2019 for adoption as there were no initial direcl costs or olher capitalized costs related to the legacy leases that
needed to be derecognized upon adoption ofASC 842.
90
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 94 of 229
Table ot Contents
We elected the land easement optional pracllcal expedient to not evaluatB oxisting or Bxpired land easernents that werB not previously accounted tor a6 l€eses
urder tho ASC 840 lease guidance. For lhe exisling lease podf,ollo, we did not eled the optionEl practical expedieot packagp to r€lain the lcgacy lease
accountlnO concluslons upon adoption;we reassessed our exlsdng cor{racls und6rlhe n€w lsasing standard induding whetherthe contracl meet8 the deflnition
ofa leas€ and lease classification. As a re6utt, ws dstermined lhat most ol our underground gas storage contrec6 no longer m€€t the deflnhion ofa loase under
ths new lease standard ,
ln Octobor 201 7, NW Natlral 6ntsrod into a 2Gyoar operating loas€ agreoment commoncing in 2020 for a nevr co.porats qperationo c6nt6r locatlon in Pordand,
Oregon. The lease was amllzed undffASC &40 in considoration of build-tc-6uit leass acaguodng guidanco with the concluslon that NW Naturalwas the own6r
ofth€ asset du.ing cgnstruction for accounting purposes. Under th6 now loaE€ standard, ASC 842, NW Natural is no longor consider€d the owner ol the asset
du.ing construction for accounting purposgs. As such, in January 2019 wB dsrecognizad he build-tosuit ssset and liability balance6 o1026.0 million as ol
Oecsmb€r 3'1, 2018 that were previously r€corded within property, plant and equipment and other non-cunont liabilitios in the consolidated balancs sheet.
Upon adoption on January l, 2019, NW Holdings r6coded an operaling lease right of use asset and an associated operating leas€ llability of approxlmately $7.3
million, of which $7.0 million wag record€d al NW Natural. Lease li€bilities are measurcd using NW Natural's lncl€menlal borouing rate based on information
available at th€ leas€ commoncement date in determining th6 pr666nt value of loase payments. As of Oecember 3'1, 2019, our legsee podfolio und€r lh€ n€w
standard conslsts pdmarily of our cunent lea8€d mrporate operations center, whictl expires in 2020, Our lessor portfolio primarily conslsis of our North Mist
Facility wtlich dassifi€d as a sales-type lease. See Note 7 for more information.
CLOUD COiIPUT|NG. On August 29, 2018, the FASB issued ASU 20,l8-'t5, 'Customer'B Accounting for lmpl6mentaflon Costs lnclred in a Cloud Computing
Anangement That ls a Service Conbact-'The purpose ofthe amendment is ts alun the requirgments for capltallzlng lmplBm€ntalion costs incuned in a hosting
anang6m6nt that is a sorvlc€ confact with the requlr€monts ior capltallzlng implem€nlation costs incur.Bd to dsvGlop or obtain intemal-us6 6oftwarB. Tho
am.ndmonts in this updalo arB elfuctive fgr us boginning January l, 2020. Eariy adoplion b permitled, and NW Holdings gnd NW Natu.al sarly adopted ASU
201&'t5 in h€ quart€r snded Ma.rfi 31, 20'19 utilizing the prospective applicalion methoddogy. The adoption ot this ASU did not matBrially affect the finaocisl
slalsmonts and dlscloGuros of NW Holdin$ or NW Natural.
Rscantlv lssugd Accountino Pronouncamenls
l]{CO E TAXES. On Decomber '18, 2019, the FASB issuod ASIJ 2019-12. "lrcom6 Tax6s Oopic 740): Simplifying the Accounling for lncomo Taxes.' The
purposs of tho amoodment is to reduc€ cost and complexity related to accounting for incoms tax6s by rofiovlng cortaln excoptions to tho general principles and
improving @nsistent epplication for oth6r areas in Topic 740. The amendmonts In this updais ar6 6ff6cli\ro for us b8ganning January 1, 2021. Eady adoption is
pormitted. The amsnd€d prqsentation and disclo6ur6 guidancs should be applied rotospoctiv€ly. We do not expect this ASU tg materlally aff9c{ th€ financial
statsments and dbclosures ot NW Holdlngs o( NW Natural,
RmRE*tEl{T BEI{EF|TS. On August 28, 20,l8, the FASB issu€d ASU 20'1&14, 'Changes to Ole Disclosure Rsqulrsm6nts for Defined Benefit Plans." The
purpose gt the amendment is to modlry fte disclosure requirements for defned benelit pen6lon and oth€r postrstirsnr6nt plans. The amendments in lhis update
ar6 eff€ctlv€ for us b€ginning Jaouary 1, 2020. Early adoption ls pormittod. Ths amendod prosentation and disclosure guidsnce should be appllsd
r6trosp€ctivsly. We do not expecl lhi6 ASU to materially affoct ths financial stalemsnt6 and disdosures of NW Holdlngs or NW Natural.
FAIR VALUE EASUREME T. On August 28, 2018, tho FASB issuod ASU 201&13,'Changes to the Disclosure Requirement6 for Fair Value Moasur6ment.'
The purpos€ of (he amendm€nt is lo modlfy th6 disdosure rsquiromenb for fair value measuremontrB. Th6 amendmgnts in lhis updato are efiectivo for us
bEglnning January 1, 2020. Early adoptio.l is pormitted. The amendm6nh on changos ln unrgalizsd gains and losses, the range and wsighted ev6.ag€ of
signifcant unobssrvable inpub us€d to dewlop L6vel 3 fair valua m6asur6monb and lhe nanative dsscriplion of mea6uremont uncsttainty should be appliod
prospectively, All other amendments should be applied rotrospectively. l{w HoldingF and NW Naturaldo not have elthor Levol 3 fairvalue measurements or
transigrs behr{een Levet 1 or Level 2 in their currenl porttolios, and theretore, we do not €)eecl lhis ASU to have an impacl on the flnancial 8tatemenls and
disdosu,es of NW Holdings or NW Natu.al.
CREDIT LO8sES, On Jun6 16, 2016, ho FASB issu€d ASU 2016,l3, 'Moasur€mGnt of Credit Loss€s on Financial lnstruments,' whidt apdlss to linancial
assets subject to credit lossaa and mealurod al amorlized cost. Th€ n6w standad will require finanaial assato m6asurod at amo,tized cost to be pr€sented 8t
the net gmount expected to be coll€ciEd and tho allowance tgr credit loss€s is to ba rocorded a6 a valuatlon accounl that is doductgd from the amodiz6d cost
basls. Th€ amondm€nts in d1ls updato srs efectiv€ beginning January 1, 2020. Eady adoption is p6rmitt6d br fisoal years beginning allor D€combor 15, 2018-
The majority of NW Holdings' and NW Naturafs fnancial asset3 are short-lem in nature, sucfi as trad6 ,sc€ivables, and thgraforc, we do not expect this ASU to
matgrislly afigc't our financial statemoris and disclosurgs.
9'l
EXHIBIT 2
PALFREYMAN. OI
FALLS WATER CO,, INC.
Page 95 of 229
Table of Contents
Accountlno Pollclos
The accounling policies disousged b€low apdy to both NW Holdings and l.lw Natural
Plant. Propertv. and Accrued Ass6t Removal Costs
Plsnt end property ar€ stat6d 8t co8t, lnc.ludlng capitalized labor, malerials, and overhead, ln acoordanoe with regulatory acoounting sbndards, the cost of
acquiring and constructing long-lived plant and property generally includes en 6llol ,enc6 for runds used durlng con6trucilofl (AFUDC) or capitallzed lnt€re6t.
AFUDC represents the regulatory fnancing cost incuned wh€n debt and oquity funds are usBd for consbuction (see 'AFUDC below). When conslructod assets
alB subjsct to me.k6l-based rates ralhor than cost-bas€d rat€s, the financing cgsts incuned during construsiion are included in capitaliz€d interost in accordaoce
wilh U.S. GMP, not 8s regulatory financing costs underAFUOC.
ln accordance with long-standlng rogulatory tr6at nont, our depr6ciatjon rat68 conBist gf threg compgnents: gng bEsed on the average sswico life of the asset, a
€econd based on ths estimatod salvago value of the a$6t, and a third based on lho assafs Gsdmated cost of rcmoval. Wr coll6ct, through ,ales, lhe eElimated
@5t of removal on cortain regulated prgperties through depreqi8tion expense, ryith a coneaponding ofuel to accumulat€d dopreciation. Th6ss lEmoval costs a.e
non-logal obligatiotts as defined by rsgulstory accaunllng guidanc€. Thoretoro, wo haw included these coots as non-surrent r€gulalory lisbilities Elher than as
accumulgted depreciatior on our consolidated balancs shssts, ln th€ .atB sBtting process, the liability for romovsl costs is t.sated as a rqduclion to lhg not rate
bese on which lhe NGD buslnoss ha6 th€ opportunity to eam its slloyr€d rate of retum,
Th€ coEts of NGD plant retired or othenryise disposed of ar6 removod lrom NGO plant and chargad to accumuletad depreclgtion for recovory or roftJnd Ihrough
ftrture mtes. Galns frcm th€ sala ot r€gulatod a88€t6 a.e generally defer.ed and refunded to customers. For assets not relstod to NGD, we record a gain or loss
upon lhe disposalof lhe property, and the gain or loss is recorded In oporating Incomo or lo6s ln th6 consolidatad statements ot comprehensivo lncone.
ThB provision for doproclation of NGD propsrty, pla.l, and oquipm6nt 16 record6d und6. thg grgup mgthod on a straight-ling basis wilh rates computsd in
acaordanca with dspreciation studies approwd by ,egulatory authorities. Th6 yt6lght6d-6verago dsprqdatlo. rato for NGD asscts in 6orvic6 rvas approximat6ly
2.9% for 201S, and 2.8% for 20i8, and 2017, reiecting th6 approximat6 weighted-average economic life of the property. This includes 2019 w€ightad-averago
dgpreciation ratBs for the follo\r,/ing ass6t cat€gorh!: 2.6% for transmission and distribution plant, 2.2% tor gas stgrage faailities, 5.7% for genersl plari, end
4.7% lot intangible and other fixsd a$ets.
AFUDC, Certain additions to NGD plant include AFUDC, which represents the not co8l o, dsbt and €qulty funds us6d during construcllon. AFUDC is cslculated
using 8c-lual lnt€rest ratos for debt and authorized rates lor ROE, it applicable. lfshort term debt balances are less than the lotal balance of consbuclion work ln
progr$s, then a composite AFUDC rate i3 used to repr686nt lnt€r6st on all d6bt funds, shovvn as a reduction to interest chsrges, and on ROE funds, shown as
oh€r incrme. While cash is not immediately recognized trom recording AFUDC, it is r€aliz€d ln futur€ y6aG through rat6 recovsry r€sulting lrom th6 high€r NGD
co6i of servic6. Our composito AFUDC rate wa6 3.9.h in 2019,5.2% in 2018, and 5,5% in 20'17,
I PAIRXENT Of LONG{IVED ASSETS, We revi€$/ th€ carrying valus of long-lived assats whon€ver 6wnis or changes ln circumstances lndicet the carryldg
amount ofthe assots may not be recoverabls. Faclors that would n€c6ssitat6 an lmpalrmont assossmont oflong-lived assots indude a signmcant advor8o
changa in thg extgnt or mannor in which the asqet is used, a significsnt advorBe changs in l6gal factors or businBss climale that could affact th6 valuo of lho
a$st, or a significent dedine in th6 observabl€ ma*el valu6 or e)eoc'ted futuro c66h rlows qf th9 asset, smong others.
\ryhen such factoG are prcsent, we assess tho rccoversbillty by d€tormlnlng n hothor the c€rrying value ot the asset will be reoover€d through expect€d future
cash llows. An gsset b determined to be impaired when the carrying value of lho asset sxcesd6 th6 €xp€cled undiscountBd fulure cash ows from lhe use 6nd
eventual disposilion of th€ a68et. It an lmpalrmsnt Is lndicated, v/e record an impairment bss for lhe difference between the carrying value and the fair value of
the loog-lived assets. Fair value is estimated uslng appropriate veluadon methodologios, which may include an eslimate of discounted cash fows.
ln the fourth quarter of 2017, a non-cash pre.tax impairment or long]ived assets at Ole Gill Rsoch Faoility of $192.5 million was recognized. Th6 income
spprgach was used b @timato tairvalue. using the estimaled tuluro net cash fows. W6 also compared the tssultB oftlo income approach to our oyrn rg@nt
sale oxpo,lqnco and rccsnt marlGt comparable transaclions in o.der lo estimate fai. value. The Gill Ranch Facllity was originslly included in th6 g6s storaga
segment, which has since boen elimlneled, and ls now lnclud6d ln disconlinued op€ration€. We dete.mined circumstances exlst€d that indicatBd the carrying
valus of the a86ats may nql be reqoverable. Those oirounrstanc8s induded the complotion ot a comprehonslve slftrtoglc revl€w procg$s that ovaluat€d varlous
att6mativcs including a poton0al salo, a6 r{9ll as cootracling fo. availabl6 slorage at lowor than anticipated valuos for the coming siorago year. Giv6n theso
con8iderations, maoagsm€nt re.€valualed lh6 aslimatsd ca6h flows f.om our Int€r6sls in the Gill Rgnch Fscility, and detgrmined that thosg estimaied cash frows
wor6 no longgr sufficient lo cov6. the a€nying value ot the asseb. The results of Gill Ranch hav6 b6en pEsent€d as a discontinuod oporation lor t'lw Holdlngs
and NW Natural on tho consolidated statemenls of compr€h€nslv6 lncoms and cash llgu/s, and th€ ass€tg and lhbilitiss agsoclated with Gill Ranch have be€n
cleE5lfrod as dlrcontinued oper€tiom assets and liabilitiBs on the consolidated balance 6heets. S66 Not€ 19 for additiooal lnrormstion.
92
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC.
Page 96 of 229
Table of Contenls
caEb-eoCsiEb-Ecuiveleob
For pueosos ol reportlng cash flows, cash and cash equivalenls includo c€sh on hand plus highly liquid lnvgstm€nt accounts with original matu.ity dates ol three
months or less. At Decomber 31, 2019 and 2018, NW Hqldings had outstandlng chlcks ofappmxlmat€ly $3.2 million and $2.7 million, respectively, substantially
all olwhich is r6cod6d at NW Natural. These balancss are lndudod in accounts payable in tho NW Holdings and NW Natu,al balanca sh66ts.
@
Rov6nu6s, dorivsd primarily ftom thg sale gnd ransportation of natural gas, ars reoognized upon dgliv6.y of th6 gas commodity or so.vice to cuetomsrs,
Rovonu€s induds accruals for gas or water deliv€red but not yet bill€d to cu6tomera b€6€d on oslimates of dsliverios from meter lBading date8 to monlh 6nd
(acqugd unbillgd rgvenue). Accru€d unbilled rcvenu€ i6 dep€ndent upon a number of factors lhat r€quir€ managernsnt's iudgmont, lncluding totel natural gas
rcceiptE and dellvei€s, customer uso ot natural gas or water by billing cycle, and waather fuotors, Accrued unblll€d rov€nue 15 revers€d lhe folloudng rnonth
whon actuat biltings occur. NW Holdlng6' accrued unbilled revenue al Oec€mb€r 31, 2019 and 2018 was $56.2 million and $57.8 millioo resp€c1ively,
substantially 8ll otwhich k accrued unbilled revenue at NW Natural
Rovenues not r€laled to NGD are deriv€d primarily from lnterstate Storoge Servic€6, asset manag€ment activities al th€ Mist gas storage tacjlily, and other
invBstrnenb and business activities- At the Mist underground storag€ faclllty, rovonu6s aro pdmarily fi]m servh€ revenues in the ,orm ollixed monthly
res€rvatlon chargos. ln addluon, we also have aaset managoment scrvico revonuo lrom an indopendgnt gn€rgy markotlng company that optimizes commodity,
storage, and pip;line capacity release transactions. Und6r this agreement, gugrant€od assot managamant rcvonuo is rocognized using E slraight-lino, pro-rata
rnslhodology over O|e term gt each contracl. Rewnues €am€d abovs tho guarant8od amounl ar€ roc.gnizsd ss thsy are eamsd.
Revenue Taxes
Revanue-based lax6s ars primarily fran€hise taxss, whlch are coll6ct6d fDm customers and remitted to taxing authod0G$. ln 201 8, re\renue taxes are lnsluded in
op€rating 6xpons6s in the statements of cornp.€h€nsiv. incorns for NW Holdings and NW Natural. ln 2017 and m16, r6venue taxas arg inqludcd in operating
revsnu€a in iho statemonb ot compr6h6osiv6 incomo for NW Hglding6 and NW Natural- All rov,anue taxos arE re@rded at l{W Natural and w6ro $30-3 mllllon,
$30.1 millioo, and $19.1 mlllion for 2019, 2018, and 2017, tesp.ctivBly.
Accounts Receivable and Allowance for Uncollectiblo Accounts
Ac@unts r6c6ivabl6 consist primarlly ot amounts dus for natural gss salos and transportadon Servlcos to NGD ciustomors, plus amounts due tor ges stgragg
ssNic€s. At NW Holdings and NW Nahrralvr6 establish sllowanceg fqr uncoll6cliblo accounts (allo$ranco) for kads r€ceivablos, including acqued unbill6d
i€v6nu6, baE6d on tho aging of rocsivableq, collocllon €xperi6nc6 of past due accounl balanoes including Pay.nont plans, and historical trends ot l'vrite-offs as a
par@nt of r6wnues. A spocific allowanc6 16 €stabli$h€d and r€corded lor lsrge individual cuttomor r€ceivablGs when amounts are id€ntified as unlikely to b9
partially or fully recovered. lnacttus eccounts are written-ofi againsl ths allowancs afr6r they 6re 120 days past due or lYhen deemed uncollecliblo- Dllferences
bGtwoon the estimatsd allowance and actual wrlte-otfs will occur based oo a numbor ot tactoB, including changss ln oconomlc condilions, customer
creditworthiness, and natural gss prics6- The allowance for uncollectiblg accounts i6 adjuslsd guartoriy, as neoessary, based on infofmation cur€ntly avallable.
lnventories
NGD gas inventgriee, which consist ot natural gag in storago ,gr NGD custom€6, arr statod at th€ lowsr of weighted-avsrage co6t or net rqalizablo valu6. The
rogublory lr€atmsnt of th6ss inventories p,ovide6 ,or cost r€covory in customer rates. NGD gas inventories lnjoctsd into storego ar€ priced in inwntory based
on actuaipurchase costs, and those x,lthdrawn from storage are oharged to cosl ot ga8 dudng th6 perlod they 6.6 withdrswn at thg weighted-avolage lnventory
cost,
Gas storagB invenlories, which primarlly r€present lnventories at the Gill Ranrfi Facility and are lncludsd in Discontinusd operations - current a6s€t6 on tho
consolidaGd balanqe she6t8, malnly consist gf natuJal gas r6cetu6d as fu€ljn-kind from storage customers. Gas storag€ lnvontorlos a.e valued at the lower of
av6.ags cost or net reallzabl€ value. Cushion gas Is not included in inventory balancos, i3 recorded at original cost, and ls classified as a long-term plant aosel.
Materislo srd supplies invontodes consist of invontofios both relatod to and unrolatod to NGO and srs sialed at th6 lowor of avorago cost or not realizabls value,
NW Natural's NGD and gas storago invantodss totaled $27.5 million and $29.9 mlllion at 2019 and 2018. rsspoctively. At Dec€mb€r 31, 2019 and 2018, NW
Hotdims' matedals ard supplies inventoies, whlch ar6 comprised primarily of NW Natural's mste,ials and suppllgs, lotalod $'16.5 million and $14.2 mlllion,
rosp€ctively.
93
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 97 o1229
Table of Contenls
GelaeEerygg
GaB .eSeNes ar€ psymg $ ig €cquire and produce nalural gas reserves. Gas roserves are stated at cost, adjustod for ragulatory arnortizalion. v{ith the
assoclatsd dot€rEd tax b6n66l6 ,ocord6d as lhbllltl66 on tho bslanca 6hoet. The dnont portion is calculated based on expected gas deliveries within lhe next
frscal yesr. NW Natural recognizes regulatory amortization ot this assBt on a volumetic basls caldJlatad using th€ ostimated gas ressNes and O€ Estmat€d
therms exhactod and Eold each month. The amoriization of gas reserves is recordod to cost of gas along with gas prcduction revenuos ard production costs.
Se. Note 13.
Derivatives
NW Natural's derivalives are rEasured at fair value and recognized as eithor ass6b or llabllltlos on lh€ balanc6 6hosl. Changos ln he ,alr valuo of tho
d€rivatives are recognized in eamlngs unless €pecific regulalgry or hedge accountlng criteria are met. Accouoting lor derivatives and hedges provides an
6xc6ption tor contracts intendod for normal purchasss and normal salos lor wtlich phyBical delivery iE probable. ln addition, c€rtain deiivative @ntraat6 arc
approved by regulatory authorities for r€covery or rBfund th.ough orstom6r rat6s. Accordlngly, lh6 changos In lalr value of th666 approvBd conlracts srs dotongd
as rogulatory assots or llabilitioS pursuant to r6gulatory accounting pdncipl66. t{W Nstural's linancial derivatiws gsnsrally qualify for defgral under regulatory
acDounting. NW Nahlral's ind6x.pric6d physical d6rivativ6 contracts also qualily for r6gulatory d6fffial accounting reatmgnt.
Dodvative contr6ct6 qntqred lnto tor NGD requh€m€nts aft6r ths annual PGA €te hs8 been sel snd m€turing du.ing the PGA yea. qre subjec,t b the PGA
incentive sharing mechanism. ln Oregon, NW Natur8l participates ln a PGA sharing mechanism under which it is r6quir6d to solect eithor an 80% or 90%
doforal of higher or lowor ga6 cost6 6uch that tho impact on cunent eamings frgm he gas cost sharing k either 20of or I 0% ot gag cost difierences @mpared
to PGA pricsg, r€gpectivsly. For oach of the PGA y€ars in Oregon b€ginning Novomb€r 1, 2019, 2018, and 2017, NW Natural solectod the 90% dslqrEl of gas
co6t difirrsncrs. ln Washlngton, '100% of ho ditroronces b€ttleen the PGA pric6 and actual gas costs are delened. See Note 16.
NW Natural's llnancial derivativgs polisy sets rortfi the guidelines Ior using golected derivative products to support prudent risk managemenl strategios within
designEted paramel€rs. NW Natural's objBctivo tor using derivalives is to d€cl€66s the voladllty ol gas pdc€s and cash flowr without 8poculative dsk. The u6€ of
dorivatives 16 permitled only aner h€ rkk exposures have besn idontified. arB dobrmined not to exc6€d accsptable tolsrance l6vels, 6nd are deteminod
nec686ary to 8uppon normal buslne8s activitie6. NW Natural does nol enler into derivatiw inshuments br trading purp6es. All derivatives for NW HoHings are
cunently held 8t NW Natural.
Fair Value
ln accordanca with tair value accounting, we us€ the f,olloning fair value hierarchy for detemining inputs for our debt, pension plan assets, and derivalive fair
value measuremenls:. Level 1: Valuation is based on quoted prices for identical insbuments traded in active m6rkets;. L6v€l 2: Valuatlon ls based on quotad pric68 tor slmilar instruments ln active malkets, quoted pricos for ilentical or similar instrumonb in mark€ts that are
not active, and model-basod valuatbn technlqu6s for whlch all slgnlflcant assumptions a.e observabl€ in lhe ma*et; and. Level 3: Valualion is g6nerat6d from modsl-based t€chnique6 that usq signifcari assumptions not obsorvable in lhe market These unobsorvablo
assumptions r€fisct our own €stimat€s of assumptions markot partlcipants vi,ould uso ln valulng the as6ot or liability.
ln oddition, ths lairvaluo for c6rtain psnsion trusl invostmsris is dglsmlnod using Net A$sel Vslue per shsre (NAV)as a prectiqal expedisrd, and lhgrsrore they
aro not daseifted wthin the fair value hierarchy. These invsstments primarily consist of inslitulional invoslment prcducls.
Whon doveloping fair value measurem6nts, it is our policy to uso quoted market pric66 wh6n6vff available or to maximiz€ th6 us6 ofobsgrvablo inputr and
minlmizo the u6e ol unobservablg inpub when quoled markot pricss are not available. Fah valuos a.6 pdmarily dovelopod using industry-standard rnod6l6 that
conaidar vadous inputs includingr (a) quotod futur€ prlcos lor commoditi€s; (b) toMard cunency price6; (q) time value; (d) volatility lactors; (e) cunent ma*et snd
contrsctual pfices for undedyirE iNtrumsnts; (f) markst interest ratos and yiold curves; (g) crodlt 6preads; and (h) olhor relsvant 6@nomic moasur€s. NW
Natural con6lderE lhuft, polntr for naturalgss hedging to bs lhose pcints for yyhich th€re arB rogulariy publish€d pricss in a nationally rccognized publication or
wherB th€ inshuments are traded on an exchange.
Goodrill and Business Combinations
NW Holdings, thrc{rgh its wholly.owned subsidiary NWN W6te, and NW Wat6,'6 wholly-own€d sub6iriari€6, has complotEd variou6 acquisitions that r€sulted in
tho recognition of goodwill. Goodwlll i8 moasurod as the excess ol the acquisitioMate fair value ot the consideration transfened over the acquisitiofldato fair
value ol the net idonlifiable assets a6sumed. Adjustrnents are Gcord€d during the measurement period to fnalizs the allocation of the purchase pdce, The
carying value gf goodwill Is revieryed snnually during the lourth quarter using balancos aG ol Oclobor 1 , or whenov€r ovents or changes in circumstanc€ indicate
that such carrying values may not be rscoverablo. Th€ goodwill aEs€o€ment policy b€gins vrih a qualitative analysis in which events and cir.umslancas sre
evoluated, including macrooconomic conditions, indusfy and market condltlons, l€gulatory environmenb, and qverallfinsnsial perfo,manc€ ofthe r€Ming unit.
ll tho qualitative a6sessmgnt indicateE that tho carrying valu6 may b€ at
BI
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Pase 98 of 229
Table of Contenls
risk of rocor,/erabilfty, a quantitative evaluation 16 pedorm€d to moasure lh6 carrying valu€ of the goodwill against the lair value of tho roponlng unit, Th€ r€portlng
unit is detemined primarily bas€d on cunEnt operating segments and th6lev€lofEvi6w provldod by fi6 Chl6f Oporatlng Dedsion Maker (COOM) and/o.
66gment manao6ment on th6 operating segment's financlalf€sulis. Roponing unlts 6ro eveluated periodically for changes in the oorporate envhonment.
As ol Dec€mber 31, 2019 and 2018, NW Holdings had goodwillol $49.9 million aM $9.0 mllllon, resp€ctivoly. Allof NW Holdings' goodwill was acquired in 2018
6nd 2019 through the busln666 combinations completed by NWN Water and lts wholly-ownod subsidiaries. No impakment charges wor€ recorded as a resull ol
th€ fourth quariar goodwill lmpairment asse6sment.
Busin€ss combinations are accountBd for using the acquisitlon mothod. Th6 cost ol an acquisition is measur6d as tho aggr€gate ofthe consideration trsrEferred,
moasursd at talr valua at th€ acqulsition date, and tho lair valu6 of any non.contlolfing intBrest in th6 acquir€e. Acquisition-rslat€d cosb sre expen6ed a6
incungd. Whgn NW Natural acquireG a business. it assosses the finsncial sssets acquir6d End liabilitie6 assumod for approprlate classification and dosignation
ln accordance wllh th6 contradual terms, eoongmic ci.cumstances and pertinsnt conditiors as of tha acquisition dat€. Whsn there is substantiel judgment or
uncortainty around Ih6 fair value of acquirsd aa6ot8, we may sngage a thkd party cxpsrt to assist in determining the lair values of cartain €856ts or liabilllies.
lncoms Taxes
We account fgr income taxes und€r lho assst and li8bility melhod, which roquiJ€s tho r€cognition of d6fqnod tax sEsets and liabilitios ior the exp€ctsd future tax
consequencas of ev€nts thal have been lncluded an the financlal ststem€nts- Under this method, dsfsnod tax assob and liatilities are determined on th€ ba8ls
of the difierences between th6 financial stalement and tax basis of ssseb and liabilities using enaoted tax rates in efiec1 for the year in whlch the dlfferencas are
expected to reverse, The effect ot a change in tax rates qr deferred tax assets and liabilitles is r6cognlzod in incomo in lhe enactment date period unless, for
NW Natural, a r€gulatory order specifBs deferral of th€ efiect ot th€ chang6 ln tax rales over a longer period of time.
For NW Nahtral, deferred incom€ tax assets and liabilities are also recognired for tomporary diffo.gncos whorE the dsforrod incorne tax ben€fib or expenses
h6ve pr6viously been fiowsd thmugh in the rabmaking proc€6s of tho NGD busln65c. Regulatory tax asseb and liabilitios are recorded o(1 these delerr€d tax
assots and liabililios to the extent it is bglieved th€y wlll bo r€coverabte from or refund€d to clrstomers in fidure rales.
D6l6.red inv6stm6nt tax cr6dits on NGD plant sddilions, which roduce lncome taxes payable, are deierod for financial statement purposes and amqrtizod over
th6 lif6 of thB relatEd plant.
NW Holdings files consolidated or combined income tax rehrms lhat includ€ l{W Natural. lncome tax exp€nsa is allocated on a separate company basis
incorporating certain consolidated retum consid6ratlons. Subsidiary incomo tax€s payabla or roceivable aro gengrally sgttled with NW Holdlngs, tho common
ag6nt for income iax matt€rs.
lnterosl and p6nalti6s relat€d to unrscognizsd tax ben6fit6, it any, arc rocognlzod wlthln incoma tax 6xp€ns6 and aocrued interest and penaltie6 ar€ rocognlz6d
within the related tax liability line in the consolldated balanco shests. No accrued intergsl gr penalties fur unc€rtain tax b€n€tits have been record6d. Soe Not6
11.
Environmental Conllnoencies
Loss contingsnclos a,€ recofdgd as liabilities when it is prcbable a llablllty has b€on incurred and the amount o, tho loss is rsasonably estimable in accordanc€
with accounting standards for cootingenciEs. Estim.ting probable losses requires an analysis of uncertalntigS that ot€n d6pend upon ludgments about potential
ac{ions by hird parties. Accrual6 for loss contingencies are recorded bssed on an analysis of potontial rssult6.
With respsct to €nvironmental liabilities and r€latBd costs, estimat€s are devoloped basgd on a revieu, gf intgrmation availabla lrom numorous sources, including
cqmplgted studies and site spoaific nogotiations. NW Natural's policy ie to accruo th6 full amount of such llabllily wh€n infomation is sufficient to resEgnobly
ostimatg tho amount ot probable
liability. Yrhsn information is not availablo to rsasonabty estimate the probable liability, or when only tho ran96 of
prgbabls liabilities c€n be estlmated and no smount wihin the .angg h mor6 llkely than snoth6r, lt is our policy to accrue at the low end ot the range.
Accordingly, due to num€rous uncerbinties suroundlng the courSe of environmental remediatioo and the preliminary nature of seveJal sit€ ln\Gstigalions, in
some cases, il may not be posslble to rBasonebly estimate the high ond ot the range of possible loss. ln thoso ca86s, th€ nature of the potontial loss and the fuct
thal hs high 6nd of the rangE cannot bB reasonably estimated ls disclosed. See l.lote 18.
Subseouent Events
W€ monitor significant Gvsnts occuning Efrer the balance 6heot dat6 and prior to the issuanc€ of th€ financial Etstemento to detemlne the impacts, if any, of
ovents on the linancial statemenls to b€ lssued. Refer to Nole 20 for our gubsequenl events.
95
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC.
Page 99 of 229
Table ot Conlents
3. EAR'V"'GS PER SHARE
Basic Bamings or loss psr shar€ aag computed using NW Holdings' net inoome or loss and the weighted averags numbor of comrnon shares outstahding lor
each poriod presented. Dilutod earnings per share alo computod in the same mann6r, 6xc€pt using the w€ighted aveEge number of common shares
odstanding plus the effects oflhe assumed exercise of stock options and the payment of estimatod stock awards ftom oth6r 6tock+ased compensalion plEns
that are oubtanding at the end ot each period prcsented. Anti{ilutive siock awards are excluded from the calculation of diluted eamings or loss per common
share.
NW Holdings' diluted earnings or loss por share are calculal6d as follows
ln tltu@Dds, dcepl po. *m datt 2019 20'tB 2017
Not lncoma rrcm col{hdng opo.atonE
Lo$ from discontinued op€rations, mt ol lar
Nrt lnconi. (lo3s)
Avol6oo common shBr6s outstanding - bssic
Addltonel 6haEs for slod(+araal comFrBation plans (S€s Notg 8)
AvoragE common shBr€s outstanding - diluled
Eamlnoa ftom confnuing oporalioig p€. eharg of corrnon 3todc
Basic
DllUod
Loas tmm discontinued op€rations p€r 6hars of common stock:
Ae6k
Dilut6d
Eeming8 (lo6s) p6r share of commdl sbc*;
aesic
Olluted
Addltional info.mation:
Anti-dtudv. !haE!
t 65,311
(3,576)
$ 67,311 3
12,742)
72,O73
(r27,695)
t 6r,73s $64,569 $ (s5,623)
29,786 28,803
70
28,669
8473
29,859 24,873 28,753
$2.19
2.19
$2.34
2.33
$
2.51
(0.r2) $
(0.12)
(0.10) I
(0.0s)
(4.45)
(4.44)
$2.07
2.O7
$2.24
2.21
$(1.94)
(1.93)
't3
4 SEGNENT
'NFOR'IATION
We primarily op€rale in one reportable business segment, which is NW Natural's local g6s distribution business and is refened to as the NGD segment. During
the second quartor of 2018, we moved forward with long-term strategic plans, which includa a Ehift away from the Califomia gas slorage business, by entering
inio a Purchase and Salo Agreement that provld€s for lh6 6ale of allofthe membership intorests in cill Ranch. As such, we reevaluated roportable sogments
and concluded that the romaining gas storage activilies no longer me€t the roquiromonls of a repodablo segment. lnterstate Stgrage Services and asset
managemont activitias at tho Mist gas storage facility ar€ now reporled as othor under NW Natural. NW Natural and NW Holdings also hav6 inv6stm6nt6 and
businoss actlvilios not specifically .elatsd to the NGO segment, which aro aggregatod and report6d as othor and describod bolow for each sntity.
No individual customer account6 for over 10% of NW Holdings'or NW Natural's oporating revenueE_
Nalural Gac Dl6tribution
NW Nalural's local gas distribution segmonl (NGD) ls a r€gulatod utility principally engsgod in tho purchase, sal6, and d6liv6ry ol nahiral gas and relatad
soNicos lo cuslom66 in Oregon 8nd south,r'lost Washington. Tho NGD bu6ln6s6 is r€6ponsible for building snd maintaining a safe and reliable pipeline
distribution system, purchasirg sufficiont gas supplies from produo€rs and markoters, cotracling for frm .nd intonuptibl€ transpodation of gas over inter6tat€
pipelings to bring gas from the supply basins into its service terilory, and re-selling the gEs to customors subjecl to rates, tems, and conditions approvod by th6
OPUC or WUTC. NGD also includes taking customer{wned gas and transporting it from int€rstatG pipelino connections, or city gates, lo the customers' end-us€
facilities for 6 fee, which is spproved by the OPUC or WUTC. Approximalely 89% of NGD customers are located in Oregoh and 1'1% in Washihgton. On an
annual basis, resldentialand commercial customers lypically accountlor around 60% of total NGD volumes delivered and around 90% of NGD mar0in. lndustrial
customers largely account for the remaining volumes and NGD margin. A small amount of th€ maagin is al$o derived from miscellaneous services, gains or
losses from an incentive gas cosl sharing mechanism, and other sorvice f66s.
lndustrial seclors s€rved by the NGD business include: pulp, paper, and other for€st products; the manufaoture ofelectronic, eleckochemical snd
electrometallurgical productsi tho processing of farm and food products: the production of various mineral products; metal fabrication and casting; the production
o, machlno tool6, machinery, and textiles; the manufacture of asphalt, concrete, and rubber; printing and publishing: nurseries: and govemment and educatlonal
institutions.
95
EXH'8IT 2
PALFREYI\,!AN. Dl
FALLS WATER CO,, INC,
Page 100 of 229
Table of Conteflts
ln addition to NW NaturEt's local gas distribution business, the NGD E€gment also includes tho portion of the Mist underground storago facllity used to serve
NGD c.ustomers, the North Mist gas storage oxpansion in OlEgon, and NWN Gas Reserves, which is 6 wholly-owned subsidiary of Energy Cotp.
NW Natural
NW Natural's activitles ln Other include lnterstate Storage Services and thir+party asset managemenl 6ervices for the Mist facility in Oregon, appliance .etail
center op€rations, and coaporato operating and non-operating revenues gnd expenses that cannol b€ allocatod to NGD oporations.
Eamings f.om lnterstat€ Storage Services asaels arc primarily rBlated to firm storage capacity revenugs. Eamings lrom th€ Mi6t facilily also include revenue, net
ofamounts sharod with NcD customers, from manag€ment of NGO assgts ot Mist and lpstream pipelino capacity whsn not needed to serve NGD customers.
Undsr the Oregon sharing mechanism, NW Natural rotains 80% of th6 pro-tax income from thoso services when the costs of the capacity wor€ not included in
NGD rato6, or 1ooi6 ofthe pre-tax income wh€n the costs hav€ been included in lhese ratos. Th€ remaining 20% and g0%, respeclively, ar6 recorded to a
defened regulatory account for crediling back to NGD customers.
NW Holdinqs
NW Holdings activities in Other includ€ all remaining activities not sssociated wilh NW Natural, sp€cific€lly NWN Water. which consolidates the waler and
wgstewater utility operations and is pursuing other invoshents in the water sectorthrough itself and wholly-owned subsidiaries; NWN Gas Storage, a wholly.
owned Eubsidiary of NWN Energy; NWN En€rgys equity investment in TWH, which i9 pursuing development of a cross-Cascades lransmissjon pipeline proiect
(TWP); and other pipeline assels in NNG Financial. For more infomation on TWP, see Note 14. Othcr also includes corporate revenues and expenssE that
cannot be allocated to other operations, including certain businoss development activities
All prior period amounts hav6 boen retroapoctivoly adjustod to reflect th€ change in rsportabls ssgments and tho designation of Gill Ranch as a disconlinued
opsration for NW Holdings, and th6 dosignalion of subsidiarios previously ownsd by NW Nahral that aro now owned by NW Holdings as discontinuod
operations for NW Natural.
SrcEeDilDle[m3leD.sllmllaE
lntor-s€gment transactions werc immatorial lor ths p€riods prosonted. Th€ follo,ving tablo prosenls summary linancial information conceming the reportable
segment and oth6r for continuing operations. S6e Note 19 for inlorm€lioh regarding discontinued operations tor NW Holdings and NW NElural.
Oth€r
NGD
Olh€r
(NW Natural)NW Nalursl NW Holdinqs)NW l'loldinos
2019
Op€raling tgvonu€8
Dopreciotlon and amonkation
lncoarlo (lo6s) from op€rationg
Net incom€ (loss)lrom continuing operations
C.pltrl cre.ndltrrrs
Tolal assets al December 31, 20191i)
20t8
Opsraling r6v€nu6s
D6prsd6llcn 6nd *nodkrlion
lncoms (los6) lrom op€rations
Nol hcom6 (lo6s) troan continuing op6ralion3
Capital €xp€nditu166
Total aeot3 at D€c6mb6r 31 , 201 8i1)
2011
Oprraling trYsnues
Depreciation and amortization
lncom€ (lo6s) frirm oporstionsP,
N€l incDme fiom continuing op€rations
Caoltd orQondihrros
Tolel assets al D€cember 31.2017rr)
t 720,5it8 a
89,41s
135,918
60,828
219,E6r'
3,273,835
t9,416 $
s90
fi,42A
E,146
1,500
47,852
716,372
s1,496
143,171
65,311
23,171
3,413,320
739,S44 3
90,405
147,3,16
68,974
p1,3@
3.321,447
6,428 $
1,0s 1
(3,872)
(3,663)
2,0st
91,833
572 $
'170
(937)
(738)
308
36,657
705,57'1 $
84886
133,099
68,049
214324
3.192,736
732,*2 I
75,734
13a,450
60,509
211,672
2,96r,326
(1)Total assets for NW Holdings exclude assels.elat€d to discontinued operations of $15.'l million, $'i3.3 million and $13.9 million as of December 31, 2019,2014, and 2017,
resp€ctively. Total assets for NW Nstural exdud€ assots relaled to discontinued operalions of $31.9 million as of Docomber 31, 2017i,) Includes g1-d mi ion of tax exp€ns€ in NGD, $4.0 million of tax ben€fit in Oth€r (NW Netural), and $0.4 million of tax bon€fit in Other (NW Holdings) from the TCJA
remeasurement for the year endod D€comber 31, 2017.
680,648 $
83,732
118,095
67,,t91
3,141.969
706,143
85,156
132,16?
67,311
214,636
3,229,393
22,096 $
1,290
12,172
11,211
1,653
50,t71
755,038 3
81,024
150,5D.
71,720
213,325
3,011,797
755,038
81,053
150,902
72,073
2r3,325
3,025,472
$24,923 $
1,Ea
15,00t
10,55E
2,005
50,767
$$
29
(20)
353
14,075
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 101 of 229
97
Table of Contenls
l{ltural G.a Dl8trlbutlon ilrroln
NGo margin i6 a financial measur€ u6ed by the CODM, ooNisting of NGD opEraling revenugs, roducod by the associat€d cost ofgqs, envirgnmgnlal
rsmediatiff expons6, and rovsnu. taxes. Ths cost ofga8 purc}lassd for NGD airslorn€rs is gonsrally a pass.thEugh cost in thq amount of rovonuos bill€d tg
rogulatgd NGD customers, Environmedal rerEdiation oxpsnsg reprosents collec{ions received trom c{stomeB through environmsntal recov€ry m6chenism6 ln
Orogon and Washington as well ac adlustmonts ,or the Orsgon environmenlal eamings tost wh6n applicable. This ls off6st by envlronm6ntal r6m6diation
etpenae Prcaented in opeEting exponses. Revenuo tex66 ar€ collected trom NGD cuslomer3 and romlttod b taxing authorities. The colleclions ftom cuatom66
ar€ olfs€t by the expense recognition otthe obligstion to the taxing authodty. By subtraclino cost of gas, environmenlal remedialion exponse, and rcvenuo taxos
lrom NGD op€rslino rsvonuos, NGD ma,gln provld€G a key metdc used by ttle CODM in assossinO the p€domanco of the NGD 6egment.
Tho followlng lable presentE additional segment informalion conceming NGD margin:
m19 2018 2017
t{GD n rylrl csklldon:
NGD op€rating rownugs
L6r: NGD codof06
Envircnmanlal rem€dhtion expenso
Rpvqrus taras0l
NGD margin
7m,528 $
255,'t35
12,137
cr,&16
680,6,18 t
266,7,r3
11,127
30,082
732,942
325,019
15.291
$
$4n,731 $383.696 3 3S2,632
Tho dlsng€ in p.€s€ntation ol revonu€ texes wes e r66ult ol tl|€ adoplion ot ASU 201+09 'Revonuc From Conlrects wi0l Cuslon$rE' end ell r€l6t6d 6rEndhont6 on
Jenuary 1 , 201 8. Thb change h€d no lmpaat on NGD margin results es rav€nu€ taxo6 w€re prsvbusly prsgented net in NGD opoEtlng r6vanu6. For additional
lnfomation, se€ Not6 2.
5. CO$uON SIOCK
As of Dec€mb€r 31, 2019 and 2018, NW Holdings had '100 million sha.es of commor atoqk aulhorized. As ot Decomber 31, 2019, NW Holdinos had 206,560
ahares rasew6d for lssuanc€ of @mmon gtqck under the Employee Stock Purchaso Plan (ESPP) and 340,133 sha.e6 reEeryed tor isouance under th8 Oivid€ndReinv6tnent and Diroct Stock Purchaso Plan (DRPP). At NW Holdings' election, sharos sold hrough th6 ORPP may b€ purcha6ed in th€ op€n malkel or
thaough origlnal i66uanc6 ol shares rgsorvod for issuancg und6r th6 DRPP.
Th. ReGtated Stocft Oplion Plan (SOP) was terminatod with rosp€cl to new grantrs in 2012; hqwevgr, oplions granted bgtorg the R€statod SOP was tominatsd
.emain ouktanding until tho oarli6r ol their expiralion, forfoiture, qr ergrcise, Options are nor oxercisablo for shares ofNW Holdlngs comrmn stock. Ther6 w6re
10,938 opdons outetanding at Decomber 31, 2019, wfiich tr,6r€ grantsd prlor to tomlnEtbn of tho ptsn,
On Jun€ 7, 2olg, NW Holdings completed lhe issuanc€ of ,l,437,500 sharBs of comrnon stock, incluai\re of th€ overallotment option grentsd to th€ und6M.iters,
whlch was exerclsed ln tull. AII shares were issued on June 7, 2019 at an offering prlca o, $67.00 per share, The isEuance resulted in proceeds (o NW Holdings
of t93.0 million, net of dismunts and 6xpsn89s. The issuance wss executod to raise tunds for qoneral corporata purposos, including tor equity contributions to
NW Holdings' subsldia.ies, th€t sre reflectgd as equity banslers on occunenco- Contributigns reqeived by NW Natural\[€ro also uaod, in pad. to repay short-
term indebtedne8s.
Stock Rrourch.sr Prooram
NW Holdings has I share lEpurdraso p.ogram under rvhich it may purchase ita common shar6s on tho op.n market or through privately nagotiated transaclions
NW Holdings cunontly hs Board authorization through May 2022 to Epurchase up lo an aggregate gf the greater of2.8 million sharos o. $lOO mlllion. No
8haGs of common stock wEre repurchased puEuant to $is program during the year ended December 31, 2019. Since the plan's lneption ln 2OOO under NW
Natural, a totalof2.l mlllion sharrs have beon ropurchasod at a totalcost of$83.3 million.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 102 of229
Table of Conlerts
The following table summarizes the changos in the number ot shares of NW Holdings'common stock i66usd and outstanding
Shares
Belana€, D€c6mb€r 31, 2016
Sales to employees under ESPP
Stock-besed componsauo.r
Balanco, Decomber 31, 2017
Sdes to employees (|nder ESPP
Stock-baaed componsation
Sal6s to shsrshoHera under DRPP
Balance, December 31, 2018
Salls io omployeo8 undor ESPP
Slock-based compensation
Equlty b8uanc€
Sal66 to shareholders under DRPP
Balanc6, D€c6mb6r 31 , 20 1 9
6. REIIENUE
The following table presents disaggregatsd revenue from conlinuing operatigns:
28,630
18
88
28,736
t9
64
61
28,880
t8
83
,1,,tlE
53
{,472
Y€ar onded Doc€mber 31, 2019
Other
(NW Natural)
Other
NGD (r{w Holdinos)NW Holdings
N6luralgas sales
G6 6lo.agp lov€nuq n6l
Assel maflagem€nt rev€oue, nel
Apdhnca rstail c6nt3r rovsnuo
Rgvsnue ltom contradr rvith ccttomorS
10,240
3,705
s,171
729.296 $
10,240
3,705
5371
u7
729,296
10,2,t0
3,705
s,171
7,275
$729,296 $
u7
$$
6,428
730,143 19.il1G 7,19,569 5,428 755.987
AlbruliYo rewnua
Leasing revenue
Tobl opsradng revonu66
(20,984)
'11,36S
(m,984)
1'1,369
(m.s84)
11,369
$720,52E I 1S,410 3 739,914 0 6/a28 $716,372
Year end€d Docemb€r 31. 2018
NGO
Other
(NW N8lur8l)NW Netural
Ottler
(NW Holdinss)NW Holdings
Naturalgas sales
Gas stoEg€ rownuo, n€t
Assel managemont r€venu€, nel
Applianog Etail oenter lsvonus
Other revonuo
Rovonuc tom conracB wilh custome6
$670,6G2 $
10,780
8,548
5,595
670,662 $
10,780
8,548
5,595
670,662
10,780
8,548
5,595
472
$$
670,662
8,98S
24,C23 69s.585 572 8S6.157
Altomaliva Ewnuo
Leasing rev€nue
Total operadng rovanuo3
937
8,S89 8,989
997
$660,648 s 24,923 $705,571 $572 $706,1.r3
NW Natural's revenue represents substantially all of NW Holdings' r6v6nu€ and is recogniz€d for both rogistrants when th€ obligation to customers is satisfled
and in the amolnt expoct€d to bo received in exchange for tEnsforring goods or providing services. Rov6nu6 from contracts with customors contrains one
p€rformancs obligation that is generally satisfied over time, using the output method based on lime elapsed, due to the continuous natuPJl]llh$sjrrvice
provided. The transaction pric6 ir dotormined by a set price agr€ed upon in the contEct or dependsnt on regulalory tariffs. Customer a.bdtlllB,aG settled on a
FALLS WATER CO,, INC.
Page '103 of 229
99
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 104 of 229
Table of Contenls
rnorthly basig or paid at timo of sal€ snd based or histoic€l exp€ri€nce. lt is pmbable that we will collect subsLantially 8ll of tho con8fureralion to which we aro
entltl6d.
NW Holdings and NW Natural do not have any material contract assgls, aa net accounts Bcgivable and accrued unbilled revenue balances ats unconditional
and only lnvolve the passage of tirne until such balances are billed and collected. NW Holdings and tlw Natural do not have any material contract liabilitbs'
Rwonue-based laxes are primadly franchiso taxes, which ar€ coll€{:tod trom NGD customers and rEmitted to hxing authorities. Beginning January 1, 20'18,
rovenu€ taxes ar€ lncludod ln operating r9v6nu€s with an equal and ofisstting expense rgcognizsd ln op6ratlng gxponsgs In tho consolidated staisments oI
@mprch€nsivo income.
Natur.l Ga6 Di.trlbutlon
watural gas saies. NW Natural's primary sourc,€ of rsvenue is prgviding naturai gas to custom66 ln tho NGD service ledtory, whioh includeo resiloniial,
commercial, indugtrisl and trsnspodation custome.s. NGD rev€nu€ is gsngrally rscognizsd ov6r time upon deliw,y gf the 9e€ agmmodity or service to the
cuslomgr, 6nd the amount of consideration rsceived End recognized as rcvenue is dependent on tho Or6gon and Washington tariffs. Customer accounts 6re lo
be p8id in tull each month, and there ls no right of retum or wananty for 6rrvic6s provldod. Ravqnues indude fim ard intsnuptible s€les and transportatlon
service6, franchise taxes ,eco^/€red l?Dm the (rlstomer, lata payment iB6s, service fees, and accruah ,or gas detiv€red btlt nol yot billed (accrued unbilled
r6v€(tue). The accrued unbilled rgvonue balanc€ is based on estimat$ of deliveries during the period fom the last meler readin0 and managemertiudgrnent is
roquired for a numbe, of factors used in thls calculation, including customet u6e and weather factors-
Ws appli€d th€ slgnlflcant fnancing practical exp6dlsnl and have not adjusted the con$ireratbn NW Natural expacts to rscslv6 ftom NGD custorners for the
efiocts of a significant financing componont as all payment anangemsnls are setled annually. DuG to th€ rloction of tho tight to invoioe practical oxp€diont, wo
do not disclose the vslue of unsattsfiod paformance obllgatlons as of Docember 31, 20t9.
Aftemative rcvenue. Weather normalization (WARM) and dscoupling mechanisms aro consid€rcd to b€ aliemative rcvanus programs. Altsmativo rsvenue
prcg.ams are consld6r6d to bo contrac{s betwe6n NW Natural and ib rDgulator and are exduded iofi Ievsnus frgm cantracb with customors.
Loasirg rcya.tu6. Leasing revenue primsrily consisb of revenues hom NW Natural's Norlh Mlsl Storage c.ntract with Portland General Electdc (PGE) ln cupport
of PGE s gas-fired 6lectric power Oeneration facllltl6s undor an initial 3o.year contracl with options to extend, totaling up lo an addltional 50 yea,s upon muhlal
agr€ement ot the parties. The facility is accountsd for as a sales-type lease with regulatory accountlng defglfal lreatm€nt. The lnvestment i3 includsd in rate
base under an established cost-ot-sorvlce tarifi schedule, with revonues rscognlzsd according to the tariff schedulo and as such, profit upon commsncement
wa6 dsrerred and wlll be amorllzed over the leass term. Leasing rev€nuo also conlains rgntal revenue from 6mall leases of ptop€rty owned by NW Natursl to
thlrd parties. Tho majority of lheso transactions are accounted for as operating leases 6nd the revenue iE .ecognized over the tarm of the lease agEem€nl.
Leaso rgvanue is excludod from aevonuo from contracts with cuetom6Jr. S66 Noto 7-
[}LEr$|I!lq8!!r
Gas sbtago reyenu6. NW Natural's othsr revenue includes gas 6tor60e 6dlvlty, which includ€s Mist lnt€rstate Storage Servicss used to 6tore natural gas for
qlstom€r6. Ges storage rcvenue is generally r€@gnized over time as the gas storage sgrvice is providod to th€ customer and the amount ol crNideralion
received and rocognir€d as rcvenue i6 dopEndent on set rates defined per the storag6 agroemantG. Noncesh consideration in the form ol dekath€rms of natural
gas is received as consideration ,or providing gas injection 66Mc€s to gas Etorago custorners. This noruash consideration is moasurod at lair value using the
;wrago spot rat6. Customer accounts are gen€rally paid in tull Bach month, and there is no right of rahrn or wanEnty for seNices provided. Revenuos lnclud€
fim and intenuptible storage services, nat of tho regulatory sharing amount r€fund€d to NGD customers.
Assat mandggment Evenuo. Revenues includ6 th6 optimization of lhe storage asseb and pipeline capacity and a.e provlded net of tho proft sharing amgunt
rsfundad to NGD custorners. Cartaln as$t maoag€ment rovenues r6c€ir6d ar€ Ecognlzod over tlmo using a straight-line apProach ov€r th€ tarm of 6ach
contrast, and the an|ount ol consldcration recaived and rccognlzsd as Bv€nu6 is dep€ndent on a variablo pricing modol. Variable rovsnu€s 6amed above
guarantssd amounts ars sstimatod and recognizsd at tho end of each period using the mo€t likoly amounl approach- Additionally, other ass€t m€nag6m6nt
rBvenues may be bas€d on a tixsd rale. Generally, a$ot mansgsment accounta aro aetllod on a monthly basis.
As of Oocambor 3'1, 2019, unrecognizod revenu€ for the llx€d component of the tan8gction price lolat€d to gas storag€ and asssl management rovenus waa
approximalety $73.4 mittion, Of thi; amount, approximately $16.0 mlllioo wlll bo rocognlzod in 2020, $'18.2 million in 2021, $14.5 million ln 2022, $1'1.6 million in
2023, $7.8 mlllion in 2024, and $5.3 million ther8art6.. Th€ amounts presented hers are oaloulated using currsnt contrscl€d retos.
Appliance rcteil aenter aeyeruo. NW Nalural owns and operat6s an appllance store that is open to the public, where custome6 can purchese natural gas home
appliances. Rev6nu6 from the salo of appliancos is r6cognized at the point in time in whigh lhe
100
EXHIBIT 2
PALFREYI\,IAN, DI
FALLS WATER CO,, INC,
Page '105 of 229
Table of Conlents
appliance is transferrsd to the third party r66ponsibls for delivory and ihslallation ssMc€s 6nd wh6n tho .ustom6r has legol tille io lhe eppllence. lt ls requirsd
thal the sale be paid lor in full prior to hansfer of legal title. The amounl ot conslderetion received and recognized as revenue varieg with changes in ma*eting
incgntlves and diBcoonts ofiered lo customels.
l{W Holdlno6 Other
NW Holdings' prlmary sourca of other rcvenue is providing water and waste$/ater seryices to custom€G. Wal6r dislrlbution and waater /aler collection revenue is
generally recognized ovet time upon dellvory ot the wator c4mmodity or wa6iewster colleclion service to the customer, and the amount ol mhsideration locgived
and recogniz€d as lovenue is dependent on lhe water customer rates s€t by th6 applicable stat6 public utility commission and contrachlal rates for wastowaler
dJstomers. Customoa accounts aro lo b€ paid in lull each month, and there is no right of r6tum or waranty for s6rvicos providod.
We .ppliod lhe significanl financing practioal expodient and havo not adjustod th6 consid€ration we exp€ct to rec6ive lrom walor distribution ond wast€w€tor
callection customors fot the €ffects of a Eignilicanl tinancing component as all paym€nt anangemonts are solll€d annually. Due to lhe el6clion ofthe right to
invoice practical expedienl, w€ do not discloss ths value of unsatisli€d p€rrormance obligations as of Oecember 31, 2019.
7. LEASES
Lc$a Ravanue
Leasing revenue primarily consists of NW Netural's Nonh Mi6l natural gas storage agreement with PGE which is billed under an OPuo-approved rste sch6dule
and lncludes an initial 3Eyear term with options to extend, totaling up to an additional 50 y6ars upon mutual agreemenl of the parties. Under U.S. GAAP, this
agroement is classlfied as a sales{ype l6ase and qualifies for regulatory accounting defenal treatmonl. Th€ lnvostment in ths storage facility is included in rate
base under a separstoly established cost-of-saMce tarifl, wllh revonueE recognized according to the tarjff schedule. As such. the selling profit that was
calculat€d upon commencement as part of the sale-type lease recognition wa6 detenod and will be amortized over the lease term. Billing rates under the cost-
of-service tariffwillbo updated annually to rof,gcl cu.r6nt information ancluding depreciable asset l6vels, forecast€d oporating dxponsos, and lhe results ol
rggulalory proceedingg, 8s applicable, and revenuo rcc6ivod undor this agregment is recognized as op€rating r€venue on tho consolidatsd stabments of
comprchen6ive in@m6. Ther€ 8re no variable paymonts or residual value guarantoss. The l6asg does not contain an option to purch€se the und€rlying assets.
NW Natural €lso maihtains a salos-typ€ lease for specializod comprsssor facilltles to provide high pressure oompre3sed natuml gas (CNG) services. Leaso
paymenls are outlined ln an OPuc-approved r6te schedule over a 1o-yeaa term. There are no vqdabl€ paymGnts or residual value guErantees. The selling profit
computed upon lease commencement was nol significant.
Our lessor portfolio also contains small loases ot properly owned by NW Natural to thi d padies. These transactions arc accounted for a6 operaling leases and
the revenue i$ recognized over the term of the lease agreemont-
The components of l6as6 rcvenue al NW Natural were as follows
ln thous€nds
YEar cndgd December 31,
20't 9
Lees6 rovenue
Opcratlng lea666
Sales-typs leases
Tolel l6asa Evanuc
0 171
11,198
$I t,369
Total tutur6 minimum leas€ payments to be re@ived under non-cancelable leases at NW Natural at December 3t, 2019 are as followsi
ln thous€ndE Operating Sales.Type Total
2A2o
2021
2022
2023
2024
Thereafter
Total lqage rcvgnue
Less: imputed interesl
Total l€a8es recslvablo
$65
49
45
45
45
$18,228 $
17,518
17,026
16,557
15,867
264,740
t8,293
17,567
11,071
16,602
1s,912
264,833
s 342 $349,S36 $3fi,278
202,319
$147.617
101
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 106 of 229
Table of Conienls
The lotal loases rscoivabl6 abov€ ls reported under ths NGD sagmont and th€ short- and longFterm portions ar€ irEludod wlthln other cunant essets and asssts
undsr sales-typo loases on the consolldated balanco sheets, respegtively. The total amount of unguarante€d resldual .sseb at Decemb€r 31. 2019 was $4.0
millign and 16 included ln alaots under aales-type lea8e6 on the congolld.tod belance shoets. Additiomlly, under regulatory aooounting, the rqvenu€s and
6xpons6s associatod wlth thosc agreements ar6 prosenled on the consolidat€d shtemsnb of comprehensive income such that ltteir prosontation aligns with
similsr regulated activflies al tlw Natural.
Addltlonally, tuture mlnimum leaae payment6 of $0-5 mlllion for each of the yearB erding 2020, 2021 and 2022 gre tg be rec€ived under no.-cancelablE
operating leaseE assgciatod with non-utility property rentals. For the y6ar 6nded Decombsr 31, 2019, appmximatoly 00.5 million of lea36 rovonuo is presentgd in
qthgr income (6xpons6), not on the consolidated statam6nts of compr€hanslvo ilrcomo as it is non-op€rating income.
lrlrr.E&llrt
OoEratino Leas€!
W€ have operatlng lgasss tor land, buildings and oquipmgnt. Our primary leas€ b Ior NW Natural's opgration6 ceoter. Our lsa8es havo lomaining lqass term$ of
one year to'11 years. Many ofour l6ase agreements indude options to exlend tho lsase, tvhlch wE do not include ln out minimum leaso torms unless they are
roasonably csrtaln to b€ exorcised. Short-term l€ases wilh a tem ol 'i2 rnonths o. less are not recodod on tho bslanca sheet.
As mosl of our leases do not pmvido an implicit rate and are ente.€d into by NW Natural, vrs use NW Natural's incIemental borrowing rate based on infomaton
availablo at th€ has€ commgncornent date in determlnlng lhg pre6qnt valu€ of leEs6 payments.
The components ot lease expen6e, a porlion of which is oapitalized, lrrere as fol[r!r6:
Year endgd Decemb€r 31, 2019
,,tlrousads NW Natural
other
(NW Hddlnss)NW Holdings
Oporating leas€ sxponse
ShoIt.{orm h'r6 llpe.lse
$4,620 $
1,146
19r $4,811
t,146
Supplemental balance sheet lnbmation related to ope,ating lsases as of O€c6mb€r 31, 20'19 is as follows
ln thousands NW Netural
o?ler
(NW Holdings)NW Holdings
Op'erathg lo.ss dght of uss a88ab 2,760 S rso s 2,S50
't22 $
69
2,761 t 191 $2,942
As ot Dscsmbsr 31, 2019, th6 weighted avGrage romaining loase term for the opGrating leases B one year lbr NW Natural. The welghled averaoe discount rate
uged in the valuation ot th€ oporating lease right of uge assets over tho r€maining l€a8e t€rm ls 3.98% for NW Natural.
102
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 1O7 o1229
$
0Op.{stho l6sa liablltios - anmnt labuths
Operrling lease liabilaties - non-cunsnt liabilities
Total opsratlog lsaso labllfoE
1,979 I
772
2,101
441
s
Table of Conlenls
Maturitios o, opar.ting leas6 liabillti€s at D6c€mb€r 31, 2019 were as tollows:
ln thoussnds NW Natural
Other
(NW Holdings)NW Holdings
2020
2021
2022
2023
2024
Thereaftor
Total l9a8a payrnorb
L€ss: imputod int€rest
Tot.l leasa obllgatioos
Lsss: curr€nt obligations
Long-tBrm l6ass obligations
$2,029 $
143
't't l
88
83
526
126 t
52
t8
2,155
195
129
88
89
626
2,986 t96
5
3,182
240
2,751
1,979
't 9t
'122
2,U2
2,101
I$772 69$
Year 6nd6d D6c6mbor 31, 2019
841
As of Oecamber 31, 2019, financ€ l€a8e liabilitieE with maturities of less than one yesr wsrB $0.2 million st NW Nalural.
Sionificenl Laase Not Yet Commenced
ln Octob€r 20'17, NW Natural€ntered into a 2Gyear op€rating lea6e agreement tor a new coDorate operations center in Por and, Oregon in anticipation otthe
expiration of the cLrrenl operations cenler lease in 2020. The lease commenced in the first quarter of 2020 and total estimated base rent payments over the llfe
ofihe lease arc approximaloly $160 million. There is an oplion to extend the term of lhe lease for two additionsl periods ot seven years-
Cash Flow lnformation
Suppl6monlal cash llow information relat6d to lease6 !ya6 as lollows:
NW Natural
Other
(NW Holdings)NW Holdings
C€8h pald br smounts indudsd ln th6 moasuromont of l€esg llablllllc€
OporEting cash flows from operating leas€s
Finan6 cash f,ov{s from finance le6s6s
Right ot use assets obtained in oxchang€ for loase obligations
Operating leass8
Financ€ lgases
7,205 $
312
1,577
$
$
4,447 $
120
182 S 4,629
120
372 $
Eilror&llases
NW Natural Slso leases building storage spaces for use as a gas meter room in ordorto provide nalural gas to muftilamily or mix6d usg d6velopmentE. These
conlracts arc accounted for as finance leases 6nd typic€lly invotve a one-timo upfront paym€nt with no ,emaining liability. The .ight of us€ asset for finance
leases was t0.5 million at Docsmber 3,|, 20,19.
Lca. Dl.closur.a Ralalcd lo Pe od6 Prio. to tho Flr6t Ouarlor of 2019
Land, buildings, and equipment are leased under agreements that expir€ in verious y6ars, including a g$year land leas€ lhal e)dends through 2't08. Rental
co€ts tor contlnuing operalions were $5.9 million, $7,3 million, and $5.9 million for the years ended December 31, 2018,2017, and 2016, tospeclively, a portion
ot h,hich was capitalized.
103
EXHIEIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Page 108 of 229
Table of Contenls
Th€ following table retl€cts NW Naturafs fuUre minimum l€ase payments due undor non.cancolabla operating l€ases for continuing opoaations Et Decembet 31,
2018. These commitrfients relate princlpally to the lease of lhe corporate opeElions oenter and und€Ercund gas storage facilitles.
Minimum l€ase
payments
20't9
2020
2021
2022
2023
Theroafrer
Tot€l
$5,368
4,812
7,On
7,223
7,{4
149,881
$181,665
8. STOCK-BASED CONPEN SAT'ON
Stock-basod compensation plans are designed to promote stock orvnership in NW Holdings by employees and offic€rs of NW Holdings and its affiliates. These
compensation plans include a Long Term lncenlive Plan (LTIP), an ESPP, and a RoslatGd SOP-
Lono Tarm lnclntlvo Plln
Tho LTIP is intended to provide a flexible, competitlve compensation p.ogram for ollglble offcers and key employees. Under the LTIP. shares of NW Holdings
common stock are aulhorized for equity inc€nlivo grants in the form of stock. reskicted siock, restricted stock units, stock options, or perfolrMnce 5hare6. An
aggrogate of 1,100,000 Eha.es were authorized for issuance as ol December 31, 2019. Shares awarded under the LTIP may be purchased on the open market
or issuod as originalshares.
Of ths 1,,|00,000 sharos of common stock authorized for LTIP awards at Decemb6r 31 , 2019, th€re w6r€ 510,931 shares available for isslance under any type
of aw€rd. This assumes mark6t. performance, and sorvice-bas€d grants c!n€ntly outstanding are awarded at the targel level. There wers no outslanding grgnls
of r€strictsd stock or stoc* options under tha LTIP al OocBmber 3'1, 2019 or 2018. The LTIP stock awards are compensatory awards tor which compensation
Bxpensg is based on thq fair velue of stock aw€rds, n/ith expens€ bcing lscognizod ovor lhc perlomance and vesting period of the outstanding awards.
Forfeitures are recognized as they ocour.
P6rtormBnce Shares
LTIP porformance shares incorporate a combination of market, pertormancs, and servico-based factors. The following table ELrmmarizas porformance sharc
exponse informallon:
Dollars in thousends shares(11
Expense During
Award Yearel
Total Expenso for
Estimat6d award:
20'17.2019 grantp)
Aclualaward:
201S2018 grsnt
20'1+2017 granl
41,13 $572 s 1,971
ln addition lo common stock 6hsrEs,6 participanl also recoives a dividond oquivalenl cssh psymenl equalto the numbEr of shar€s of common 6lock receivod ofi the
sward peyout multiplisd by tl|€ sggregale cash dividends Flaid per shEr€ during the p6rlorr|ence p€riod.
Amount repaosonts th€ €xpons€ r€cognked in th€ third yeer of th€ vesting period not€d abov€. For lho 20'1aF2017 grant, targ€ls wer€ not mel and exp€ns€ thal had been
previously recognized was EverB€d during 2017.
This repres€nts lhe estimsted numb€r of shaGs lo be award€d as of D€c€mber 31, 2019 as cenain performanc€ share m€asures hEve be€n achi€vsd. Amounts are
subiect lo change with final payoul amounts authoriz€d by lhe Boad ol Olroclors in Fobruary 2020.
The aggregate numbor of porformance shares grantgd and outstanding at lhe taaggt and maxlmum lovols w6rc as follows:
Peformance Shar€ Awards Outstandinq
28,218
't8,3(N
598
(346)
1,4't 3
1,169
2019
Expens6
Cumulativo Expense
Decemb€r 31, 2019
Dollars in lhousands
P€rformanc6 P€riod Target Maximum
2017-19
2018-20
2015-21
Total
104
60.468 $
EXHIBII2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 109 of 229
1,97130,234 60,468 $s72 $
30,234
EXHIBM 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 110 ot229
kus-sl.g.9!!e!!s
For the 2017-2019 performance period, podormence share awards a.e based on the achievement of EPS and Retu.n on lnvested Capital (ROIC) facto.s, which
can be modilied by a Total Shareholder Retum OSR) factor.elative to the performance ot the Russoll 2500 Utilities lndex over the lhree-year performance
period and a gro^,th modlfi€r based on accumulative EBITDA. For the 2018-2020 and 2019.2021 performsnce perigd, performanca shars awads are based on
th€ achiovomont of a thrBe-year ROIC threshold that must be met and a cumulative EPS factor, whi6h can b€ modifigd by a TSR factor relative to the
p€rformance ofthe Russell 25OO Utllitios lnd6x ovor tho thr€o-year performance p€riod. Tho 2018-2020 and 2019-2021 p6rformanca period allows for one ofthe
psrformsnce lactors to remain variablo untilth€ first quart6r oftho third ysar ofth6 award pedod. As tho p€rformanco factor will nol be approved untiltho fi6l
quart€r of2O2O and 2021, th€re is nol a mutual undsrstanding of the awards' key torms qnd oonditions betw66n NW Natural and the participants as
ol D€cember 31, 2olg, and therefore, no Bxponse wss recognized lgr the 2018-2020 snd 20'19-2021 performanco poriod. NW Natural will osloulat€ the grant
dgte fair value and rocognizo sxpense once lhe tinal performanc€ factor has boon approvod. lf the target is €chieved Igr the 2018-2020 and 2019-2021 awards,
NW Holdings would g.ant 3'!,825 and 35,170 sharos in the first quart€r of 2020 and 2021, rospeclivsly
Compensation exp€nse is recognizod in accordanc€ with accounting standards for stock.based compensalion and calculated based on p€rlormance levels
achieved and an estimated fair value using the Monte-Cado method. Due to the.e not being a mutual unds6tanding ol the 20'18-2020 and 201$2021 awards'
key terms and conditions as noled above, the grant dale ,air value has nol yet bsen determln€d and no nonvosted sha.es existed at December 31, 2019. The
weightod-averaE€ g.ant date fair value of nonvosted shares associatod wlth the 2017.2019 alyards was $57.05 per share al Dec€mb6r 3'1, 2018. The woighted-
avofag€ grant dal6 hir valu€ of shares vestod during the yoar was $57.05 per shsre and there w6r9 no p€rforman@ 6ha,os grantod during the y€ar and no
unrecognized compensation exp6nso for accounting purposeE as of D6comb€r 31, 2019.
Restricted Stock units
ln 2012, RSUs began being granted under tho LTIP instead of stoc& optlons und6r thg Restaled SOP. GenBrally, the RSUS awarded are torfeitabl€ and include
a porformanco-basod thrsshold as wollas I vesting period ot four years from the grant dat€. Upon vesting, the RSU holder is i8suod ono share of common stock
plus a cash paymenl squalto lhe tolalamount of dividonds paid per share between tho grant dato and vesting dal6 of that portion ofthe RSU. The fair value of
an RSU is oqual to the closing market pric€ of NW Holdings' common stock on lhe grant date, Ouring 2019, total RSU exp€nse was $'1-8 million compared to
$1.8 rnillion in 2018 snd gl.6 million in 20'17. As of December 31, 2019, there was $3.4 million of unrccogniz€d compsnsation cost from grants of RSUS, which is
oxpocted lo be rccognized over a period extending through 2024.
tnformation r6ga.dlng th6 RSU activity is summarizGd as follows:
Numb€r of RSUS
Weighted -
Av6rage
Price Per RSU
Nomr€stod, D6cembor 31, 2016
Granlsd
Vo8lod
Forf6ited
89,973 $
32,168
(35,341)
(2.278\
,18.85
60.51
47.O7
53.78
Noow8tod, D€camb€r 31, 2017
Granted
V€Btrd
Fo.teited
u,522.
32,450
(32,889)
(r,603)
53.90
57.59
60.75
Nonvestad, D€cqmbor 3 1, 201 8
Granted
Vsshd
Forfoitod
82,680
36,018
(3s,7E)
(3.187)
fi.47
65.29
*.22
63.8S
Nonvsshd, Dscomb€r 3'1, 2019 79,733 $6't.17
Re3teted Stock Ootlon Plan
The NW Natural RoEtated SOP was terminated for now oplion grants in 2012; how6ver, options granted bolore th€ plan t6rminat€d romain outstanding until the
eadier olthoia oxpiration, forfeituro, or exerclse and aa6 now ex€rcisable for shares of NW Holdings common 6tock- Any now grants of stock options will b€ made
under NW Holdings' LTIP, howev6r, no option grants have been owsrdsd 6ince 2012 and all stock options were vgsted as of Oecember 31, 2015.
Options under the Restated SOP were granted to officers and key employees designated by a commlttoe of the Board of Oirectors. All options were granted at
an option price equat to the closing market price on the dats of grant and may be exercised for a period of up to l0 years and seven days from the date of
qranl. Option holdors may exchange shaGs lhoy have owned for at least six months, valued at lhe cu..ent markot price, to purchase shares at the option price.
105
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 111 ol 229
Tabl€ of Conlenls
lnformstion r6garding lhe Rest€ted SOP activity is summadzed as follows:
Oplion
Sha,os
Woightod -
Averags
Pdce Per Share
lntrinsic
Value
(ln millions)
Brlanco ouktandlng and axcrclsabl6, Dsc6mber 31, 2015
Exercised
Forisltad
4,a.38 I
44,33
41,15 da
2.4
1.8
180,183 S
(88,275)
(200)
Balance outstanding end exercisablo, Decomber 31,2017
Exsrdsed
Fo.feited
91,688
(3s,4s0)
(300)
44,43
43,61
43.29 rla
1.4
0.8
Ballnca out8tandlng and oxarcl€able, Decsmbor 31, 2018
Exorcis€d
Eelrod
55,S38
(45,000)
44,96
44.79
0.9
't.o
nle
Balance outstanding and exercisable, December 3l, 2019 10,s38 $45.67 t 0.3
During 2019, cash of $2.0 million was roc€iv€d for stock options exeroisod and $0.2 million rolatod tax b€nelit was rccognized. Th6 w€ighted-average remaining
lifo ot optjons 6xercisable and outstanding at Docember 31, 2019 was 1.12 years.
Emplovoa Stock Purcha3o Plan
NW Holdlngs'ESPP allows employees of NW Holdings, NW Naturaland cortain dosignat6d subsidiari€s to purchsse common stock at 85% ofth6 closing pdce
on the trading day immediatoly precodlng tho initial olledng date, which is Eet annually. For the 2019-2020 ESPP pgdod, 6ach eligibl6 omployee may purchaao
up to $21,222 worlh of stook through payroll deduclions ovfi a period defined by the goard ol Oiroctors, with sharos issuod at the snd of the subEcription p€riod
Slock.Bascd Comoonsatlon Expensc
Stock.based componEatlon expense is recognized as opemtions and mainlenancG expgnse or is capitalized as part ot conskuction ovethead at the entity at
which lhe award recipient is employed. The following lable summarizes the NW Holdings' financial statomont impact, substantially allofwhich wag recordod at
NW Natural, of slock-based comp€nsation under the LTIP, Restated SOP and ESPP:
2019 2018 2017
Op€rations and malntsnan@ oxp€naB, br rtock+assd componsatirn
lncome tax bonefil
Ngt 6tock ba6gd comp6nEatlon ofect on nst lncoms (h6s)
Amounts capitalized for stock-basod compensation
2,172 $
(57s)
2,,189 $
(65s)
2,35i1
(930)
$
1,597 1,830 1,421
$430 $531 $528
O. DEBI
Short-Torm D6bt
The primary source ofshort-t6rm liquidity for NW Holdings is cash balances. dividBnds from its oporating subsidiaries, in particular NW Natural, available cash
ftom a mulli-year credil faoility, and short-torm credit facilities il may enter into from time to time.
The primgry source of short-term liquidity for NW Nstural is hom the sal€ of commercial papsr, its multi-y€ar cr€dit tacilltigs, and short{erm oredil tacilitias it may
enter into fiom llme lo lime. ln addition to issuing commercial paper or bank loans to meel working capital requirements, induding seasonal rcquir€menls lo
finano€ gas purchases and accounts roceivable, short-term debt may also be used lo temporarily fund capital r€quiremenls. For NW Natural, commercisl pap€r
ard bank loans are periodioally refinanced through the sale of long-term debt or equity contributions ftom NW Holdings. NW Natural's commercial paper i9 sold
through two commarclal bank under an issuing and paying agency agresment and is supported by one or more unsecured revolvino cedit facilities. See "C/odl
Agroerrerls' below.
At Docomber 31, 20,|9 and 20'18, NW Holdings had short-term debt outstanding ot $149.1 million and $2'17.6 million, rospectively. Th€ weightBd avorage
inter66t rat€ of NW Holdings' short-tBrm d6bt outstanding at December 31, 20'19 8nd 2018 was 2.0% and 3.Oyo, resp€ctively. At D6cemb6r 31, 2019 and 2018,
NW Natural had $125.'1 milljon and $217.5 million of comm€rcial paper outslanding, respeclivoly. Th€ woightod average intarest rate oI commercial pap€r
outstanding at Decembor 31, 2019 ahd 2018 was 2.0% and 3.0olo, respectively.
106
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 1 12 of 229
Table of Contenls
Ths carrying cost ol commercial paper app,oxlmates feir valu6 using L6vol 2 inputs. 5o6 Nots 2 tor a doscripdon of lhs fair valuo hi€rarchy. At Decsmber 31 .
2019, NW Nstural's commercial pap6r had a maximum remaining maturity of 22 days and an average remaining matunty of 10 days,
CIlCUASreloe!ts
NW Holdings
ln Oc{ob€r 2018, NW Holdings oatergd into a $100.0 million dedit agroement, wilh a f€aluro that allows it to roqu6st incEas6s in tho bhl commit nent amount,
up lg a maximum oI S150,0 milliqn. Tho maturity dat6 of th6 agreement i3 Octobsr 2, 2023, with available extsnsions o, commitmgntE for iwo additignsl gng-year
p€riirds, subl€cl lo lender apprcval.
Th€ NW Holdings crsdit ag.66rnsnt permits th€ i6suanc6 of l6tters ot crodit in an aggrsgato amount ot up to $40.0 million. Tha principal amount of bnowings
undor th6 crodit agroement is duo and payable on tho maturity date, Ths credit agrgemont requires NW Hgldings to maintain s con6olidated indobtodno8s to
ioial capitrallzatlor ratio of 70% or less. Failurg to comply tvith Oi6 cov€nant would €ntiuo the l6nd6c lo torminat6 h6ir lendlng commitrnents and accels.ata the
maturity ol all snrounls outslanding, NW Holdings vvas ln complianca with liis covenanl at Dec€mb€r 3'1, 2019 and 2018.
Tho sgrcemonl al6o r6qulr6s NW Holdings to mainlain debt rstlngs (which are dofin€d by a fomula uslng I'lW Natur8l's cr6dit ratings ln lhe e\rent NW Holdings
does not have s qredit rating) wi0t Staodard & Poofs (S&P) and Moodys lnvestors Service, lnc. (Moody's) and notify the lenders of any change in its senior
unssc.{.,r6d d6bt raings or senlor secured debt Etin$, as applicabte, by such Iating agEocies. A change in NW Holdings' debt ratings by S&P or Moody's ls not
an €vent of default, nor is tho maintonance of a specific minimum lav€l of dobt ratng a condltlon of drawlng upon lho credlt agreement. Rather, interest rates on
any loans gutstanding under the credit agrB€ments are tied to debt ralings and ther€tore, a change in the debt rating would lncrease or decre€se the cgsl ol any
loans undar th€ cr€dit ag.eemenG $,hen ratings are changed. NW Holdings does not cunenuy maintain ratings with S&P qr Moody's.
Ther6 was a $24.0 million outstending balance and no outstanding balanc8s under ths NW Holdings agreernGnt at Deoembsr 31, 2019 and 2018, re6pectiv6ly.
No l6tt6rs of c.6dit n6r€ is6u6d or outstanding under tho NW Holdings agrsemenl al Dg€€mber 31, 20'19 and 2018. NW Holdingr had $1.0 million and $2.8
million of lelt€rs of crodit issuod and oubtEnding in ouppod ot acquisitions of wator companlos, separato tron lhe afo.€m€ntionsd credit agroemenl. at
Dec€mber 31,2019 and 2018, respec voly-
NW Natural
ln Oalob€r 2018, Nt/V Natural entered lnio a new mufti-year crBdil agreomsnt for unsecured revolving loans totaling $300,0 millign, wth s lgature that allows NW
Naturalto r6qu6sl lncr6a6es in th6 total commitment amount, up to a maximum ofS450.0 milion. The maturity dat€ ofths agreament ls October 2, 2023 with
avoilsblg extensions of commitrnents tor two addlfonal on6-yoar p€rirds, subFct to lender apploval. Th€ n€w clEdit agresment i3 substantially 8imilar to the
pdor cIedit agr€dment whicfi wa8 t€rmlnaled upon the closing ot the New Credit Agrooment Thg ngw crgdit agreement permits the issuanco of l6tt6r8 of crodil in
.n aggrogate arnount ofup to $60.0 million. The p.incipalanount of bonowinOs und€r tha c6dit agre6m6nt i6 du6 and payable on th€ maturity datB. Thsro wore
no outstanding balances under NW Natural's prior crodit agr66m6nt or ths new credit agreement and no lsttsrs of crsdit i$uod or oubtanding al Decemb€r 31 ,
2019 and 2018.
NW Natural's prior oredit agreemgnt and the ns$/ sedit agreement raquire llw Nalural to maintain a oonsolidated irdebtedness to totsl capitalization ratio ot
70% or l€s$. Fgllure to compty wlth this covenant would entltle the lenders to lerminate thgir lending commltm6nts and accelerate th6 maturity ot 6ll amounts
outstanding. NW Natural was in complianc€ wittr tris covenant at Doc€mb€r 31, 20'19 and 2018.
The n€w cr€dit 6gr6ement also r6qulr€s NW Nahrral to maint8in credit ,aiings with S&P and Moody's and ngtily the lenders of any chango ln NW Nahrrel's
sonior unsEorred d€bl ralings or senior secured debt ratingS, as applhabl6, by such rating 8g6nclcs. A chango ln NW Natural's debt ratings by S&P or Moody's
i€ nqt an event of defaul! nor is the malnt6nanc6 of a specific minimum levsl ot d€bt rating a condition ot drawing upon the new credit ag.eement. Rath6r,
lntorost rahs on any loanr oubtandlng under the new credit agreement a.e lied tc debt ralingE and th6r6lore, a chango in tho dobt rating would increasB or
decr€ase the cost of any loans und€r the new €redit ag66meot wh€n ratlngs ar€ chang€d.
107
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 113 of 229
Table of Conients
Lono-Torm Debt
NW Holdinos
At Decambor 31, 20'19 and 20'18, NW Holdings had long-t6m d6bt outstanding of $88,l.1 mlllion and $736.2 mlllion, .esp6ctiv6ly: vrhich includod $5.7 million
and $5.6 million of unamodizsd dobt issuance costs at NW Natural, rsspoctivoly. NW Holdings' long-term dobt is primarily comprisod of dobt hold al lts wholly-
o!$iod 6ubsidia,ic6 NW Natu6l (6hown below) and NWN Wat6r. Long{6rm d6bt at NWN Wat.r j6 primarily compris6d of. two-yoar term loan agr66m6nt for
$35.0 million, du6 in 2021. NWN Wat6r entor6d into this aOroemont in Jun6 2019 and th6 loan carriod an intorost rat6 of 2.35% at O6c6mb6r 31. 2019, which is
based upon the ono-month LIBOR rato. The loan is guarantood by NW Holdings and requires NW Holding8 to mainlain a consolidated indebtsdness to total
capitalization ratio ol70yo or less. Fallur6 to comply wilh thls coveMnt would €ntltlo th6 lendero to lermlnet€ th6ir lending commltments 6nd Eccele€t€ lhe
maturity of all amounb oltslanding. NW Holdings was in complianoo wilh this covenant at Dec€mber 3'1, 20'lg, nith a consolidated indebledness to total
caphralization ratio of 54.3%.
NW Natural
NW Natural's issuanco ol FMBS, which includes NW Natural's medium-term not6s, undgr th6 Mortgago and D66d of Trust (Mongag6) is limilod by 6ligibh
property, adjusted net eamings, and other prcvisions of the Mortgage. Th6 Mortgago constitutes a frst mortgag6 lien on substantially all of NW Natural's NGO
prop€o.
Maturiti€s and Outstandino Lono-Term Debt
Rctir6m6nt of long-term debt for each of the annual periods through December 31, 2024 and thereaner arc as tollows
Long-le.m debt maturitibs
2020
?o21
2022
2023
2024
T}loreotet
$75,000
60,000
90,000
624,700
The rollowing table pres€nts debt outstanding as of Decombor 31
2019 2018
llw N.tural
Fir6t Mortoao€ Bonds:
8.310% S6de3 due 2019
7.63(}}6 Sod€d due 2019
5-3700/6 S6ri€s due 2020
g.O50i6 S6rior duo 2021
3.176'16 Series due 2021
3.5{2% &ri6s dns 2023
5.620% Sed€s du€ 2023
?.72070 S€do6 due 2025
8.520'/6 S€d€s due 2025
7-050* 561116 duo 2026
3.211% Sed€s du€ 2026
7.000tt Sodss dn€ 2027
2.822% S€d€s du€ 2027
8.65Ot6 S.lkr! due 2027
6.650% S€i€s du6 2028
3.141% S€ne3 du€ 2029
7.740% Series due 2030
7.E50% S.des du€ 2030
5.820% Saries du€ 2032
5.660% Sorb8 duo 2033
5.250% S€ries du€ 2035
4.m0% Sorios due 2042
4-136% Series due 2046
3.685% Ssri€E du6 2047
4-1'10% SBries due 2048
3.869% S6rieE du6 2043
$$r0,000
20,000
75,000
't0,000
50,000
50.m0
40,000
20,m0
10,000
20,m0
35,000
20.@0
25,000
'ts,700
10,000
75,000
10,000
50,000
50,000
40,000
20,000
10,000
20,000
35,000
20,000
25,000
19,700
10,000
50,0{x)
20,o00
10,0{x)
30,000
40,000
10,000
50,000
,t0,000
75,000
50,000 EXHIBIT 2sF$$nEYMAN.or---------
FALLS WATER CO,, INC,
Page 114 ol22g
20,000
't0,000
30,000
,10,m0
10,000
50,fi10
40,oo0
75.000
50,000
tq!*tnd.Di,9.0 ltg,r00 ,3E,IT
Tot l 5ne{.{ri &na 7ta,?u I ,o,flD
r0e
t
EXHIBIT 2
PALFREYIiTAN, Dl
FAIS WATER CO., INC.
P8p,p 115 of m
Table of Contents
EiEl.lredcsce-Eeods
ln June 2019, NW Nalural issued $140.0 million of FMBS consisting of $50.0 million with sn interest rate or 3.141%, due in 2029, snd t90,0 million with an
into.ost reto of 3.869%, due in 2049.
ln Septemb€r 2016, NW Natural l68u€d $50.0 million ot FMBE wilh an intereEt rete of 4,110c/o, due in 2048.
Rcliromonb of Lono-Torm D6bt
ln Soptombor m19, NW Natural r€tir6d $ 10.0 million o, FMBs with an intereBt rete ot 8.310%, ond retired $20.0 million of FMB6 with en interest rsts ot 7.630%
in Oecsmbsr 2019.
ln Merch 2018, NW Naturel rstir.d $22.0 mlllion of FMBS wlth sn lnterest rat6 of 6.600%, and retir6d t75.0 mllllon of FMB! wlth an intor€Bt rato ot 1.5,45% in
Decomber20t8.
Erlddre-et.Lerrl:I$o-0rtl
NW Hqldings' and NW Nstural's outgtranding debt dos6 not trade in active ma*gts. The fair valuE of dsbl is €slimatsd wing natural gss distribution oompanies
wilh simier crodil ratngs, tems, end rsmaining malurities to NW Holdings' and NW Natural's d€bt that adivoly trado ln public mErt6ts. SubstEndally all
outBtanding d6bt at NW Holdings is comprised of NW Natural debt. These valuations arc b.6€d on Lowl 2 lnputs es defin€d ln th6 f6ir value hiorarchy. SBa Note
2.
The ,ollowing table provldes an estimate of the lair value ot llw Holdings' long-t€rm d€bt, including cunent maturilies of long-torm debt, using market pricss in
6fi6ct on lhc veluation dal!:
O€combor 31,
2019 2014
GrE long"b.r'n d.bl
Unamodzad debt issuanca costs
C.,l}irg lnEor*
E3timatod fair valu€
3 806,76 t
(5,712)
7,al,813
(5,5r,)
$
s
8Et,O64 t
95r,268 $
lfi&
762.335
The iollowlng labl6 provld66 an g8limato of tho tair value ot l.lw Natural'6 long-,term debl, including cunent malurities or long-term debt, using market priceg in
eltcc{ on th6 veluetion det€:
Dec€mbcr 31,
2019 2018
GrGhnol-t'm&bt
Umnlodi:sd debt is3uanc6 costs
Caq*lg amdn{
Edimatod ,air vslu€
$6,18,700 3
15,712)
7S,710
(5,s77)
$
i
6,a3,gtE I
919,835 $
7y,123
7@,222
IO. PENS'ON AND OTHER POSTRENRENENT AE'VEF'T COSIS
NW Natural maintains a qualified non-cont.ibutory d6fin6d b6n6rit panslon plsn (Pension Plan), non-qualifiod 6upplemental p€n8ion plan6 lor €ligible executive
ofncars and oth6r key empby€gs, and oth€r posbetirement employes b€nofit plans. l{W Hatural also has a qualif6d d6fin6d contdbution plan (Rotiromenl K
Savings Plan) for all 6llgiblo omploy66s. The P6n6ion Plsn and Retirement K Savings Plan haw plan assets, which aro hold in qualifiod trusts to fund ,otksmont
bongfitg.
Efisc1iv6 January 1, 2007 and 2010. th€ qualifisd dslined bonoft psnslon plam and pgstrgtirement benefils for non-unign employeeo ond union employess,
rs6p€ciivgly, u/€r8 closed to new pErticipanls,
Noftunion and union employees hired or rc.hired afrer December 31, 2006 8nd 2009, re6pectively, and employesE ol NW Nalural 6ub3ldia,ies sr€ providod an
.nhanc6d Retl.ement K Savings Plan benefrt.
10s
EXHIBIT 2
PALFREYMAN. OI
FALLS WATER CO,, INC,
Page '1'16 of 229
Table of Conlenls
The following table provides a r€conciliation of the changes in NW Natural'r beneft obligations and fairvalue of plan assets, as applicable, for NW Natur€l's
ponsion and other postretirement benefit plan6, €xcluding the Rotirement K Savings Plan, and a summary oI the lunded stafus and amounts racognized ln NW
Holdings'and NW Natural's consolidated balance sheets as of Decemb€r 31:
Poclr€tirement Benef t Plsn6
Pension Benelils oth6r B€n€fiis
2019 20t8 2019 2018
R.condlatlon ot chango ln bonslit oHlgation
Obligetion at January 1
S€avioo cost
lnloa€st cost
N6t dlarial (gsin) 1068
B€n€fils paid
Oblhatigo at Decombrr 3l
I 455,568
6,308
18,683
58.269
(23,'r60)
I 515,668
28,521
2A2
9&t
(3271
(1,674)
s
$ /rs5,s68 $ 29,568 $ 2a,172
$$
486,289 $
7,.t85
16,991
(32.9?0)
(21,918)
2A,172 $
24
1,117
t,8t)9
(1,774),
Rscohdlialion of change h plsn 6EBob:
Fair velua of plan asse& 6t Jenuary 1
AEtrEl rqlum on phn E&9ot8
Employer contdbutions
Bon€fib pau
Fair value of plan assets at Oecember 31
Fundod statG al Dccarnbor 31
257,797
85,104
13,310
(23,160)
287,925 I
(25,S2s)
17,715
t
'1,?74
(1,774\
1,674
(1,674)1,918)
$ 313,051 $ 257,157 $$
$ (202,617)$('rs7.zrI s (29,568) $ 128,1721
NW Natura,'s Ponsion Plan had a pmjected benefit obligation o, $477.3 million and $420.2 million at December 31, 2019 and 2018, respectively, and fair values
o, plan assets of $313.1 milljon and $257.8 mlllion, respectively. The plan had an accumulated benefit obligation of $434-9 million and $385.9 million at
December3l, 2019 and 2018, respeclively.
The following table presents amounts r€alized through regulatory assets or in other comprehensive los6 (incom€) for tho ysars ended December 31:
Assots Other Comprchensiv€ Loss (lncome)
Pension Ben€fits Olher Postretiromenl Eenolits P€nslon B€n€fits
20't9 2018 20'11 2019 2018 2017 2019 2018 2017
N6l actuadel loos (oeh)
Amortization of:
Prioa s€rvl6 coat
Acluarial loss
Tolil
$ 10,424 S 14,26! I 12i77 I 1,809 t (327) $ (214) $ 3,595 t (577) t 2,7n
(7) l.2l 1127) 468 466 ,166
(r,r.057) (18,761) (14,802) (359) (448) (696) (648) (1.052) (s45)
g (3,6zto) $ (4,542) t (2,752) 3 r,so8 $ (307) $ (421 $ 2,947 $ (1,72s) $ 1.831
-
Tho following table pres€nts amounts recognizod in regulatory ass€ts and accumulatsd othor compr6hsnslvo loss (AOCL) at Decemb€r 31:
REgulatory Assst6 AOCL
P€nsion Bensfts Oth€r Postroti.6ment BenGllls Ponsion B€n€frts
201S 2018 2019 2018 2019 2018
Prior 6€rvio6 co8t (cl6dit)
NBI Ecluarisl106E
Total
$$s7
170,535
('r,270) $
7,629
(1,738) $
6,189 14,484 11,537
$
$ 170,542 $4,451 i 1,l,a8a $
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 117 of 229
166,903
$ 166,S03
110
6,350 $'11,537
Table of Contenls
The lollowing isble prosents amounts recognized by NW Holdings and NW Nalural ln AOCL 6nd lho changos in AOCL rslst€d to NW Nalural's non-quallfi€d
employee benefit phns:
Y6ar Ended Decombor 3l,
2019 2018
B.dnnlng b.hic.
AmountE rcclassified to AOCL
Armunt8 rrdassn€d tor$ AOCL:
Amoatizalion of acluai€l k ss€s
R€cle68iftqton ots&dndqd b( ofi€oldI
Tot l roclassiticslion! b€for€ tax
Tex exp6nr. (bfi.([)
Tot6l reclEsBmcstons for tho poriod
Endng b€knc6
$(7,188) a
(3,611)
(8,43E)
642
648
(1,366)
1.O52
(4,329)
7U
1.694
({44)
(3,s45)'1,250
t (10,733) i (7.188)
rr) Roclassmcaton of 31.4 million of incorno lax efiecls resulting from th€ TCJA from Bccumulat€d oth€r comFohensiw lo6s lo rctainoil aamings wss mad6 pulsuent to lhe
adoption of ASU 201 8{2. S€€ Not6 2.
ln 2020, Nw Natural will amortlze an estmated gte.3 milion from regulatory assots to n6t periodic benetit cosls, consisting of g.t8.8 million of actuarhl loss€s
off6et by $0.5 million of prior service credits. A totalof$0.9 million will be amortized trom AOCL to eamings rolatod to actuariat losses in 2020.
The sssumed discount rates for NW Natural's Pension Plan and othor postreti ement bonellt plans rr/€je d6t6rmined indepondently based on tho FTSE Abov6Median Curv€ (discount rato curvo), whic-h uses high quality corporato bonds rated AA- or high€r by S&P or Aa3 or higher by Moody's. The discount rate curv€
was applied to match lho €stimated cash fows in ea.h of the plans to rofiecl ths timing and amqunt of expected future bonelit paym6nts for th6se plans.
Tho assumod oxpect€d long{erm Iate ol r€tum on plan assets lor the Ponsion Plan was developod using a weighted-average of th€ sxp€ct€d .etums tor the
target Esset pottfolio. ln dev€loping th€ expected long-term rate of relurn assumpdon, consideration was given to the hbtorical perfomance of each ssset cla8s
ln vyhich the plan's assgts aro invested and the larget as56t allocation for plan sssetg.
The investment strategy and policies for Pen6ion Plan assets held in the reliremont trust fund were approved by th6 NW Natural Retiremeni Committee, which is
@mposed of senior managsmgnl with the assistance ot an oulside investrnent consultant. The policies sel torih the guftlelines and objectivBs governlng lhG
lnwstment of plan assets. Plan assots arc invested for total retum with appropriate consideration fo. lhuidity, portlolio risk, and reiurn exp€ctations. AJ
lnv6stmonts aro expocted tg satisty tho prudont invoslmsnts rule und€r the Employee Retirement lncomo Socurity Act ol 1974. Thg approv6d assel alassos may
include c€sh and short-lorm Invsslments, frxsd incolne, @mmon stock and convcrtiblo secudti€s, absoluta and r6al rolurn 6trategieE, and realestate. Plan
assots may bo investod in separatgly managed accounts or in comminglod or mulual funds. lnveatnsnt re.balancing tekes plac€ poriodically as needed, or
when signiflcant c.ash flows occlr, ih orde.lo maintain th€ allocation of 6ss€ts wilhin the statod targel rangoe, The retirern€nt trust fund is not curenlly inv66l€d
ln NW Holdings or NW Nalural s€curitios.
Tho tollowing table pros€nts the Pension Plan asset targel allocation at December 31, 2019:
Ass6l Category Target Allocati,on
LoiC gDv€.Ilrlgrlt/orudn
U.S. hO6 cap 6quily
tlorFlr.S- cquly
Absolute relurn stratcgias
U.S. .malumH c6p equlty
ReEl €Blale funds
Hlgh ybld bor'd8
Ernorging rmrkots oquity
Emo.g&U matk.i ir.bt
20ii6
18
t8
1?
t0
7
5
5
Non{ualified supplemental defned benelll plan obligations we.e $38.3 million and $35.4 million at Docember 31, 2019 and 2018, resp€ctively. These plans are
not subject to regulatory defenal, and the changes in actuadal gains and losses, prior service costs, and lransition assets or obllgations are recognized in AOCL,
net of tax unlil they are amortized as a component of net periodic benefit cost. These aro unfunded, non-qualified plans with no plan assets; however, a
significant po.tion of the obligations is indirectly tundgd ,rlth company and trust-owned life insuranoe and other assets.
111
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Page 118 ol 229
Table of Conlents
Other postretirement ben€fit plans are unfunded plans but are subject to rggulalory dsfenal, The sctuarial gain6 and bsses, prior s€rvico costs, and transilion
assets or obligations for these plana arc recognized as a regulatory ass€t.
Not periodic benefit costs consist oI servic€ cosls, interost cosls, the expocted refums on plan asseb, and the amortizalion of galns and losses and prior sorvico
costs. The gains and losses are th6 sum of the actuarialand 6sset gains and losse6 thoughout lhe year and aro amorlized overthe average remaining service
period of actlve parlicipant6. The asset gains and losses arc based in part on a m6rk6t{elaled valuation of ass€ts. The markat-related valuaton reflects
dlfieronces belweon sxp€cied retums and actual lnvsatment returns with the differences recognized over a two-year period from the yaar in whlch thoy occur,
thoreby reducing year-to-yoar nel periodlc benefit cost volatility
Ths servica co6t component of net pedodic b6n6f cost for NW Natural p€nsion and other postreti.ement benefl plans is recognized ln oporaUons and
mqini€nance exp€nse in the consolidated statements of comprehensive income. Th6 olh6, non-6grvic6 cost @mponents ato rocognized in other inoome
(expens€), n6t in the consolklatsd statoments of comprshonsive incom€. Tho follo$/ing table provid6s the compon€nts of nst pgdodic benefil cost for NW
Netuml's pension and oth€r postrotiroment b€nofit planstortho yeaas onded Decomb€r31:
Pension Bonolits Olher Postretirement B€n€fi 16
2019 20't 8 2017 2019 2018 2017
S6rvlc. roat
lnl6r6st co6t
Eregd6d rct m on plan Bssob
AnErlization of paior seNice cosls
Anrorlizrtlon d nel aotuadal loac
Not pododic bonelit cost
Arount albcatad to coiatuc{on
Amount defened to rEglrlatory balancing account
N.t p.dodb b.n ft co.l d.rgod to expenl6
Reguletory p€nsion disallowance
fuior&dton c, r€gulatory behndno ocaount
Net amoonl charged to €reonse
3 6,308 S
18,684
€o,Esr)
7
t,l,7O4
7,185 S
16,991
(20,639)
43
t9,813
7,090 I
't 8.1'11
(20,i[l}3)
1?7
15,7,16
u4a
1,116
(468)
368
2fp.
gAt
3 341
1,141
(468)
,4,48
(168)
696
18,849
(2,,t83)
23,393
\2,f )
(r0,314)
20,u3
(6,ss7)
(6,s{2)
1.m0
(86)
't,226
(s8)
1,710
(587)
$ 43,6S7 S 10,315 $7,504 $ 1,174 $
1.lfr 1,123
1,128 $1,123
't6,356
10,500
l6,8,ll
't0,3't 5 7,5U 1,171
Net periodic benefit costs are reduc6d by Emounts capitalized to NGD plant. ln addition, a c€rlain amount of net periodic benefit cosb were reoorded to the
regulatory balancing accouht, ropresenting net periodic pension exponsa for lho Pension Plan above the amounl set in rates, as appmved by the OPUC, trcm
201 1 through October 31, 201 8.
ln March 20'19, the OPUC issued an order concluding the NW Natural 2018 Oregon rate case. The order allowed for the application of certain deferred revenues
and tax beneflts from lhe TCJA to reduce NW Natural's pension regulatory balancing accounl. A corresponding lotal of $'12.5 million in pension expenses were
recognized in operating and maint€nance expenso and olher income (expense), net in th€ consolidated statements of comprehensive income in the first quarter
of 20'19, with offsetting b€n6fits recorded within operating r€venues and income taxes. The order also directed NW Natural to reduc€ th€ balancing accounl by
an additional $10.5 million, of which $3.9 million was charged to operations and maintenance expense and $6.6 million was charged to other income {expense),
net in the consolidated slalements of comprehensive income. Amoflrzation of the remainihg amount of the balancing account began in lhe s€cond quarter of
2019 in accordance with the order.
Total amortization of the regulatory balancing account of $16.8 million in 2019, of which $6.2 million was charged to operations and maintenanco expense and
gl 0.6 million was charged to other income (expense), net. Total deferrals of the regulatory balancing accounl were $10.3 million in 2018, of which $2.4 million
was deferred from operations and maintenance expense and $7.9 million was delerred from other income (expense), net.
112
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 119 of 229
Table of Contents
The tollowing table providos the sssumplions usod in m€asudng pgriodic b€fl€fit costs and benefit obligations for the y€ars ended Oscember 31i
Pension B€n€llt6 Oth6r Po€lrolirem6nt Bonefits
20't9 2018 2017 201S 20't8 2017
A.tu[Flhot for rEt Modb b.n fit co.t:
Wdghtod-a\,€rag6 dl3co!nt rato
Raia of lncala8g ln cornpcnseto
Expoctod lono-torm rat6 of ratum
Arauiptho3 lbr lier-end ftrdad 3tatu3:
W6ightsd-av6mg6 discount reto
Rria ot lncoala ln compaora{irdr}
Erp6ct6d lcng-torm rale oI a6fum
4.19%
3.2$3.5%
7.il%
3.5'170
3.25-a.5%
1.fi%
3.SSo/o
325-r.5%
7.fiV,
4.13%
d.
nJa
3.14%
d.
3.857.
d.
3.16vo
3_504.50%
7.25%
1.N%
325{.5%
7 _500/"
3.52%
32t 1.5t6
7.50%
3.11%4.13%
rJa
3.44%
n/afila
l1)R6le a6$mptbn is 6.50'/. in 2020 End 3.50yo ther€afler. Th€ 2020 comp€Bation ins€as€ assumplion w'3 a resull of tho 2019 oxoqrtion of a new oDll6ctiv6 bargsiring
agEomont wllh unionized mernbors ot l,lw Netul8l 6f,6cliv6 Dec6mb6r 1, 2019.
Th6 assumsd annual increase in hoalth oaro cost trgnd rates used in moasuring oth€r posbetirement benefits as of December 31, 2019 was 6.50%, These trend
rat65 apply to both modicaland prescription drugs. Medicsl co6ts and prqscliption drugs are assum€d to decrease gradually each year to a rate of4.75% by
2026.
Assumed heallh car6 cosl trcnd mles can have a signiflcant 6tf6cl on thg amounls repoded for the h€alth care plans; ho$rever, olher postrEtir€ment b€nelil
plans have a cap on he amount of costs reimbursable by NW Natural.
A one porcBntago point change in assumod hoalth care cosl lrgnd rat6s would hav6 th6 foflowing efi€cls:
1% Decrease
Efbd d| nd partodlc postrtrrmonl h66lth c*e borlolll cort
Efect on lh6 accumulaled pGtr€tirsm€nt b€nofit obligElion
$irs
710
$(44)
(0)
Mortality assumptions ar6 reviewod annually and are updalod for male,ial changos as necossary. ln 2019, monallty rate assumptions worc updated ftoan RP-
2014 mortallty tableE using Ecal€ MP-2018 to Pri-2012 mortality tables using scale MP-2019, whicfi partially offsot increases of lhe projectd benefrt obligation.
Tho tollowing tau€ providos intormation regsrding employer contributions and benefit payments for NW Natural's PeNion Plan, non{ualified pension dans, and
othor postrotiroment bongfit plan6 for th€ yqars end€d Dec€mb€r 3'1, and 66timat6d fulure conhibutiqns and p€yments:
P€nsion Benefits Othor B€nolits
Empbyar Conbbulio.la:
2018 $
2or9
2020 (eslimal8d)
'17,715 S
t3,310
31,338
1,674
1fl1
1,756
Brnsft Payn6nL:
2017
2018
2019
31,580
21,81E
23,160
1,137
't,674
1,771
EafniCad Flrlura Banalil P6yrnenb:
2020
2021
2022
2023
2024
202G2025
23,412
24,304
25,094
25,941
26,757
1,r8,000
1,756
1,833
1,848
'|,889
1,903
8,S46
Employ6r Conlrlbutlons to Companv*Sponsored Defined Bonefit Ponsion Plang
NW Natural mak6s cantribulions to its qualifiod defined benefii Pension Plans bas€d on actuarial assumptions and estimatos, tax r6gulatiohs, and funding
roquiremenls under fedoral law. The Pension Protection Act of 2006 (th€ Aco oEtablished funding rcquiremsnts tor defined benefil plans. The Acl establishes a
'100% funding target ovor seven years lor plan yoars beginning after Oecomber 3'1, 2008. ln July 2012, Presidsnl Obama signod th6 Moving Ah6ad for Progress
in the 21st Cantury Ac1
EXHIB'T 2
PALFREYMAN. DI
FALLS WATER CO.. INC,
Page 120 of 229
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 121 o1229
Table of Contenls
([,lAP-21) lnto law, which chang6d 66veral provisions atfecting pension plans, including temporary tunding ]elief and Ponsion B6nofrt Guaranty Corporation
(PBGC) premium incresses, which shns th€ level of minimum requl.sd contrlbutons tom ths short-term to Ore long"torm as well as incaeasing the operational
cogts ot running a pension plan. MAP-21 established 8 nelr, mlnimum and maximum conldor for s6gm6nt ratss bas6d on a 2$y6ar average of borld yields,
whlch rosulted ln lov/9. minimum contdbutjons requirements han those undgr previous rogulations. MAP-z1, as amonded, provides for th€ .rJn6nt corrldor to bs
ln effect throuoh 2020 and subsequsntly broedon on an annual basl6 hom 202'1 throlgh 2024.
The Pgnslon Plan wa6 underfunded by $164.3 million st Decsmber 31, 2019. NW Natural made cash contributiros totaling $ 1 'l .0 million to lls Pension Plan for
2019. During 2020, NW Natural 6xp6cts to mak6 contrlbutlons of approxlmstoly i29.0 million lo this plan.
lruhlqmploYer Psnslon Pl.n
ln addition to tho NW Natural-spoosor€d Pension Plan pr€sentod abovs, p.ior to 2014 NW Natural confibuted to a multlomployor pen6ion plan for its NGD unbn
amployees known 6a lhe W€6tom Stales Ofiico snd Prcfessional Employees lntemational Union Pension Fund (Westem States Plan). That dan's omployer
identifcation number is 94-6076144. Effoclive Oec€mb€r 22,2013, NW Natural withdEw from the plan, which was a noncash lransaclion, VesGd participants
will receive sll benefits aclrued through the date ofwithdrawal. As the plan was undorlfundgd at the llme ofwithdrawal, NW Natural was assessod a withdrawal
liablllty of $8.3 mllllon, plus intgrost, which @quires NW Natural to pay S0.6 million each yoar to the plan for 20 years beginning in July 2014. The cost of the
witld.awal liability was def€ned to a rogulatory account on lhe balanc€ 6hoot.
Payironts vrer6 $0.6 million for 2019, and as ot Docember 31, 2019 the liability balanca was $6.5 million. Contributions to the plan wero $0.6 million for oach of
2018 and 20'17, which was approximatoly 5% to 6% ol th6 total conldbutlons to the plan by all omployer padicipant! in thoEe y6a.8.
Dcfl n6d Contrlbutlon Phn
NW Natural's Retirement K Savings Plan is a qualified defined contribution plen undff lntemal R€vooue Code Seclions 40'l(s) and 40'l(k). NW Natural
contibrrtions tolaled $7.0 mllllon, $6.5 mllllon, and S5.4 million tor 2019, 2018, snd 2017, respeotively, The Retirement K Savings Plan includ€s an Employee
Stock Or.vnership Plan.
Defsrred Comoeniatlon Pler.
NW Natursl'E supplemental deforled compensation plans for 6ligiblo offc6rs and sonior managgrs are non{ualiliod plan6. Thes6 plans arc d6signed to enhance
tho .6ti omenl Eavings of omploye€s and to a66isl them in shengthening thsir tinancial sscurity by providing an inc€ntivs to save and invest rogulady.
Frlr Vrlu.
Below ls a doscription of the valuation mothodologles ussd Ior assets measur€d al fair valu6. ln c6668 where NW Natura!'s Ponsion Plan is invested through a
coll6ctiv6 trust fund qr mulual fund, tho fund's mark€t valuo is utilized. Ma*6t valuos for lnvestnentE dlroc y ownod ar6 also uilll26d.
U.8. EQUITY. Th93o ars non-publish6d n6t ass€t valu6 (NAV) ass6ts. The non-publishgd NAV as6ot8 consist of commingl6d lruEts wh6ro NAV is not publishod
but tho invostn6nl can be readily diEpos6d of at NAV or ma*€t value. The underlying inv€stmonts in lhis assat class includes investments primarily in U.S.
comnlon stockS.
IiITERNA'IOI,IAUGLOBAL EOUtfY, These are Level I and non{ubllshod NAV assets. The Level 'l asset i6 a mutual fund, and the non-published NAV sssels
consist of commingled trusls wher€ th6 NAV/unit priqe is not published, but the investment can be readily disposed of at the NAV/unit pric6. The mutual tunds
hss a readily determinable lair value, including a publlshed NAV, and th€ commingled Lusls are valued at unit price. This asset class includes inv€slmenls
prlmarily in toleign equity common stocks.
UABLrrY HEDGlttG, Those aro non-pubiished NAV ass6ts. Th6 non-publlshed NAV ass6t6 consisl of comminglod trusts whero NAV i6 not published but tho
lnvestm6nt can bo r6adily dispossd of at NAV or markst valu6. The undedying inv6stm6nts in thi6 ass6t class includo long dura on fired i6com6 investm6nts
prima,ily in U.S. b.asuriss, U.S. govemm6nt ag6ncies, municipal securities, morbags-back€d secu,ities, ass€t-backed s€dJritios, as well as U.S. and
intomationel inve8khent{rade corporats bonds.
OPPORTUNISTIC, Theee are non-publbhed NAV assets consistng otcommlnglod trusts wh6re th€ lnve8tment6 can bs readily dispoEed of at unit prics, and a
h€dgo tund ol funds whoro lh€ valuation is nol published, This hedge fund of tunds is winding down. Bas€d on.ecent dispositions, NW Neiural bolleves the
remaining investment is fairly valued- Ths hodg6 fund offunds Is valued at the u€ighted average value of investmonts in various hedge funds, which in turn ar6
valu€d at the closlng price ot the underlying securities. This asset class includos invostmenb ln omsrglng mark€t debt, l6v6raged loans, RElTs, high yield bonds,
a commodities fund, and a hedge fund oltunds.
114
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 122 of 229
Table of Contenls
ABSoLUTE RETURN STRATEGY. This is a non-published NAV asset consi8ting of 6 hedg€ fund of funds where ths valuation is not publish€d. This hedgs lund of
funds is winding down. Eased on recent disposilions, NW Natural believos the remaining investment is fairly valued. The hedge fund oftunds is valued Et the
weighted average value of investments in various hedge frrnds, which in tum are valued €t the dosing price ofthe underlying securilies. Thls a5sot cl66s
primsrily includes invegtments in common stocb and fixed income securitios.
CASH AND CASH EOUNALET{TS. Thes€ are Level '1 and non-published NAV assets. The Level 1 assets consist ofca6h in U.S. dollars, which can be readily
disposed ol at lace value. The non-published NAV assets reprBsent mutuallunds withoul published NAVS but the invostment can be readily disposed of at the
NAV. Th6 mutual funds ars valuBd at the NAV of tho shares h6ld by tho plan at the valuation date.
The preceding valuation methods may produce a fair value calculation that is not indicative ot net realizable valua or rell€ctivo of futurc fair values. Although we
beligve thes6 valuation m6thods are appropriale and consistont with oth€r market panicipants, the use ol differont mothodologies or assumptions lo determine
the fair value of csrtain investmonts could resuh in a difiorent fair valuo measurement at lhe rgForting date.
lnvestment securities are exposed lo various fnancial risks including interest rate, market. and crodit risks. Due to the level of risk €ssociated with cedain
investment securities, it is reasonably possible that changes in the values of NW Natural's investment securities will occur in ths near l6rm end such changes
could materially affect NW Natural's investrnent account balances and the amounts reponed as plan assets availablo for beneft payments.
The following tables present the fair value ol NW Natural's plan assets, including outstanding roceivables and liabilities, of NW Natural's retirom€nt trust fund:
Docemb€r 3'1. 2019
LeYel I Level 2 L6v6l 3
Non'Published
Total
US equlty
lnternatiorEl / Global equity
Liabilily h€dging
Opportunlsuc
Cash and cash cquhlLnti
Total Investrnonts
tts
33.168
95,604 i
74,337
93.028
9,854
7,0,t9
s5,60{
'107,505
93,028
s,864
7.049
$
$33,168 S s $279,882 $ 313,050
D€c€mb€r 31, mlE
Level 'l Lev€l 2 L6v6l 3
NonPublish€d
Total
US equity
lnterElional / G oboloquity
Liabifity hedging
OpportJnbtlc
Cash and cash €quivalents
Total hvo8f o1lt6
RacaivabL!:
Accrued interEsl end dividend income
Due lrom brokgr for 6ocudlie6 8oH
Total rcceivebles
l&Di!!Ei
Due lo bloker for securities purchased
Totel lnvestnont ln retiromsnt trust
85,233 $
70,017
45,659
23,186
a,707
85,233
95,011
45,659
23,186
8,707
$$$$
24,994
$ 24,99,r $$I 232.802 3 257,796
Oec€mb€r 31,
2019 2018
i 3.243 $
3.243
3,242
3t3.05t s 257.757
(')The fair value for these investrn€nts is dotemined using Net Assel Valu€ per share (NAV)as of Decsmber 31, as a prsclicel €xpediont. and therefore they are not
$
115
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC.
Page 123 of 229
Tabl€ of Contenls
11. iNCOITE rAX
The following tablo provides a r€conciliation botw€en income iaxes calculated at lhe statutory federal t8)( rat€ and th€ provision for income tax6s .ofloctsd in tho
NW Holdlhgs and NW Natural statehents of comprehensive incom€ or loss for December 3l:
l{WHoldlng.l{W .lur.l
lncom€ taxes at fod€ral gtatutory rato
ln(,!€ss (dscr!ag€):
SEte lncome tax, n6t of fedoral
Otfior 068 nqulEd b be f.,vr€d{trcugh by Egulabry
oommiaaimt
Effoct o, lh6 TCJA
Ho,rrd tax r.t dft t!.llhl post-TCJA
Regulatory scttl6m€nt
Othor, rot
Tolal provision for lncom€ tex66
EfiradvG rar ratt
2019 2018 2017 2019 2018 2017
$16,370 $
4.422
$,n21
19,222
4,927
'1,92
$ 39,s78 $ 17,438 S 19,434
4,982
1,m2
$ 39,62,1
5,066
2,357
(3,376)
4,716
15,77itl
5,072
2357
(2,956)
06)(75)
(1.r29)
(r,249)
(r,129)
(1,164)(2,817)
$ 41,008
r,r06)(1,184)(2,6r8)
$ 12$42 $ 24,131 s 14,065 $ 24,459 $ 41,478
16.2%2AA%:i8-3%16.9%x-1%36.6%
Th6 NW Holdings and NW Natural erfectivo income tax rates ror 2019 comparod to 2018 changed primarily as a result of lower p.e-tax income and amorlization
of oxcess derered incom€ tax bonefits as ordeted by regulatory commissions. The NW Holdings and NW Natural ef€c{ive income tax rates for 2018 compared
lo 2017 qhanged primarily as a result ofthe low6r f6d6ral corporate incom€ lax rate providod fo. by the TCJA.
The provision for cunont and doforred lncom6 taxes consists ot lhe following at Docombor 3'l:
NIY Holdlngi ]{W lJrtur.l
Cun€nl
Fedsral
StEle
20r9 2018 2017 2019 2018 2017
5,530
1,667
s 8,95i, t
3,785
19,345 I
5,963
6,755 S
2,101
9,127 I
3,846
ts,304
5,956
7,197 12,79 25,308 8,856 12,573 25,4O
D€l€nEd
Fo{toral
StEte
'r,515
3,930
9,001
2,452
't 3,869
,r.831
1,340
3,869
9,025
2.461
11,371
1,U7
5,4,15 .453 15,700 5,209 11,,186 18.218
lncorne tax provision $ 12,Or2 $ 24,1Si I 41,008 $ 14,065 $ 24,459 $ 41,478
The ,ollowing iable summarizes the tax efi€d of signilicanl items comprising NW Holdings and NW Natural's dsfe[od income lax balanc€s recorded al
O6c6mbor 31:
t{W Holding.NW t{rtrr.l
Delerod tax liabilili6!:
Pl*rt end proporty
L€aa€6 receivEble
PatEion and poohelirBmont oubalions
lncom€ tax regulalory asset
Oth€r
Total def€n€d incom€ tax liabililles
O6for6d lncom€ tax ass6t8:
lncom€ tax regulelory liability
Oth6r htahoblo e6s€t6
Net operating loss€s and credils caried forwad
Total dsfonrd lnconie tax sssets
Tolal nBt d€f6rr6d income lsx lisbilities
2019 2018 2019 20't8
$269,886 $
40,'133
2.,$n
19,382
751
288,385 $28 t,(X4
40,'133
22,835
19.382
,110
$ 303,186
27,135
2't,403
1,061
27.135
21,402
537
$ 352,787 $ 337,984 $ 363.804 $ 352,260
$54,259 $
2,723
162
57,469$54,259$57,469
52 48
i 57.141 $ 57.521 i s4,307 $ 57,s21LffiRfltigt:_$ 295,643 $ 280,463
FALLS WATER CO,. INC,
Page 124 oI 229
116
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 125 ol 229
Table of Contents
At D€comber 31, 2019 and 201E, rsgulabry incomo tax assets of $is.S mlllloo and $19,,| million, rsspsctiwly, wEre rsco.dod by NW Naturel, 6 portlon o, which
ls recorded in .unent asseb. Th66e t6gulalory incame tax asseb primarity repEsent luttrs rate roco\rer of d€tered tax lisbilitles, resulting frm difsrences in
NGD dant finsnoial statement 6nd tax basas end NGD plant removal cosb, which wore prgviousty llowod thmugh ior rat6 maklng putposes 6nd to ts*e lnto
account tho additlonsl future taxeg, which wlll be generated by thal IEco\rsry. The6e d€fened tax liabiliti€, and th€ associated regulalory incomo tax as86ts, are
cungntly being recovered through cu6tom6r rat6s. At December 31, 2019 and 2018, regulatory Income tax essots of $2.5 mllllon and $2.3 million, respeclively,!.6r€ recorded by NW Natural, reprasenting future recovery ofdolen€d tax liabllitigs rBulting hom the equity portion of AFUDC-
At Decembor 31, 2013 and 2018, d€f6n6d tax asseb of $54,3 million and $57.5 miflion, ]especflvety, wer6 recorded by l.lw Naturat .epresenting the tuture
lncomo tax benqfit a8sociat€d with th6 €xcess deferrsd lncome iax rogulatory listility recordod as a result ot the lowor fedoral corporate lncomo tax rate prgvided
for by Ole TCJA. At D6cemb€r 31, 2019 and 2018, regulatory liability balanGs r6pr6s6nting the benefit oI lhe chsngo ln doionod taxes as a .osuI of ths TCJA of
$205.0 million and $217.1 mllllon, respgctively, were.ecorded by l{W N€tural.
NW Natural's natural gas utillty rates include sn allo,/vance to provide for the r€covsry ol th€ anticipated prqvision tor income tiaxes inciln€d as a lEsult of
providing r€gulatod sofvicEs. As a rosult of th6 21 p6.cenl tederal corporato incoms tax .ato enactcd ln 2017, NW Natural recordgd an additional regulatory
llability in 2018 and 2019 refl€cting th6 dofenal ol he esdmated rat€ b€nefrl fo, cl.rstorncrs. The dofenal podod fo, Orggon ondod on Octobor 31, 2018 coincidentwith not, ratos boglnnlng l.lovember 1, 2018. The defenalp€.iod for Washington ond6d on Octobsr 31, 2019 coincidsnt with ngw rates beginning Novomber I,
2019, At Docembsr 31, 2019 and 2018, a regulatory liability of $1.7 million and $8.2 million, rosp€cliwly, wEs .ocordod to r6fi6cl ulis estimsted rsvsnue defenat.
NW Holdings and NW Nalural a56ess thg availablo positive and nogativo evidqnc6 to $timstg if suficient taxable inoomo will be gsnerated to utilize th6ir
.espestive existing detered tax assets. Bassd upon this a6sos$m9nt, NW Holdings and NW Natural doterminod lhat ll ls more likely lhan not that all of their
resp€c'th/€ d6t6ned tax a8sets rgcorded a8 of Oecembor 3'1, 2019 will b€ ltallzed.
The Company ostimat€s it has not operating 1086 (NOL) c€rMoMards of $0.4 million for fodoral laxes and S0.4 million for Oregon t9x9s at Decembsr 31, 2019.
We anticipste lully utllizing these NOL c€rMolward balancos belore thsy b6gln lo €xpi.e in 2027lotfEd,eftl afid 2022 for Orsgon. Califomia alt€matlvs mlnlmum
tax (AMT) crodits of $0.1 mllllon ar6 also 6vailable. The AMT credits do not expire.
Ljncertain tax posltions are accounted ic. in accordance with accounting standards lhat require an assegsment of the anticipated settloment outcorne of matorial
uncertain tax positions taken ln e prlor year, or planned h be taken in ths cunont year. Un l such poshlons are sustained, lhe unce.tain tax benefits resulting
from 6uch pgsiliorE vrould not be recognizod. No r€66rv6s tor uncqrlain tax positions wsre recordod as of Decembot 31,2019,201A, ot 2017.
The federal incom€ tax r6tums for tax y6ars 2015 and eadier a,e closed by statuto. The IRS Compllanc6 Assurance Proc€Es (CAP) examination ot the 2016 and20i7 tax years have been oompleted. Th6.e werc no materlalchang€6 tothe6e retums asfled. Tho 2018 and 2019 tax y6ars ar€ cu 6ntly under IRS CAP
oxaminaiion. Ou.2020 CAP applicatiqn hac bsen lil€d. Undor th6 CAP p.ogram, NW Holding6 and NW Natural work wih tho IRS to idontify and resolve matorlal
tar matbrE befom lhe tax r€tum is fl6d each t6ar.
As of Decembor 31, 2019. income tax years 20i5 through 2018 renain open fo. examinatlon by th6 Stat6 of Califomia. lncome lax yea.2018 ls open for.xsmlnation by the State of ldaho. Tho Shto of OrBgon oxamlned tho Orogon corporatg incom€ tax rshrms for iax yoars 2015. 2016, end 2017. No mat6,ial
ctEnges occursd ss a result of this oxaminallon-
U.S. F€deral TCJA llette..
On December 22, 2017, the TCJA was snactEd and pemanently lgwered the U.S. fuderal corporale income tax lat6 to 21./o ftgm the previous maximum rate of
35%, efi€cllve tor Ot€ tax year b€ginning January l, 2018. The TCJA lncludod specific provisiofls r€lEt€d b regulatod public ulillties lhat provld6 for tl€
continued deductitility of lntsre6l exp€nse and lhe elimination of bonus tax depreciatlon br prcperty both acquired and placed into service on or after January 1,2014.
Undgr pre-TCJA lsw, business inter6st was generally doductible in the determination of taxat e incom6. The TCJA lmposod a n6w ltonilration on the deductibility
ol net businoss inl€rast gxp€ns€ ln excoss of approximatBly 30 pGrcent ot adjustod lsxable income. Taxpayers operating in lhe trade or businoss of a rogulat€d
ulility are excluded from [l6so now inlor66t sxp€nse limitations. Propos€d U.S. Trsasury Regulafon6 vr6r6 publish€d in Nqvember of 2Ol8 which provlda a d€
mlnimls ru|. wh€roby lf 90 percsnt or nrorc of a taxpayo/s adjust6d aG6€t basi6 is allocable to rsgulated utility aclivitios, th6n all of tho busingss intor66l expgnge
o, that taxpayer b deemod to bg sxcopt6d business interest of tho r6gulal6d dllity activity and is lhg.eby ngt limit€d und6r lhe TCJA. As a rosult of th6 da
minimiE .ule, NW Holdings and NW Nahr,al anticlpat6 that business interost expenso will not b€ limit€d under the TCJA.
Th€ TGrA generally provides for immediatE full expensing for qualified prop€rty both acquirsd and placed in seryice atter September 27, 2017 and b6foreJanuary 1, 2023. This would generally provide for sccel€rat6d cost recovery for capital
117
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC.
Page 126 o1229
I3ble-a{-calleulr
lnvestmsntG. Ho!,r/Bvor, lh€ d€finition of qualiligd proporly €xcludos proporty used in the trsde or blsiness of s r€gulatod utility. Final U.S. Tressury Regulalions
wer€ published in September of 201 I which clarifiod that bonus tax depreclstion wsuld not b€ svsiable lor regulaled utility aetivity ss6eb both acquh6d and
placsd in sgrvice by NW Holdings or NW Natural on or aftor January l, 2018. Proposed U.S. Treacury Regulatioos rele€66d in S€pt6mb€r of 2019 indlcsted lhat
long productlon p6dod property acquired before Sept6mb€.27, 2017 conunr,lo8 to qualry fo, bonus doprsciation In the yser placad in s€rvioe oonsistont with pr€-
TCJA law,
Th6 SEC 6laff provlously lssusd Staff AccDunting Bulletin 118, whlch proMdsd guidanco on accounling for tho tax offects of the TCJA. SAB 118 provided a
.neasuremsnt period that should not extend b€l,ond on€ ysar from th€ TGrA enactrnent date for companies lg comPlelo the gccountng lor tha TCJA undor ASC
740. To thg extent lhat a company's accounting for crrtain incom€ tax ofi€cts qf ths TCJA was inaompl6te but a roa6onabl6 6stmat€ could bo madc, a company
would recod a proviSional 6sllmat6 in tho financial stat6monts. NW Natural provlously dlsclossd that duo lo unc€rlainths wlth rospod to tho svailability of bonus
tax d€pr€ciation tor rBgulatod utility adivity assets und6r tho TCJA that th€ ofiecb ot bonw bx d€prsciation lor assgtr placgd in seMc€ aft6a Sopt6mb€r 27,
2017 but before January 1, 2018 had not be6n recorded. Tho doterminalion to exclude all as8eb plac€d in 6€Mce at€r S€pt€mber 27, 2017 but b6fors January
1, 2018 from bonus iax doprsciation was provisigngl 98 provlded tor undor SAB '1'18-
As a result olthe Proposed Regulatlons on bonus tax dopreci€tion publbhed ln Augu6t ot 2018, tlw Natural revlsEd the provisioml Eslimate of defered taxes
and income taxes payable to reffBct the €fiects of bonu8 tax doproclatioo for assets plac€d in s6rvic6 afre. September 27, 2017 but betore January '1, 2018. ln
ths third quarter of 2018, NW Natural recognlz€d lncroases to prepaid lncome iax oI $7.4 mlllion, def€ned income tax lisbility of $4,1 million, and r€gulatory
liability of $3.3 million. ln the fourth quarter ot 2018, tlw Natural recognlzed additlon6l Inc.6e66s to prepaid lncoma tax of $0-5 mllllon, dofenEd income bx
liabllity of $0.3 million, end rsgulatory liability of $0.2 million- The accounting for income hx effecls of the TCJA was comploto at the end of calendar year 2018
NW Natural prcviouEly filed appllcailons yi,ith th6 OPUC and WUTC lo dolor lh6 NGD n6t lncom€ tax b6n6llb rosul0ng from th6 TCJA. ln Match 2019, ths OPUC
issu.d an ord€r addre6slng th6 rogulatory amorlizatlon of the lncom€ tax bongfts from tho TCJA lhat NW Natural dofgn€d for Orogon cuslomers in Ooc€mbor ol
2017. Und€r th6 order, l.lw Natural ryill pEvide hs b6n€ft of th6s€ TCJA income tar dsrerrals to Or€gon cusbmgrs $mugh ongoing annual credits to customor
base rateE and ss a ong-tims Gcov€ry of a portbn of th€ psnsion balgncing account rggulatory sesgt bal6n€4. On an annualizad basis, il is snticipatod that the
incomo bx bonaftE from th€ provision of these TCJA ben6fits to customsrs shouH approxlmato tho rBduction b pretax incoms thal occurs as a regult of the
customgr base rate cEdita and one-limg r6@very ot a poftion of the p€nsion bdancing account,
ln October 201 9, the WUTC issued an order addrGsslng the .ogulatory amodization ol the income tax benefits fipm the TCJA that NW Natural d€tenod icr
Washington qjstoners in December of 2017. Und6r the order. NW N€tural will provide defened income tax benelil5 trom thg TCJA to cu8lomsrs through baso
rat€ crodlts b6glnnlng Novombor 1,2019.
tt8
EXHIBIT 2
PALFREYi'AN, DI
FALLS WATER CO,, INC.
Page 127 ot 229
Tab e ol Contents
1 2. PROPERrY, PLANI, AND EQU'P'I'ENT
The tollowing leble sets forih the major classifications of property, plant, and equipment snd accumulsted depr€ciEtion of continuing opBralions at Doc6mb6r 31
/. thoulrds 2013 2018
ilw Ndur.l:
NGO pLnt in .€ryk
NGD work in p.ogness
Laa!: Acaumuhtld dopEdatlon
NGD plant, n6t
OtF dant in .ervlo.
olh.l constuatlofi wo* ln progress
Laa!: AccumuhLd daprrdatlon
other planl, n€i1)
ToLl p,!p.rty. d.nL and .quipmo
t 3.302,049 t
84,965
1,0t7.031
3,13/,1n.
2U,974
s74252
2,369,083 2,364,848
63.5t3
5,548
t8,662
66.@S
5,330
18.603
50.399 52,736
I 2,,119,4E2 S 2417,&4
Oth.. ( W Holdlrt!):
Oth€. plant in seNice
L6s: A.qmuhtod d€pEd.ton
other planl, netri)
$20,671 $
1,2
4,051
263
19,417 3,788
NW Holdlnqr:
Totd pmperty, drht lnd .quhment $2,438,8S9 s 2,421,372
HW t{.hrr.l .nd ]{try HoHht :
Capitel exp€nditrr66 in Bccruad liebilities $32,502 $23,676
Nw NElurEl proviously reported olhsr balsnces rvhich rrcre restal€d du€ to corlaln assols afid llabllltles noiv b6lng classlfi€d as dlscontinrrod op€rauons assets 6nd
llabllllies h lls balance sheots. S6€ Not6 19 for furth€r discu66ion.
Accumulated depreciation does not includo ths accumulatod provision for a6set removal @sts of $401.9 millign and $380.5 million at Oecember 31, 2019 8nd
2018, r€spectively. Thoso acqued asset,emoval cosls ar€ roflocted on lho balanco sheet as r€gulatory llabilllhs. Seo Note 2. Durihg 2019 and 201E, no
equipmBnt was acquired und6r cadtal l6as66-
NW Holdinos
Other planl balancss includ€ long.livod assets associatod with water op€rations and non-r€gulatod 6ctvili6s nqt held by NW N€tu.a| or its subsidisries
Ui[Nalual
Other plant balances include long-lived assets not related to NGD and long-lived assets that may be us6d to supporl NGD operatjons.
The weighted average deprecialion rate for NGD assets was 2.9% during 20'19 and 2.8% during 2018, and 2017. The weighted average dspreciation rate for
assst€ not relaled to NGD was L8% in 20'19, 2.2y. in 2018, a d 1.9.h in 2017.
ln October 2017, NW Natural enterod into a 2o-year leas6 agrcemgnl expect6d to commence in 2020 for its new corporate op€rations centor location in
Porlland. Oregon. undgr th6 n6w l6ase standErd, NW Nalural is no longor considoaed the accounting ownff of lh6 ass6t dudng construclion- As such, the build
to suil ass€t and liability balances at Decamber 3,|, 2018 of $26.0 million were derecognizod in January 20'19. Tho previous build to suit balancos w€re rscord€d
under ASC 840 withih property, plant and equipment and other nonrur€nt liabiliti66 in lhe consolidated balsnce 6hegt.
ln May 2019, NW Natural placed its Nonh Mist ga! storage expansion facility into service and commenced storage servioes to the facilitfs single customer,
PGE. Und€r U.S. GAAP, this sgreement is classifed as a sales-type lease and qualifes for rogulatory sccounting defBral treatment. Accordingly, the projecl
was de-recognized from property, plant and oquipment upon lease commencement and the investment balance is presented net of the cunent portion of
scheduled billings within assets under sales.type leases on the consolidaled balance sh6€ts. A total of $'146.0 million was de-recognized frorn planl on the lease
commehcement dat€. Th€ facility is included within rate base for ratemaking purposes. See Note 7 for informalion regarding leasos, including No,th Mist.
119
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 128 of 229
Ieue-s!-9e!fe!E
,3. GAS RESERYES
NW Natural h6s invost€d $188 million thrgugh th€ gas r€s6rv6s ptogram in the Jonah Field locsted in Wygmlng 6s of Docember 31, 2019. Gas tEsorves a.e
stat€d at cost, net of rsgulalory amorlizalion, wilh the associatod dofened tax bonef,ts rscorded as llabilitie6 in tho consolidatBd balanc€ shegb. The investment
in gas reEerves provides long-tsrm pdce proteotion for NGD cu8tom6r6lhro4h ths original agBement with Enoana Oil& Gas (USA) lnc. underwhlch NW
Naturallnvestsd 1178 mlllion and the amendod agrBemenl with Jonah EneEy LLC under vrfiich an additional $10 million was inv€8tod.
NW Natural ent€r€d intq the orlginal agre€ments wl$ Encana ln 2011 underwhich NW Natural holds worklng interosts in certain secticns ol the Jonah Fl6ld.
cas producod in these sactirns is sold al prsvalling ma*et prkes, ard rswnuss from such sales, nel ot associat6d @6raung and producllon cosls and
amodizatbn, a.€ c.edited to tho NGD cost oI gas. Th6 cosl of gas, Includlng a carrylng cost lor th6 rat6 bas6 inveEtment, is induded in ttle annual Orogon PGA
tiling, whlch allows NW Natural to rocover thgso cost6 lhrough customor rabs. Tho invsstrnont under tha original agresmenl, less accumulatod amottlzatlon and
d€forod lax6s, eams a rate of r6tum.
ln March 2014, NW Natural am€ndod tho orilrinal gsE raGgrves agrsom.nt in ordor to lacilitats Enc€na's proposed sslg of its int9r66t in the Joneh feld to Joneh
En6rgy. Undor th6 amondmont, NW Natural ended th6 drilling program with Encans, but increasgd lts worklng lntorests in ils as6ignod ssctions of tho Jonah
ield. NW Natural also rgt6in6d tho righl to invegt in nqr/ w6ll8 with Jonah Enorgy. Und€r th€ amended agreement lhol€ i3 still th€ option to inv6st ln addhional
wsll8 on 8 w€ll-by-w€ll basis wlth drilling co6t6 and reEultlng gas volumo3 6har6d at l.rw Natural's amended ppportionate wortlng inter€st for each woll in which
it inv6sts. NW Natural olecbd to panicipat6 ln soms ol th6 additional wells drllled in 20'14, but has nol particlpated ln sdditlonslwells since 2014. However, there
may be the opportunity to pariicipato ln more wslb in tho futlre.
Ga6 prcducsd from the eddltional wells is lncludgd ln tho Orogon PGA al a lixed rate of $0.4725 per Olerm, whicfi approxlmatos ths lGyear hodgs rate plus
finsncing costs 8l the inc€ptign of thc investtnent.
cas rsssrves act€d to hedg€ the co8t of gas for approximately 5%, 6% end 6% of NGO ga3 supplles ror the ysar6 ended Decombor 31, 2019, 2018, and 2017
re8p6cllv6ly.
The following tabl6 outline6 NW Natural's nst ggs resorv€8 lnvsstmont at Decomb€r 31:
2019 2014
Gs Eadv-, drrfit
Gaa reagwea, non-curent
L.a.: A.axlld.bd imriL&n
Totialg6s ltse os(l)
LBa: Oahfitd tDCs dr laa rsrrla
N6t invGlrn€nt in g6s rosewas
t6"zr8 I
172,029
123,835
16,G47
't70,660
t(x,{63
t
63,672
{5,515
82,U4
tu,ofl
48,'t57 $
11) Th€ n€l hve6tm€nt in sdditional wglb included in tolelgas r€s€rv63 was t3.8 mllllon and 1,a.8 million sl Oocsmb€r 3!, 2019 and 2018, r€sp€ctivoly.
NW Natural's lnvestmont is lnclud6d in NW Holding8' snd NW Natural's consolidatod balanc€ shesls undsr gas rss€rvgs with the maximum loss oxposur€
limhod to the investmont balancs,
11,
'NyEST
ENTS
$62,773
lnveslrnents include financial inv.stmonts in lifs insurance pdiciss, and equity method lnvestmont8 ln cortsin partn6rships 6nd limited liability companios. The
following tabl6 6ummarizea otlEr investmonb at Dec6mbor 31:
NW Holdlnos NW Nafural
20r9 2018 20t9 2018
lnv€stm6nts in lifo in3uranca pollcles
lnlEtnantt h 0!8 plprli,lc
Oth€r
Total otar lnvoEirtorrb
.{9,837 $
,3,472
24
49,922 $
13,5ll
55
$49,837 i 49,922
$8!l,$3 I 6it.568 3 40,E37 I 19,*zt
120
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Page 129 o1229
Table of Conlents
lnv.otmrnt ln Llie lnsuranct Pollcles
NW Natural has lnv.sted in k y porson life Insurance conuacts to provHo an lndlrect fuMing vehide fgr c6rtsin lgng-lerm emplgyeo and diredor bgnefil plan
ligbllitigs. The amount in tho abov6 tablo is reported at cash sunsnder value, nal of pollcy bans.
lnvoatmants ln Gss PlpElln6
Trall Wost Plp€llne, [C (tWP), a wholly-ownod subsidiary of TWH, is pu]suing ihe development oI a n€w gas transmi$ion pipoline that vrould provide an
intBrcoonBction wilh NW Naturalk NGD sy6tem. NWN En6rgy, a wholly-owred subsidiary ol NW HoldirE6, owo6 50% of TWH, and 50% ls owned by
Transcanada American lnvestnenb Ltd,, an indirect wholly-onned subgidiary of Transcanada Corporation.
Variable lr{erest Enlitv lvlEl Analvsis
TWH is s VlE, with NW Holdings' investnent in TWP r€ported und6r squity method accountlng. lt has b66n d6t6rmlnsd that NW Holdings ls not the primary
b€nefciary of TWH'S activities as it only haG a 50% 6har6 of the entlty, and thsre are no stipulations that allow NW Hddings s dispropodionet€ inlluenco over
it. lnvestments in TWH and TwP are included ln other investnenb on NW Holdings' balenco sheel lf this inv€slnrenl is not der,6loped, than the maxlmum lo6s
oxpo6ure rclatqd to TWH Is llmlt6d to NW Holdings'equity inv68tment balance, less ib share of any cash orother ass€ts svailable to NW Holdings as a 50%
own€r. The inwstment balance in TWH was $13,4 million at Oecemb€r 31, 20tg and 20'18.
lmoairment Anah/sis
lnvestnents in nonconsolldated €ntlti66 accounted for under the equity method are .eviewsd for impairment al eaoh roporiing period and folbwing updates to
our oorporsb planning assumptions. lf it is det€minsd a loss ln value ls oth6r lhan temporary, a chargg ls .6cognlz6d ,or the dlfiBrenc€ between the
investm€nf8 canying value and its €stimated ,air value. Fair value is based on quoted mark€t pdces when availaue or on the pEsent value of expsctBd tuhrre
cash flows. Difiering assumptlons could aff6c,t lh€ tlmlng and amount ol a charge .ocorded in any pedod.
ln 201I, TWP withdrew lb origlnal apdication with lhe FERC ror a proposod naturalgas pipeline in Oregon and informsd FERC that it intended to re.til6 sn
application lo refloct changqs in the proiect scop€ allgnlng tha proj6ct with the r6gion'E cunent and futu.e gas infrastructu.e negds. TWP continues wq*ing with
cusiomers in the Pacifc Northwest to further undorstand th€ir gas transpodation no6ds and detsrmino tha commsrclal support tor a rsvls€d plpolln€ proposal. A
n.yi, FERC cortilicat€ applic€lion i8 6xp€ct€d to b6 fil€d to reflect a revised gcopg based on these regional n66ds.
NW Holdings' €quity investment was flot impsired at Decamber 31, 2019 as th6 fsir value of expocted cash flows from plannod d€\r6lopm6nt exceedBd NW
Holdings' romaining qqulty lnv€stmsnt ot $13.4 mllllon at Decemb€r 31, 2019. Horlisvgr, i, NW Holdings leams ihat the projecl is not viablo or will nol go forward,
it could be required lo rscognize a maximum charge of up to approximately $13-4 mllllon ba6ed on the cur.rnl amount ot the €quiriy inve6tm6nt, nel of cash and
tt orking capltrel 8t TWP. NW Holdlngs will continue io monitor and update the impainnent €nalysis as required.
t5. ausrrvEss coflBlrvA rroirs
ml0 Builn... Comblnatlona
Sun vlr
On May 31, 2019, NWN Wat6r of Oregon, a whglly-owned indkect slbsidiary of NW Holdings, comploted the acquisition of Sundver Wat€r and Sunriver
Envi onmental (colloctivoly .otered to as Sun.iver), a privat€ly-ovvned wal6r utility ard wastewater lrealrnent company located in Sunriver, Oregon thal servos
approimately 9,400 connactions, Th€ acquisitiondata fair valu6 of the total coi$ideradon transfonod, aftor closing adiustm€nts, wa6 approximat6ty $55.0
million in cash consideralion. Tho transaclion align6 wilh NW Holdings'water sgctor rlratsgy as it oontinuss to expand its water utility service teritory in lhe
Pocific Northwest and bogifls to pursue waslswat€r invsstrnent opportunitios.
The Sunriver acquisi$on rnet tha criteda ot a business cofibimtion, and as such a pr6llminary allocation of the consideration to thB acquired a6s€ls based qn
lh.lr rstlmatad taii valuo as of the acquisitbn date was pertormed, ln accord€nce with U.S. GAAP, th6 fair valu6 dBt€mimtion was made uslng oxlstng
rsgulabry conditions for assets associated with Sunriver Watgr, LLC as well as €xisting market cqnditions and stards.d valuation approaches tor assgts
assoclatod with Sunrivgr Envirgnmental, LLC in order to allocate value as d6t6min6d by an Indepsndont thld party assgssor for cortaln a6s6t6, whlcfi lnvolv€d
tho uso of manag6mont judgmont ln dot€rminlng tho rignifcanl estimatgs and a$umptions usBd by th6 asscssor, with th€ romaining diff6rEnc6 from th6
consireralion hansI€nsd baing rscorded as goodwill. This allocation is considor€d pr6liminary ss of Decamber 31, 2019, as racts and circuinstances that exigtgd
a6 ofth€ acquicition date may be discovered as we continuo to integ.ate Suniva.. As 6 resuft, subsaqusnt adjustmants to tha prqliminary valuatlon of tangiblo
aaseta, conk8ct sssBts and liabilities, tax posilions, and goodwlll may be required. Subsoqusnt adjustments a.e nol expectsd b be significant, and any such
sdjusbn6nts ar€ expectgd to bs completsd within th€ on6"yaar measurement p€riod. Ths acqulsltlon costs wGre exp€n86d aE incun6d.
121
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 130 0I229
Eue-ef-Ae.lfells
Prgliminary goodwill of t40.1 million was rscogniz6d from this acquisilion. The goodwill recognizgd is sttributable to Sunliw/s r6gulatod wat€r utility servics
tgnltory, 6xp;ri6nced workforce, and th€ slratogic ben€fib for both the woter utility and wast6wator a€rvlcsE e)Q€c{ed from goYrrth in its servic€ tenilory. No
int ngibls a$ets asido ,rom goodwill worB acquired, The total amount of goodwill thst Is oxpoctod to be deduc{ible br income tax purposes is approximatoly
$50.2 million.
The proliminary purchase price lor th6 acquisition has bsen allocat6d to tll6 not a6sgts ecquirBd as of tho acquisilion date and is as follo,vs:
ln thousands DecBmber 31, 20'19
t nl
13,819
40,fi8
812
(al
54.948
Tho amount ot Sundver revsnues indud€d ln NW Holdings consolidated 6tatem6nts ol co(lpa€honslvs lncoms is $3.7 million for the year ended D6comber 31,
20t9. Eamings from Sun.iver activltiss for th€ yoar onded D6c6mbor 31, 20i9 woro not matBrial lo ths rssults of NW Holdings.
Olh.r Acquidtion.
Duriru lhe year ended Dgcarnber 31, 20'19, NWN Water cgmplsted thlro sdditional acquisitioos qualirying as business combinalions- Ths aggr.gate fair value
of thtpEllmlnary consireratioo hansfer€d for those acquisitions was approximatoly $2.0 million. The86 buslness combinations wBre not signmcant to NW
Holdings' rosults of operalions.
2018 Burlne$ Comblnrtlons
F.ll3 Waior
On Septembsr 13, 2018, NWN Wat€r, th€n a tvholly-ownod subsidiary of NW Natural and nott/ a wholly-own6d subsldlary of NW HoldirEs, comploted thq
.cquisition of Falls Water, a privately-owned wet6r utility in the Pacmc Nodhlvesl tor non-c€6h consideration ol $8.5 million, in the brm ol 125,000 sharos of NW
Natural common stock, which wer6 conveded to NW Holdings common alock in our Octob€r 'l , 201 6 reorganization. Falls Water becam€ a wholly.owned
gubsldiary ol NWN Water and marked its first ecqulsltlon ln lhs water utility sector. This scquisition aligns with NW Holdlogs'wat6r sector strat'Bgy as the
acquisition provlres NWN Water entry into ldaho, expands service area, and opons furth€r opportunlty for gro$rth. Falls Water is based in ldaho Falls, ldaho and
served approximalely 5,300 connoc{ons at the timo ot aaquisition.
Through the purchaso ol all of the outstanding shares of Falls Wat6r. NW\,I Wat6r acqukod tha not assots and 100% control of Falls Wator. Wo dotaminod that
th€ Falls Water ac4uisition met tho critBria of a businoss combina on, and as such p€riormsd an allocation gf tho consld6ralion to tho acquired assob and
aGsumed liabiliti6s bas6d on thoirlEirvalu6 a6 of th9 acquisition dato, ths majority of yvhich was allocated to goodwill. The acquisition costs w€re hsignilicant
and w€re expons€d as incunBd. Th6 rosuKs of Fslls Water are not mat6.ial lo th€ consolidatod financial results of NW Holdings.
Goodwill oI $6.2 million was r€cognized fio,i this acquisition and is attdbuisble to Falh Watols reguleted s6wico tonitory and expedenced wo.k orc€ .s well as
the sbategic beaefits oxpected itom thl6 high.gro$rth service tenitory. l.lw Holdlngs hes included this goodwill ln ohg. for 6€gment raportng purposes, 8nd it is
not deductible ,or income tax purposas. No iniangible assots asids from goodwill v/ere acquired. See Note 2 for goodwlll lmpairm6nt informalirn.
Othar Acoulrluona
Durlng m18Jn addlbn to th6 Falls Watsr acquisltion, NWN Wat6r completod thr€e gcquisltlgns quallfylng as busin6ss combinations. The aggregat6lal valu€
of th€ consideration transf€rred ,or thss€ acquisitibns was approximately t2.8 million- Thas! businass combinations, both indivk ually and ln aggrsgato, woro not
significsnt to NW Holdings' results of oporalions,
As a Esult of all acquisitions oomploted, total gloodwill wes $49.9 million and $9.0 mlllion as of D€cambor 31, 2019 and 2018, resp6ctlv6ly. The incroaso in th€
goodwill balance w6s due to additions assooiated with our acqulsitions in the watsr sector. Arl of our ggodtvill i6 r6lated to weter and wastewater acquigiiions and
G included in the othar @tegory fo( segmont reporting purposes. The annual impairm6nt assessment of gloodwill occurs in the lourth quarter of each yoer. The.e
have been no impairmenb recognlzad to date.
122
Curgi ar'ctu
Prop€rg, plant and oquipmont
GoodrYll
Dstsn6d lax a6s6b
Cumot lai{ltilrs
Total net assets acquired $
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO., INC,
Page '131 of 229
Table of Contents
1 6, DERiyAITVE INSTRUNENTS
NW Natlral 6nt6.8 into financial derivative cont'acb to hedg6 a porlion ot tho NGD segments natural gas salos rgquiGmsnts. Theso contEcls includs swaps,
options, end combinations of opllon contracis. Th6se derivatiw financial inshumonb are primadly ussd lo manago commodlty pic€ varlabllity. A small porlion ol
NW Nstural's derivalive hedging strategy invotves foreign (rrnency exchanoB contracts.
NW Natural ontors into th65€ tinsnclal dorivativos, up to prescribed limlts, primarily to hBdge price va.iability roletod to phy8lcal gss supply conhacts as well as to
hodg6 sPqt purchaoes of natural gas. Tho loroign curoncy foMard conbtcls aro u6od to hgdg6 lhg uqugtion in foreign currency sxchango ratss for pipolin.
domard chsrges paid in Canadian dollars.
ln lho normal course of bu8iness, NW Natural also enters into indexed.price physlcellorward natural gas commodity purchaBe contaclg and options to meet the
r€quir6m6nt6 ot NGD customors. The6€ coaltracts qualiry tor .egulalory deferral accounling tGatmont.
NW Natural also 6nt6r8 lnto exchange contacts related to the third.party asset manag.monl of llc gas por ollo, somo ot which are derivatiws that do not qualily
for hsdge accountlno or rogulatory d6fonal, but aro subjoct to NW Natursl'g rogulatory sharing agrosmont. Thes€ dorivativos are r.cognhod ln opo.aUng
ravlnuoE, nct of amgunl8 Ehared with NGO customers.
Notlonrl Amounts
The tollol ,log tabl6 presants th6 ablolute notional amounts r€lated to open positions on NW Natural dutuatlve lnslrum€nts
Al Docamber 31,
20ts 20t8
ttdnd go! (h tlunr):
Pildc.l
Foroign oxchang€
651,540
512,649
6,650 $
,r08,850
1t2zt6
6,938$
Purchlsod Gls Adlustment IPGAI
Dc.lvatlve6 €nt€r€d into by NW Natural tor lhe prccurem6nt or hedglng of natursl ga6 lor tuture gas years generally receivo regulatory detenal acoounling
lr6alm6nl. ln general, oommodity hodgiqg fo. the curent gas yoar iE complotod priqr to the gtErt o, lho gag ysar, and hsdga pric6s aro r6lloctod in tho w€ight6d-
avorage cost of gas in the PGA flllng. Rale6 and h€dging approsches may vary betwoen statos due to difierent rate struc,luros and m6chanism8. ln addition, as
roquir6d with he Washington PGA fling, NW Natural lncorporaled and began implementing risk-responsivo hedging stralegies for lho 20,l9-20 PGA lor lts
WaBhington gas suppllos- Hodg€ cont acls entgred into afb. tho start of th6 PGA poriod ar6 subjGct lo lho PGA inc6nliv6 sharing mochanism in Oregon. NW
Natural 6nt6red the 201920 8nd 201& 19 gas years with iorscastsd 6ales volumG h6d9ed st 52% and 48% in financial swap and optioo contracb, 6nd 19%
and 24% ln physical gas supplios, respectlvely- Hedge contr€c,ts entered into prior to the PGA tiling, in Septomb6r 2019, wero lndud€d ln the PGA tor the 201+
20 gaE yoa.. Hgdg€ contracts entsred into aftsr the PGA fling, and ,6lat.d to subssquont gBs yeaG, may be induded in tuturs PGA lilings snd qualify for
rogulatory dofer'al.
Unrarllz.d rnd Re.llz.d G.lnrl.oar
Tho ,ollowing tablo ref,6cts thc lncome stalement pr€sentation for the un.ealized galns and lo8sa6 fiom NW Natural'g derivative instrumenb, which also
reprBsont all derivalivs instrumonts et NW Holdings:
O6c6mb€r 31, 2019 D€comber 31,2018
N8lural96
comrrlodit Foreign oxchango
Natrral Oas
aammodity Foroion axa ariora
Bottofl (sxpens6) lo cost of g6E
WrC rrrr., .. (dp.o!.)
Anrdrnt8 ddonod to regulatory Eccounts on belanco 6ho€l
ToLl lrln (h.r) ln pl!-rax rGmlru8
$ 9.863
(568)
(9,376)
t (61)
$102 $
(102)
(1,239) $
't,660
(211)
l2u)
2U
I 2ro I
UNREALIZED GAIXTLOSS. Out6laMing derivative instuments .olated to rogulated NGD op6rations ar€ dsfenod in ac€ordaoce with regulatory accounting
standards. The cost of foreign curercy forward and natural gas derivalive conlracts are rGcogniz€d immediat6ly in lhe cost ot gaE; howov6r, co6ts abov€ or
brlow the amount 6mbeddod in the cunont year PGA ar. subject to a r6gulatory d€lsnal lariff and thoreforo, are recordod as a r.gulatory assol or liability.
a
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 132 o1229
Table ol Conlents
,r liousards
REALIZED GAIN/LOSS. NW Natural realizod net galns ot S17.9 million snd net gains of $7.4 million for the years end€d Decsmber 31, 2019 and 20'18,
respeclively, from the settemenl of natural gas fnancial derivative cont ac{s. Reallzed galn6 and lo6s6s ofset the higher or lower cost ol gas purchased,
r€sulting in no incremental amounts to collect or refund to cuslomers.
Credlt Rlsk Mrnaqsmsnt of Flnancial Dorlvatlve6 lnstrumcnt!
No collateral was posted with or by NW Natural counterpartios as of Decomb€r 31, 2019 or 2018. NW Natural attempts to minimizg lhe potontial oxposure to
collat6ralcalts by div€rsifying countBrparties lo manago liqoldity risk. Countoearti€s g6n6rally allow a certain credit limit thr6Ehold boforo roquiring NW Natural
to po6t collateral against loss positions. Givgn NW NaturalS countorparty credit limits and portfolio div€rsificstion, ft was not subjoct to collstoral calls in 2019 or
201E, The oollateral c€ll exposuro is s€t fo.lh undsr credit Eupport agr6omsnts, v{hicfi gonorally contain credit limits. NW Natural cguld slEo bo Eubjsd to
coltatoral call exposure who,. it has agreed to provids adoquate assurance, which is not spocific as to the amount o, crodit limlt allot.d, bot could potenlially
rsquire additional collatoral in the 6vont of a mat€risl advorse change.
Basod upon curent commodity financial swap and option contracts oubtanding, which reffect unrcalizcd gains ot $5.6 million at oecembe, 3,|, 2019, ws have
estirnated ttE level oI collatoral demands, with and without potential adequate assurance calls, u6lng curront gas p.ices and various credrt downgrad€ rating
scenario6 for NW Natural as follows:
Cr€dit Ratino Do/rnorade Sc€nario8
(Curent
Ra(ngs) A+/43 BBB+iBoa1 aBB,tsae2 888JBaa3 Specubtive
\rylh Ad6qroto Aramnoo Crll6
wthout Ad6quel6 Aasuranc€ Calls
I iI 3 $(66)
(66)
NW Natural's financial derivative lnstruments are subjocl to ma6te. netting 9n6ng6m6nts; howovor, they aro p.6s6nbd on a gross basis in th€ consolldatod
balance Bh6€G. NW Natural and its counterparties hav6 th6 abillty to s6t-otf obligations to 6ach oth€r undor specifigd cirqumstances. Such circumstanc6s may
include a dofaulting pany, a crsdit change due to a motger afi6cting oithor patty, ot any other termination evenl.
lf netted by counterpady, NW Natural's physical and linancial dgrivative position would rosutt in an asset of $9,4 million 8nd a liability ol$1.9 million .s of
Decomber 31, 2019, and an ess6t of $3,6 million and e liability of $9.3 million as of Decamber 31, 201E,
NW Natural is expos€d to derivatlve credit and liquidity dsk prlmarily through securing fixed prics natural gas oommodity swaps with fin.ncial counterparties. NW
Naturel utlizes mast6r nettlng arangemenls through lntemational Swaps and D€rivativ6 Association contracts to mlnlmizo this risk alo.E witfi collsteral support
agrogmerts with counlorparties based on their credit ratings. ln certain ca6es, NW Nalural rGquhes guarantees or lottors ofcredil lrom counl€rparlles to msol its
minimum credit requirement standads.
NW Natural's finanoial dorivativeE pollcl roquires counterpartios to hav€ an invostment-grado cr6dit .ating at the time tho de.ivative instrument is onlered into.
and sp6cifi6s limits on th6 contract amounl and duration ba6ed on 6ach countarparty's cr6dil rating. NW Natural do€s not sp€culato with dorivativ€s. Derivatives
ar6 used to hedg6 exposur€ above risk toleranco limits. lncroases in market risk creat€d by ths uao o, dsdvatives is offsel by lho oxposureE th€y modify.
Ws acllvsly monitor NW Nalural's derivative crcdit exposure and pl6ce countarparties on hold for lrading purPosgs or requlrs othsr forms of credit assuran@,
such aa letters of cr€dit, cssh collatoral, orguaranloos as circumstanc€s waraant. Tho ongping sssessmenl of countorparty credil isk includes conslderation of
crGdit ratings, credit defauh swap sproads, bond market cr€dit 6preads, fnanci.l condilion, govemmont actions, and markel news. A Monte Carlo simulation
mod€l is usod to 6stlmat6 the change in credit and lhuidity risk f.om the volatility of nstural gas pric€s. The results of the model are used to establish kading
limit's. NW Natural's outstanding financlal dorivatives at Deo€mber 31, 2019 matuG by Octobor 3l, 2022-
We could becomo materially exposed to qedit risk wlth ono or more of our count€rparties if natu.al gas p r€s 6xpodenco a signmcant increase. lI a counterparty
were to become insolvent or tail to p€rform on its obligations, we could sutrer a mat6rlal loss: howEvor, Yr/6 would expeot such a loss to b€ ellglble for.6gulatory
d6f6nal and rata recovery, $ubjoct to a prudence review. All of our oxisling muntorpartios cur€nuy havo investment-grado crodlt ratings.
Falr Vsluo
in accordanc€ with fair value accounting, NW nahrral lncludes non-performance isk in calculating fair value adjustmsnts- This includes I credit risk adjwtment
based on the credit spresds ol NW Natural c.unterpartiB when in an unrealized galn posltlon, or on NW Natutal's own credit spread when it is ln an unroalizod
loss position. The inputs in our valuation models includ€ natural gas lutures, volatillty, cEdit default swap spreads, and interesl ratos- Additionally, the
assessmenl of non-performance risk is generelly derived from the credil default swap markot and from bond ma*et crsdit sproads. The impact of the crsdit risk
adjustmonls for atl outstanding derivatjves was immat€rial to the lair value caldrlation at Oecomber 31, 2019. As of Doc€mber 31, 2019 and 201E, the net lah
valuo was an ass6t of$7.5 million and a liability of $5.7 million, resp€ctively, using
124
EXHIBIT 2
PALFREYfuIAN, OI
FALLS WATER CO., INC,
Page 133 of 229
stlnmcant othsr obssrvablo, or Levol 2, inputs- No Lgvol 3 inputs woro usod ln our derivatiw valuations, and there wsre no transfqs botwoon Lev6l 1 or L6vel 2
dudng th6 yeara ended December 3'1, 20't9 and 2018.
Table of Contenls
17. CONM'fiNEI{TS AND CONNNGENCIES
Gts Purchr3r aod Plpolln! Caprcltv Purchllc and Roluso Commltnents
NW Natural has sign€d agrcEmonls providing lot the r6sorvalion of frrm pip€lins capacity undsr which it is required to mako fix6d monlhly paymsnts for
conlractsd capacity. Tho pricing compooont of tho monthly paymont ls ostablishod, subj6ct tg changg, by U.S. or Canadian rsgulatory bodi€s, or b 68tablish6d
dir.ctly with privalo caunterparlias, Bs appltuxble. ln addilion, NW Natur€l has entsred inlo long.tom agreemcnts to rsloaso lirm pip€lino capacjty. NW Natural
al8o antsrs into short t6rm and long-term gas purchase agrogmontE.
The agglEg6te amounts of th6ss aor66m€nts were as lgllows at December 31, 20191
,, lrrorrsrrds
Gas
Purchase Agreemonts
Pip€line
Capacity
Purdlasa
Agrogmonts
Plp€llne
Capacrty
Rel€aE€ Agreements
xtm
2021
x2
2023
2Ur1
Th6rEeltEr
Tod
Lo!6: Amount rep.esenting intorest
Totd d prEanl val0o
s 86,175 t
2,899
76,897 $
70,638
68,043
68,553
67,052
527,14a
1,N1
3,S04
3,goa
3,904
3,9(x
23,070
$88,5S3 $731,528 S u,Bo
Totral ltxed cfiaE€s lnder capacity purdlase agresments welE 682.2 millioo tor 2019, $82.6 million lor 2018, and $85.3 million ,or 2017, of rvhich $4.3 million,
14.3 million, and $4.5 million, respectiv€ly, rslated to capacity releases, In addition, per-unit charges ere .equir€d to bo pald basgd on the actual qusntlliBs
GhlPpod und6r the sg.Bsmenls. ln cartain tako-or-pay purchase commltmenb, 6nnu6l d€fcioncie8 msy be offsst by prBpaynsnts subiscl to recov€ry over a
lorE6r term ll fuluro pu.cha8es €xceed the minimum annual rBquiremonts.
Lleaa8
Rsler to Not6 7 fora dlscusslon ot l6aso commitment6 and contingencies
Envlronm.nt lll.ltar.
R€f€r to Not6 l8 tor a dBqrssaon otenvironmental commilmenls and conlingonclos.
1 8. E}JVIRONHENI AL NAT| ERS
NW Nalural owns, or previously owned, properties lhat may require environmental remediation or action. The range of loss for environmental liabilities is
estimated basod on cu(ent remediation technology, enacled laws and regulations, industry experience gained at similar sites, and an assessment of theprobable level of involvement and financial condition of other potenlially responsible parties (PRPS). When amounts are prudently expended related to site
remedialion of lhose siles described herein, NW Natural has recovery mochanisms in place to collect 96.68% of remediatiofl co€ts allocable to Orogon
custom6rs and 3.32% oI co6ts allocable to Wsshingtoo customers.
Those sites are subject to the remediation process prescdbed by the Envircnm€ntal Protection Agency (EPA) and the Oregon Department of Environmental
Ouality (ODEO). Tho process begins wilh a remedial investigation (Rl) to determine the natur€ and extsnt of conlaminatiofi and then a risk assessmenl (RA) to
sstablish whether lhe contamination at the sitG poses unacceptabl€ risks to humans and the environmenl. Next, a feasibility study (FS) or an engineering
evaluation/cost analysis (EE/CA) evalustes various remedial altematives. lt is at this point in the process when NW Natt ral is able lo estimale a range of
remediation costs and record a reasonable potehtial r€mediation liability, or make an adjustment to the existing liaNlity. From this study, the regulatory agency
selects a remedy and issues a Record of Decision (ROD). After a ROD is issued, NW Natural would seek to negotiate a consent decree or conser( judgment for
designing and implementing the remedy. NW NalLrral would have the ability to further rellne estimates of remediation liabilities at that time.
125
89,074
48.1
879211
147,613 840
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 134 ol 229
TabJ€ of Cont€nts
Remedialion may include treatment of contaminated hedia such as sediment, soll and groundwater, r€moval and disposal of media, institutional controls such
as legal restrictions on fufure property use, or natural recovery. Following construction ofthe remedy, the EPA 6nd ODEQ also have requirements lor ongoing
maintenance, moniloring and other posl{em€diation care that may continue for hany yeaE. Where appropriate and reasonably known, NW Naturalwill provide
for these costs in the remediation liabilities described below
Due to the numerous un@rtainlies surrounding the course of environmental remediation and the preliminary nature of several site investigations, an some cases,
NW Natural may not be able to reasonably estmate the high end of the range of possible loss. ln those cases. the nature of lhe possible loss has been
disclos€d, as has the fact that the high ond of the range cannot be reasonably estimated where a range of potential loss is available. Unle6s thore is an estimate
within the range ot possible losses that is riore likely than other cost estimates within that range, NW Natural records tho liabllity at the low end of this range. lt is
likely changes in lhese estimat6s and Gnges will occur throughoLrt lhe r€m€dialion procass for €ach of these sites due to the continuod evaluation and
clariticalion conceming r€sponsibility, the cornplexity of onvironmental laws and rcgulalions and th6 determination by regulgtors ot rem€diation alt€mativos. ln
addition to remediation costs, NW Natural could also be subiect to Natural Resource Damagos (NRD) claims. NW Natural wall assoss th6 likelihood and
probability of each claim and recognize a liability if deemsd appropriate. Refer tg 'Olher Poftland Harbo,' belol .
Envlronmental Slto3
Th6 bllov/ing table summadzGs informatioa regading llabillfeS relatsd to onvircnmentd sit6s, wtrich a.e recorded in olher cunonl liabilities and othsr noncuroni
liabiliti€s in NW Natural's balanc€ sheet at D6combar 3l:
Cunent Liabilities NonCurrant Llabilltl6s
ln thousands 2019 2014 2019 2018
Podl$d H.ftor rlb:
Gasodslltronlo Sediments
Othar Porthnd Hsrbor
Gasco/Slltronic Upland sita
C€rr8l S€Ivlcr C6nbr 8tl6
F.ont Str66t slte
Ollgon Stlrl Mllls
Total
$1't,632 $
2,513
14,203
5,1't7 $
2,600
13,983
10
11i02
46,082 $
6820
43,616
44,351
6,213
44,830
10,847
170 't 7s
$ 39,225 $ 33,112 S s6.7s7 $ 95,636
pORTLAND HARBOR SITE. Th6 Portland Harbor is an EPA llstod Supsrfirnd sit6 that is approximately 10 milos long on the Willamette Riv€r and ls adiacent to
NW Naturafs casco uptends sito. NW Natural ls ons of ovor ona hundrod PRPS to lhe Suporfund sitg. ln JBnuary 2017, the EPA issuod hs Record of Docision,
which sel€cts the remedy for $e clean-up of lh6 Portland Ha.bor Eite (Por{and Ha6ot ROD). Tho Portland Harb$ ROD estimates tho p,esgnt valuo total co6t at
app.oximat€ly $,l.05 tillion wlth an ac.umcy beiwsen -30olo and +50% of acalal cGsts.
NW Natural's potential liability is a portion ofthe costs of the .emedy for th€ enlire Portland Harbor Superfund site. The cost o, thal remedy b exp€ct€d to be
alloceted emong mor€ lhan on6 hundrsd PRPS. NW Natural ls perlicipating in a non-binding allocation procass with lhe oth€r PRPE ln an effort to .osolve its
potentisl liability. The Portsnd Harbo. ROD do6s not provido any additional olarincaton a.ound allocatloo of co6ts among PRPS; accordingly, NW Natural hEs
not moditied any of the record€d llebilities 8t his time as a result of th€ l88uanc6 ol tho Portland Harbor ROD.
NW Natural manages its liability relat6d to th6 Superfund sit6 as two distinct remsdiatign prgj6ctr, tho Ga6co/Siltronic Sodim6nts and Other Poruand Ha.bor
Projects.
G..corslbonb S.dtrrnt . ln 2009, NW Natural and Siltronic Corporalion enterod into a soparato Administrative Order on Consent with the EPA to evaluato and
design specific r6medi6s for sodiments adjacent to the Gasco uplands and Silfonic uplands sites. NW Natural submitted a draft EE/CA to the EPA in N4ay 2012
to provide the estimated cost of potential remedial alternatives for this site. ln February 2020, NW Natural and the EPA roachod an agr66ment to amend the
Adminigtrative Ord€r on funssnt to includo additional remedial design activitie6 for s€dimont invqstigation costs adiacent to tre Gasco uPlands. At this tim6, the
eslimated costs for the various sediment remedy alternatives in the drafr EEICA for the additional shrdies and design work needed before the cleanup can occur,
and for regulatory oversight throughout the cleanup range from $57.7 milllon to $350 million. NW Nat(ral hss rocordod a li6tility of $57.7 million for the sediment
clean-up, which rofrects the low end of the range. At this time, we betleve sedimonts at thls sit6 reprBent the larg$t portion of NW Nalural's llabllily rolated to
th€ Portland Hador site discussed 6bove.
126
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 'l35 of 229
Table of Conlents
Olher Porthnd Herbor. While we believe liabilities associatod with the Gasco/Siltronic sediments site represent NW Natural's largest €xposure, there aro oth6rpotential exposures associated wilh the Po(and Harbor ROD, including NRO costs and harborwide remedial design and cloanup costs (including downstreampetroleum contamination), forwhich allocations among the PRPS have not yet been determined.
NW Natural and other parties have slgn€d a cooperative agreemenl wilh the Portland Harbor Natural Resource Trustee council to parlicipate in a phased NRD
assessment to estimale liabilities to support an eady rcstoration-based setdement of NRD claims. One member of this T,ustee council, the Yakama Nation,
withdrew from the council in 2009, and in 2017, filed suit against NW Natural and 29 olher parties seeking remedial costs and NRD assessment costs
associated with the Portand Harbor sit6, set forth in the complaint. The complaint seeks recovery ofalleged costs totaling $0-3 miuon in connection with the
selection of a remedial aotion for the Portland Harbor site as w€ll as doctaratory judgment for unspecified future remedial action costs and for cosls lo assess th6
injury, loss or destruction of natura! resources resulting lrom the release of hazardous substances at and from the Portland Harbor site. The Yakama Nation has
filed two amended complaints addressing certain pleading defects and dismissing the State of Oregon. On the motion of NW Natural and certain other
d€fendants the federal courl has stayed the case pending the outcome of the non-binding allocation proceeding discussed above. NW Natural has recordod a
liability for NRD clalms which is at the low end ofthe rsnge ot the potential liabililyi the high end ofthe range cannot be reasonably estimated at this time. The
NRD liability is not included in the aforementioned range of costs provided in the Portland Harbor ROD.
GASCO UPLAI{DS SITE. A predec€ssor ol NW Natural, Portland Gas and Coke Company, owned a former gas manufacturing plant that was closed in 1958
(Gasco site) and is adjacent to the Portland Harbor site descdbed above. The Gasco site has been under investigation by NW Naturalfor envlronmental
contamihalion under lhe OOEQ Voluntary Cleanup Program (VCP). lt is not includ€d in the range of remedial cosls for the Portland Harbor site noled
€bove. The Gasco site is managed in two parts, the uplands portion and the groundwater source control action.
NW Natural sobmilt€d a .evised Remedial lnvestigalion Report for the uplands to ODEO in May 2007. ln lllarch 2015, OOEQ approved Remedial Assessment
(RA) for this site, enabling commencemenl of work on the FS in 2016. NW Natural has recognized a liability for the remediation of the uplands portion of the site
which is at the low end of the range of potential liability: the high end of th€ range cannol be reasonably eslimaled at this time.
ln October 2016, ODEO and NW Natural agreed to amend their VCP agrcement to inoorporate a portion o, the Siltronic p.operty adjacent to the Gasco site
formedy ownod by Portland Gas & Coke between 1939 and 1960 into the Gasco RA and FS, excluding lhe uplands for Sillronic, Previously, NW Natural was
conducting an investigalion of manufacturod gas planl constituents on the entire Siltronic uplands for ODEQ. Siltronic wlll be working with ODEQ directy onehvironmental impacls to the remainder of its property.
ln September 2013, NW Nalural completed construclion of a groundwater source control system, including a water troafnent station, al the Gasco site. NW
Nalural has estimated the cost associated with the ongoing operation of the system and has re@gnized a liability which is at the lo\r,/ end of the range of pot€ntial
cost. NW Natural cannot eslimat€ the high end of the range at this time due to the unce alnty associated with th€ duration ot running the water trealmenl
station, which is highly dependent on the remody d€termined for both th€ upland porlion as well as the final remedy for Gasco sedim€nt expo6ur6.
OTHER SITES. ln addition to those sites above, NW Natural has €nvironmental exposurea at three other sjtes: Central Service Cent6r, Front Str€€t and Oregon
St€sl Mills. NW Natural may hav€ exposurc €t other sites that have not been identifod at this tlme. Due to the uncerlainty of the design of remediation,
regulalion, timing of the remediation and in the case of the Oregon Steel Mills site, pending litigation, liabilities for each of those sites have been recognized at
lheir respective low end of lhe range of potential liability;the high end ofthe renge could nol be reasonably estimated at this time.
C.ntId S!.vlc. C.Dl.r.lt . The investigative phase to characterize the exisling site has been completed and determined by the Oregon Depaftmont of
Environmental Ouality (DEQ) to b€ sufficient to allow for the issuance of a Conditlonal No Further Action (CNFA). The Company is now conducting ongoing
env:ronmenlal monitoring activities over the next 5 y€ars in order lo rneet the conditions which were included within the cNFA.
Fronl8t,t l.lt . The Front Streel site was th€ {ormer location o, a gas manufacturing plant NW Natural operatgd (the formgr Portland Gas Manufacturing site, or
PGM)- At ODEQ's request, NW Natural conducted a sedimont and source conkol investigation and provided findings lo ODEO. ln Dec€mbor 2015, an FS oh theformer Portland Gas Manufacluring sit€ was completed.
ln July 2017, ODEO issued tho PGM ROD. Tho ROD specifies the selected rGmedy, which requires a combinalion ofdredging, capping, trcatment, and natural
recovery. lh addition, the selected remedy also roquh€s instilutional controls and long-term inspeclion and maintenance- NW Natural revised the liability in the
second quaner of 2017 to incorpor€te the estimaled undiscounted cost of approximately $10,5 million for the s€leoted r6m6dy. Further, NW N8tural has
recognized an additional llsblllty of $0.3 million for additional studies and design costs as well as regulatory oversight lhroughout the cleanup. NW Natural plans
to construct the remedy in 2020.
127
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page136 of 229
Table of Contents
Or.lon St .l Llllr rlt , Rater to the 'Logal Proc€6dhgs,' below.
@
NW Natral has authorizations in Oregon and Washington to d€for costs rslated to remediatiofl of propErtio6 that aro oxn€d o. were pr.viously owned by NW
Natural. ln Or6gon, a Site Remsdiation and Rocovory Me.hanism (SRRM) is cun6ntly in plac€ to iocovor prudBntly incunod costs allocablo to Oregon
customers, sutiect to an esmings tgst. On October 21, 2019 the WUTC aulhoriz€d an Environmoatsl Cost Rscovory Mechanisft (ECRM) for re@vory of
prud€ntly lncured costs allocablo to Wsshington cu6tomoE bsginning Novombsr 1, 2019.
The ,ollowing table presenls information regarding the total r€gulstory a$ats daiarlsd as of Decembor 31:
,r, Oo{rsands 2019 2014
O.farrrd cct3 arld lnbi€s{r,
Accrued slte liabilities('?)
$36,673 $
135,662
(r9,049)
41,883
128,369
(88,502)InruIrllca Dr@od8 end lr alael
Total regulatory asset def6nal(i) $ 92,386 $ 81,750
G.nrlnt Eluhtory lsrabo) 4,76i1 5'601
Loflg-teim rogulatory assots(3) 87,624 76'149
rr) lncludes pB{evi,ew and post-review def€n€d costs, anFunts cutlonlly ln amorlizslion, snd interest, net of emounts collsclod frm cuslomols. ln Oregon, NW Nalurql
oams a carrying charyo on ca6h emounts paij, tyhersas smounts accruod bul not yet p6id do mt aam a carryln! charg6 until gxp€ndsd- NW Natuml alEo accru€s a
crrrying cft6rg6 on inauranco procaads for smounts ow€d to c Etomsr!. ln Washlngton, n6lthor th€ oalh paid no. hsl,ancs proc€6d3 accn o e aarrying chaq6.Er Exdudos 3.32% ot tho Front Stre€t site liatility, or $0.,1 mlllion h 2019 8rd io.,l milion in 2018, as ths OPt C only allo s romv€ry of 96.686d ot cosE for thoso sit?s
allocabls to Olggon, lncluding tho6e that hbtorlcally sgryed only Or€gon custolrlols.lr) Arnounts indudfo h thls €stimate erB sull aubjacl to s prudenc€ Bvi6w by th6 OPUC snd Wt TC, end oamlngs test rovi6w by lh€ OPUC. Amount6 do nol irclud6 the 05.0
mlllion tarlfl dder. Ses 'O,l'gro,, SRRAf, bolow.
Orogon SRR
cOLLECTtoNs FRo OREGoN CUSTOT{ERS. Under th6 SRRM colloction proosss lhere are oree typ6s of defonrd anvironmontal rsmediation expens€:. pre.review - This clasa of oogls repr666nts remediation spend tiat ha6 not yot b66n d66mod prudent by the OPUC. Carrying costs on thes€ t€m€dlalion
oxplgnsos are recorded at NW Natursl'8 authorized cost ol capital. NW Natural anticipates the prudence review for annual costs and approval ot the eamings
iosl prescdbed by the OPUC to occur by thg thlrd quarter ol the tollowing year.
' Post-review - This class of costs rspros€nts remodiation spend that has been deomod prudont and allowed atter apptying the eamings le6t, but is not yot
includsd In amortlzation. NW Natural eams a carrylng cost on lhese amounts at a ratB oqual to the five-year hsa6ury rat6 plus 100 basis points.. Amortization - This dass of cosb rep.e8€nts emounts induM in cunent customer rate6 for colleclion and ls gqnarally calculated as one-fifih gf th€ pos!
reviev, dsfened balance. NW Naturaleams a carrying cost equalto tha amo.tlzatlon rate det6.minod annually by ths OPUC, which approximatos a shod-term
borrowlng rato.
ln addition to the coltection amount noted above, an order isru€d by th€ OPUC providss for the annual collection of$5.0 million from Orsgon custome6 thrcugh
I traritr ridsr. As NW Natural collocts amounts hom cu$tom6.s, it r6cogniz6 thess oollections as revenu€ and soparatoly amorlizes an €quEl and ofsetting
amount of its delenod rogulatory ass€t balance through the €nvironmental rqmediation oporallng expense lino shown B€palatsly in the opo.ating exp€ns€
5€ction ol the income gtatement.
NW Natural roceived total onvironmental lnsurance proc€ods ot approximately $150 million a6 a Bsult of sottlBm€nts from litigation that wa6 dlsmissod ln July
2014. Under a 2015 OPUC ord€r wtich established h9 SRRM, oh€-thlrd of th6 Orogon allocatod proceods were applied to c6t6 doforred through 2012 with the
romalning two-thlrds appllod to costs al a rate ot $5-0 million p6r year plus lnterost over the fgllowlng 20 ygar6. NW Natu.al accru€s intorost gn the Oregon
allocated insurancE proceeds ln the cuEtomor's favor at a rale equal tg thg fivs-year lr6asury rata plus '100 basis polnts. As of December 3'l, 2019, NW Natural
ha6 applied $76.2 million of insurance p,ocseds to Prudontly incunod rcm.diatlon costs allocat€d to Oregoo.
OREGOiI ENVIRONIIEI{TAL EARNIi{GS TEST, To the oxtent NW Natural oarn6 at or b6loll, ils authorizod R€tum on Equity (ROE), rom€dialion oxponsos and
interest in 6xc€6s ol th€ $5.0 million tarfi riJor and $5.0 million insu.ane prcc66ds ar6 recoverable through the SRRM. To tho oxtont tlw Natural oams moro
than its autho.izod ROE in a year, it is requlrod to covor environmental expgnses and lnloreat on exp€nses greator than the $10,0 million wilh tho86 6arnlngs
thot excaed its authorized ROE.
EXHIBIT 2
PALFREYI\,IAN. DI
FALLS WATER CO,, INC,
Page 137 of 229
Table of Contents
W..hlngton ECRM
WASHIHGTOT{ OEFERRAL. On October 21, 2019 th€ WUTC issued Bn order (WUTC Order) establlshing lhe ECRM which allows tor r6covery o, past debned
and fulur6 prudently incuned envircnmentsl remodistion costs allocable to Washington c{rslomeB through application of insurance proceeds and coll€dbm
trDm custom€rs. Envlronmontal r€medistion expense3 rolaling to sites lhal prBviou6ly s€ r6d both Or€gon and Washington cugtomers are allocated betw66n
Btates with Wsshington c-ustomers receiving 3.32% pGrc€nt ol th€ costs and insuIance proceeds.
As a result of tha WUTC Order, ln the fourlh quarte, o12019 approximatGly $3.0 million ol prudgntly lncunod co6ts defened ,rgm the inltial deterral authorization
ln Fsbruary 20,l1 hrough Novcmb€r 20i8 wero fully orfsat with insuranqe procssds, ln addition, approxlmatoly $'l -5 mllllon of dlsallourod d€f€r6d Gnvircnment l
rrtnadlatlon €xp6nse5 incunsd prio[ to tho dsferEl authorizaiion w6r6 chargod to onvironmental remediation expons€,
ln8urang€ prgqegds will bs fully applied to costs incurrod between Dgc€mb6r 2018 and June 2olg onca dsomad prud6nt in futu.€ rat6 proceoding8. ReMning
Inturance pmcaods will be smortiz€d ovsr a '10.5 year poriod anding Doc€mbor 31, 2029. On an annual b8sis, NW Natural will file for a prudanco determinalion
and a roquast to amortize costs to the extgnt thsl rsmediation gxpons€s exceed th6 insu.anco amortizstlon. Afr€r ln6urance proceeds Ere fully amortized, if in Ipar{cular year the rcquest to oolleot detened amounls Bxoeeds on6 p€rcent of Washington normalized rcvenues, then the excess will be collecled over thr6€
yaars vrith ht€rsst.
Lrdrl Procaldlnos
NW Holdings is not qrfiontly party to any direc,t claims or litigation, though in ths tuture it may b6 subject to claim6 and liti{lation arising in tho ordinary oqtrse of
bu6ln6s6.
NW N8tural is subjoct lo cLalms and litigatbn arising in the ordinary courso of businoss. Although tho f,nal outcom6 ot any of thgse legal proceedings oannot b€prsdict€d with certrainty, including th€ matter doscribed b€low, NW Natu.al and NW tloldirus do not Bxpsct that th6 ultimet€ disposltioh of any ot thece matt€rs
will have a materia! ofoct on finanqial clndition, results ot oporations, or cash flow6.
OREGON STEEL MILIS S[TE. ln 2004, NW Natural was sorved with a thlrd-party complaint by Orc Port of Portland (th€ Port) in a Multnomah County Circuit
Courl case, Oregon Steel Mills, lnc. v- Th6 Port of Poitland. The Port alleges thst in the t94os and lgsos p6t olsum wastes g6nerat6d by NW Natural,s
pred€668or, Pordand Gas & Coke Company, and 10 olhor thlrd-pa.ly d€r6ndant6, wsre dispoeed of in a wast6 oil dispooal facility operatod by th6 Unttod Statos
or Shswr T.anspo ation Compeny on propedy lhen g\irned by the Port and now owned by Ewaz Orogon Ste€l Mill6. The complgint 6eek9 oonlribution lor
urtspeclfled past rsmedial action co$ts incuned by th€ Port .ogardlng lhe torm$ wasle oil disposal lscility as w€ll as a declaratoryiudgmont allocetlng llablllty lo.
future rern6dial action costs. No date ha6 been set fgr trigl. ln August 2017. tha case r..a$ stayed pondlng th€ outcomo of the Portland Ha6or allocation process
or other rnsdiation. Although tho final outcome of Ihi€ procoedlng cannot be predicted with o€rtainty, NW Nalursl and NW Holdings do not exp€ct the ultimate
dlgposition of thk matt6. yi,lll have a material effecl on NW Natural's or NW Holdings' financlal condltion, rEsults ol operalions, or cash f,ows,
For additional informalbn rogarding other commitments snd contingencies, soe Noto l7-
1E. SCONNNUEDOPERATO,,S
NW Holdlnoa
on Jun€ 20, 2018, NWN Gas Stotage. then a wholly-owned subsldlary ot NW Natural, entered lnto a Purchase and sale A0re6msnt (the Agl66m6fiq that
ptovides for the salo by NWN Gas Slorage of allol the membership interests in Gill Ranch. Glll Ranch own6 a 75% interest in the natural gas storage facility
localad near FPsno, Caliromia known as th6 Glll Ranch Gas Storage Facility. Pgqmc Gas and El6ct ic Company (PG&E) owns the romainlng 25% lnt€resl in lheGill Ranch Gas Storago Fsclllty. Th€ CPUC regulates Gill Ranoh under a ma*elbased rat€ modol tvhich allgvyE for the price of storage servicas to be set by the
marketPlaca. Thg CPUC also .egulat€s the is$uanco of securities, syslem ot accouds, and rcgulatos int.astate sto.ag6 sorvlc66. Th6 sale of Gill Ranch wasappro\red by Ot€ CPUC in December 2019.
Tho Agro€ment p.ovides tor an initial cash purcfiaso prica of $25.0 million (subjest to a wgrking capitat adjustment), ptus potonflal additionat paymonts to NWN
Gas Storago of up to $26.5 mllllon ln the aggregat€ if Gill Ranch achievos cortain gconomlc porformanca bvsls for tho lir8t thrse tull gas storago y6ars (April I ol
one y6aj through Marctl 31 of the following year) occurrlng afrer thc cloGing and the rsmainirE poriion of ths ga6 storego yoar durlng shlch th6 closing occurs.
As e rosult ot th€ sbategic shit away lrom ths Calilomia gas etorage markel and the sbnmcsnce of Gill Ranch's fnancial resulb in 2017, we concluded that thependlng sale ol Gill Ranch qualih€d it as assets and liabllhios hold for sale and discontinuod oporatioos. As such, the assots and llabilltles arsoclated wittr Gill
Ranch have b€en clasolfied as discontinued opsrations assets and discontinued oporatioos liabilities, respestiv€ly, and, the results of Gill Ranch aro p.e6€nt€d,
n6t of tax, as discontinued op€rations soparately trcm the results of continuing opsrations lor all podods pr€Eenbd. The exponses induded in the results of
discontlnued op€rations are the direct operating Exp.nsas lncurred by Gill Ranch lhsl may be reasonably segr6gat6d from tho costs ot NW HoldingE' cgntinuing
operations.
129
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 138 of 229
I&b-d-C!o!os
Ih.bloftg 6|. Fr.l.l|n [p ca]Odne amunb ol thr ng( omfo t
ofcl R nch lid Nrs dm Ld r! dlaoodrud op.rdooa t a*dbldra dl $. co.|loldlbd b.bna. Cl.atl:
Nw Hol*lg.Df.c*ud OD.rdqt.
m$2016
Ara&
trrtNl.e6 ia5
plt|, ild qrtttratra rt,29r fi,0er
Lra rhit d tla -rd t'tE
Td dtcoillxrd oprdoll 3L - qnfit
aaa*trl 3 t5,rs I rlpGe
LUIri
Oti.a drrrt Lbm-tat lo7
Ot'ar norflu{ l$f,t-Itra$ l1,Tn
fl) Tll bhl r..6 r$ l-XL dGI Rdr r|. Glrdad aa arr|t r o,OE ..3l, 2Ol8 b...u..trrFci.bLlltdth.r-rqldb.qBLaldr[*t olryara.
Iha ftlonhg SL lluar r ha opanhg lt.ltla d6I R!!clr, riifldl }l,
hhbdcdu rlpoll.d rff*r ll. 9.. d.ag. ..grn nt, r b Pla.nhd n t d
b(ol Nwtloldll!8 oomoildriad !i! mnt ofoonpflll'l.nEhrc lfioomc:
XYt, Hd.*$ irloon&Il.d Oprdona
hllo.aal G-ddtrah tte 2016 8lt
R.Ytfx-I 6.s}1 t 1Sr9 I 7,1t5
Or.. olrmd llrhb]rrtot t,st 6111 1215
rn rm zdo!{a 430 ,1,525
1,,2$8
Ld liqtl d.conliro.d opserlrb*r! hqlx bx lBraAl
t6 fron dbcql|l ad A{rio.r., n t
o( bx t I t
LB fiom dLodrl .d A..dorr. pta*l.fr olcsflrsr d(
Irh|bd (0.r4 (0.0e) (il...r)o 2017 heorrr bx b.odr hcfdto +p.!tdrnbt, SIE nk! dt[ lridt 6qr
dra.n ctrrnadrh. TcJ . Th. TcrA Er qrrbd lr.cmb.f n,,o17 Jiradld h tl. fd...| b( r.t dflgho fuD 35* b2lta.
U.ur&lAr paft o( th. hddfre .onpdry ttotisntstur h Odb.r 2018, iaWN
E!.gy, NWtl G.! Smgc, G Rstd\ NNG Flnendal, l{wN W!i.., .ld
EXHIBIT 2
PAI.FREYI{AN, DI
FALLS WATER CO,, INC.
Pa6139of229
NW Holdings, which wer6 diroct and indirect subsidiados ol NW Natural prior
to the reorganization, are no longer subsidiarios of NW Natural. See Note 1
for additional information. A6 a result, NW Natural's financial 6tatem6nt6
reflect amounts related to these entities as discontinued operations for all
p6riod$ preEented. The expens€s included in lhe results of discontinued
opsrations are ths direct operating exp€nses incunod by the €ntiti€s that
may be reasonably segregated from the costs of NW Natural's continuing
opefations.
130
EXHIBIT 2
PALFREYI\,IAN, Dl
FALLS WATER CO,, INC.
Page 140 of 229
TEbl€ of Contents
Th6 hllo.vtng trrbb pr!!!r 8 Ol€ op€ts0ng rasuns pnor b tl. Mdlng cEnp€ny rsqgsntsslion etlBc{vs OcbDol 1, 2018 of }lwN ErFrgy, t{WN Gar StorEgE, GiX
Rrlrh, NNG Fh8rdrl, NWN Water, and NW Holdlngr, whldr wqo hHorlc.lly llport€d wthln th6 g!! rloalee lagmfit lnd olhor, ard h pr€!€ntBd n t of tlr olr
l{M.tJrrts consolidsbd stetdnaots ol comflhsnskq lncoms:
t{W N.tn l Dkoo hu.d Opa..dorE
hlrt,,'*h" *qt E, d,& tb 20i8 fr17
Rrvanuaa 3 3,016 0 7,360
Opaadori! rnd rnlhbhllca 4.151 7,123
Ordrdatoi dtd ar|orttsatbn 120 ,t.555
lmpalrm.rlt loeqEo 192.'l7E
LEr liqn di&odnucd ba oll lmdrato((2,3r5)(1s9,156)
l,.d.ltfir dl..odhr.d op..do.la, rEt od L*(r,723) 0 (r27,343)
(r) 2Ol?hcometa.baialtthdud6.pprqdnstdy$1Edllondr.xb.mfilro.ilh..n.t nt olth. TGJA. Th. fqrAu,ai rn d.d Oco.t$€r 22,2017.tld r.ait dhlh.
ftd..r| bx rltr drrEho trom 35% b 2'l%.
20, S.rta.$rn,Eln t,t
I
tr,lcrdL Acouhldon Com.Lt d
On Jaru$y 31 , 2020, NW{ Wat6r ot Washlngtfi, . wtrclly-ownod hdrld subsldlary ol tlw Holdlngs, cfilphird tho scqui8ftlon of $nc.dia Waior, I pafualaly-
ott,|Gd wabr udlty, eod Suncadla Environmsnttl, a weslowabr compsny (colbctlt tly i!furad to aE SurHdla). Ths scqulsltion vre8 madc lor p.dlmlmry c!8h
cooddllr!0oo ol ti8.9 mlllion, sub,rc-t b dosho adlultrrtlL. Smcadh b ba$d In Cb Elllrn, Washhg oo and srruas approxhatrly 2,8m cdtEc{oru' A ll.0
mllllxr lottar of c|ldt outltending at tlw HoldkEB ar d Dac.mbor 3t , 2019 ,a puryoac! of bc{lttthg thc lcquisition w.. .xtingubhld upon $o doco o, th€
hxEacdon,
Tho prBllmlnary alocatlq oa consld€]lthn b tle scsrlrd $s6tB snd *sumGd lrbllort b!!.d oo O|.i] liir vdso b mt yBt cqtplde as v€luaton pocaduE8
!|! prndlng. Wr lxpcd O|a purchEss ,lIho b b6 p mldly Clocrtd b !.oporty, pbnt rnd squlpmsnl snd goodlflfll. Acqulrlion cDot wrt! i.lslgninoanl end stlD
oQ€n8od a8 lnoun6d.
So€ Nots 2 and tlolo 15 br moI€ lnformatbn r6g6rdln0 businoss combhatlom.
t3t
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 'l41 of 229
Table ol Conlents
NORTHWEST NATURAL HOLDING COMPANY
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
NW Holdi.gs
Ouanor EModrl)
lh ,lou.ands, atcopt Ft shafr dala March 3l June 30 Septornber 30 D€c6llb€r 31
2ott
Op6raling revenuos
Nat l$coma (loas) frtrr oondruim op€a6ton6
Loss from dlsconlinu€d op€ratiohs, n€t of tEx
N.f hcom. (lo.3)
Avorago common ahErBE orrtElanding:
Brsh
0ihned
Eatnlng6 (lo8!) frolh cohtnuho opqrsllon! pgr lhra ot comnton stock
Basic
Dllutod
Los' from discontinued op€rations p€r sl€re of common stockl
Bd*:
Diluted
Eamlngo (1068) p6r Bh€rs of commm sbcti
Ba6ic
Dllubd
$285,3,18 t
,t3,418
{217)
123,433 $
2,051
(s56)
90,317 $
(r6,506)
(7ss)
217,271
34,348
(1,608)
I 13201 I 1,005 $(re,3ol) t 36,740
28,e06
2A,970
29,3,7
2S,394
30,429
30,425
30,44E
30,521
$1.50
1-50
!0.07 $
0.07
(0.61) $
(0.61)
1.26
'126
$(0.0r) t
(0.01)
(0.03) $
(0.03)
(0.02) $
(0.02)
(0.0s)
(0.0s)
$'1.4S
1-as
$0.04
0.04
$(0.63) $
(0.63)
1.21
120
20iE
Opersting r6v6nu6s
Nd lncomo (1036) frorn conliruing og€ralio.ts
Loss from discontinued operatons, nel of tax
263,635 $
12,011
(474),
124,567 $
(33s)
(659)
s1,239 $
(r1,144)
(650)
226,702
36,783
(e5s)
N.t lnco.yE (1065) I ,ri,537 t (Sg8) $ (t1,794) $ 35,824
Awrag€ common Bherss outstending:
B.dc 2a,75s 2E,791 zE,Bts 2B,Bst
olluted 28,803 28,791 28,8t5 28,940
EamlngE (1068) fiom continulno op6ratk ns por sh{€ of comDon stock:
Baslc 6 '1.46 g (0.01) $ (0.39) $ 1.A7
Ollut d 1.,t6 (0.01) (0.3s) 1.27
Loss lrom discontinuEd op€ralion6 p€r share of common stock:
B..lc t (0.02) S (0.02) $ (0.02) $ (0.03)
Dilu,ted (0.02) (0.02) (0.02) (0.03)
Eemim3 (los8) par rhdrs of common stoclc
Basic $ 1.44 $ (0.03) $ (0.41) $ 1.2{
Ollut d 1.,t4 (0.03) (0.41) 1.2411) Quarterly €arnlngs (loss) per shar€ sr€ based upon the average numberof common shares outstanding dudng 6ach quart€r. Varielbns in eamings belwe€n quart€rly
p€riods are due pimadly lo the seasonal nature ol our busin€Es.
132
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 142 ot 229
T.bb ot Conbnts
NORTHWEST NATURAL GAS COIIPAI{Y
OUARTERLY F]NANCIAL ]NFORMATION (UT.IAUD]TED)
t{l,Y t{ord
q-l. a.xLd
htia.en lhr al J'tl,D.cdt$..31
tlvrtl;
ItYflt6 2dr,Gls $t2a5a3 a s1p7 a ,l&
L{tr.i d.cont .d Sa.rd(l, rat oab.
t:lil
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., I}'IC.
Pagcl{3ow
I!!h-!flC!!&!s
SCHEDUTE l- CONOEM}ED FINANCIAL INFORII TKIN OF NORTHWEST NATURAI HOLDING COMPAI.IY
},l'p4r|*
NORTH}YEST NATURAL HOLDING COTPAiIY
CONDENSED STATEMEi'TS OF COMPREHENSI\G INCOME
(PAREtrlT COMPANY ONL})
Yaf xdad OtErt r
81, mtg
hro.edqr fFugh
D.crs.r 31, 20lE
Oga lng areara-:
TolI opf,rtr|g .Ellraa!z7a7 alt
Ean*lea frcm ht rahta.* h f,ItradLrl.t rrt ot tlx 6a,3:Ic 9G,{40
hlnalq.lla., nrt 71lt ai
htr. Er aS]|D o.lra[)(902)(6t
a'r obr b Cm&nr.d Fh.idC $fdn r j
13,1
EXHIBIT 2
PALFREYMA}I, DI
FALS WATER CO., INC.
P8oe 111o12,9
Teble of Contents
,r dro.rcarrds
NORTHWEST NATURAL HOLDING CO]IIPANY
CONDENSED BAI.ANCE SHEETS
(PAREI.{T COMPANY ONLY)
Ar ol DEc.mb6r 31 ,
2019 20 1E
Aa$ta:
Cull.nl ,srola:
R.c.lv.irLr trorn effll.t .1,950 2,706
Olhd r ranl lssaL 4,800 3,078
l{oo-culrfit aScata:
Othrl lnv6rlm6nti 6521
Oth61 mn-€urant aE!6t6
Total a8sob $
2'15
895,862 $
3t0
771,231
Llab[IbE rnd rquky:id;ffi i7ffiffieq,,fl1,S"i1_lEiljily,
Shod-t6rm dcbt $ 24,000 $ -
-rt111;11,r{ Siffiir
Payrttlco to afinatg8 3,6S7 9,166'ffi W&1,.ryir+f,i,;1.,+*1l8ffi '
lnbrsst acdusd
Total curEr{ llab ith.
o.f6nEd crrdlt snd ofr|. no.Fcutrrd lbtlll0o!:
20,173 9,356
i+-#.,i'6ff :.'i?ffi ffiE@.,Si:l4i$iffi,@
Total dlrrrcd clldt! and othor rbG{r,.r€ot llabllltrc 7
ffi lffi-.:,,,,,,*si'ii:16-ri.ffi-$--Gfillliaitiiii';'#':'<li@,ffi lE5.',
Commoo rtock 8'l'0,36i1 7N'72
L;ffiffitti;?'i'i#i1i::#ti.:in,4;e.:l:ri t i'a:i: 1ffi#Li'l$.sF;'" +!-i,HLr{$r*fu#iiffiJ,n idi;3 :
Totalequity 867,389 761'859
tr j;lffi tiffi#.Bffi?.*iiYrrh!.;i'irrJ+.1t't'.?:.'r-.:1,';,i{Atq:S:'ii+..4.ii Jf r'+:l
s.€ Notes to Cordsnrsd Fhancial Stablll€nb
135
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 145 ol 229
T*h d Cont nl!
hnoa-raa
NORTHWEST iIATURAL HOLDIIIIG COTPANY
GONDENSED STATEMET'ITB OF CASH FLOWS
(PARENT COMPANY ONLY)
Yrr f,rdd
Oacafib.r 31,
20r9
h0.fdqr !mr{h
O...lr5.r 31, 20t8
hnlhe ..0!r .x
1{.lh.ol'f,3 6r,73s 3 35,8S9
Equfy h.m*rg. oa rub.ldha., ,fl of b,(Ga,s28)G6,fte)
O&..l6G6
Roi,&1mt 8il6 (685)
Accourfr eryrbL (r,r77)9,304
Olhf,, nat (r.G)(.4)
lnJ.drg dY5.a
Catfr rr..d h ftrmthe aEd!, .a 05r,59r I 0,t01)
Ploaaada nom tbdr o9{boa dlrra.d 2,015
Chrlg. h dldl.bm! d.bt 24,000
Gadr dYlilfid Dqmal oo coirro0 6d((53.330)(r2,e2s)
Ofrar 21n (3gr)
hqt... (dr.ffi.) h cedr r|d str.quhdanL (s,8e2)4,Ot I
Cadr td c.rir Irl!,rl.li!, fid ot pilod t r!0 t 4,01I
Sa ohr b Coidlltrd Fh.Ircd $t*dr.rll
l3a
EXHIBIT 2
PALFREYIiIAI{, Dl
FALLS WATER CO., INC.
P6g6 1,16 of 229
Table of Contents
t. aAsrs oF PRESETTArro
NOTES TO CONDENSED FINANCIAL STATEMENTS
NW Hotdings is an 6n€Ey s€rvicss holdlng company that cqrductrB 6ubstantially sll of lts buslnoss operations through its subsidiaris, parliqrlady NW Natural-
Thss€ condonsgd financial statements and r€lated fogholes ha\ro b€rn propaBd in accordancc with Rul€ 12{4, Schedule I of R6guladon S-X- Thesa financial
statemonts, h whlch t{W HoHingJ subEidiari€s havo b€an included uEing [le equity mettpd, thould b6 r6ad h @njunclion with tho consolidatsd fnancial
statomontG and notas lhslEto ot NW Holdlngs indudod ln ltsm 8 ol this Fqm 1O(.
Eqllty samhgr of subsldiaries induding eamlngs lrom NW Natural vrere $64,3 million and $35.6 mlllioo fo,r tho ysars oid€d OEcember 3'1, 2019 and 2018,
Cash dMd€nds pakl io NW Holdlngs from wholly-orrned sub8idlarl€s were $88.4 mlllbn tor tle !€ar €nded December 31 , 20 1 9. No ca8h dtuldond6 u,era patu
llom sub8Hl6das to Nw Holdlngs in 2018.
Z DEBT
For infonmtion conceming NW Holdlngs' d6bt obligatbns, 863 Note g to th€ coo8olireiEd finanoial stEhmenb induded In ltom I of 0 8 lBport
137
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 147 ot 229
Table of Contents
NORTHWEST NATURAL HOLDING COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUitr{ A COLUl,ff{ B COtUltr{ C COLUMN D COLUMN E
Addlbor HuGdorB
Otifcd b cod lnd Chsf.d lo odt.rlcaq.ila
Rdrraa dadlcbd ln bahnca ahaat ftrn e$ati
tott
Bahn6 at Balarica at arld ol
N.a Ynlt}o{f
b Yfildr ol€y .Fply:ffi
sn$650$3E60$i-.ffi,{,lr:d-tf.-ffiffi;w956tAlogroa lor uicoLadbL @unb
Roarttl dadudad ln blhnca ahaat ftm aaraa
b *trk r lhcy .Dply:
NORTHWEST NATURAL GAS COMPANY
SCHEDULE II . VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
col.t ltt a COI-UMN B colultt{ c col( No COLUMN E
Addhlon OrducdorE
Bilancc at Cliargad b coab and Ch!.f€d b olrrr
eccdr1L
Bahma al ard of
20tt
t{.t hrtffi
Rrlorws dodu@d h balsnca sh€et itom as6.t6b *t ch tly.pdl,:ffi+;rtffi,ffiEffiffirdr;;iffi
Alorilric. for uEolca#bb alaofib I 058 t 678 a $06s I s7sreS.iffi'ffi i:,8$$""#:i;:-,ifu.t,fi:$#S*';.qiF,irri4;'ffi fffiSFi
Rctrry!| &dud.d ln b.li.. .h..t lhom B$t!
b i'ilch trv slt:
re1$,,;i.r,,s{l:i=_ffi,*..:S,ft;,%dit$,i{rrft,:+E_ff..+f,r;_riiBt'q:#*#ffiffiF-.ffr,i_i* ffifi
't 38
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Pag€ 148 of 229
Table of Contenls
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Nm6
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disobsure Controls and Procedur68
NW Holdings ar}d Nw N6tural managgment, undsr the supsrvision and with the psrticipstion sf the Chlet Exocuws Officer and chiof Financial Officer,
oompleled En evsluation of th6 effsclivanoss of the deslgn and opcrstlon o, dlscto6urg conlruh 8nd pioc€dures (as definsd in Rul96 I 3a-1 5(e) and 1 sd'l 5(e) ot
th€ Socurftle6 Exchsnge Ac{ of 1934, as am€ndsd (the Ex.hange Act)). Based upon this evaluation, trl6 Chlaf Exocutlve Ofiicer and Chisf Financial Officer oI
Bach rogisAant hav€ conchJded that, a8 of flo 6nd ol hg period covered by Oiis rcpod, dlsclo6urE conlrols end procedures weI€ effectlve to ensurc that
iniormalbn rsqui €d to ba dlsclosed by each such rEglstrant and lncludsd ln rsporh filed or submitt€d under the Exchangs Act i8 recordod, proc€ssed,
summarLgd, and r€po.t6d within the time periods specif€d in the SecuritiB and Exchange Commission (SEC) ru166 and forms and lhal such intormation is
accumulatod and communicated to managsment of each registrant, including the Chht Executlvo Ofllcer and Chief Financial Offioer, as apPropriat6 to allow
timely decisbns regarding r€qulrcd disclosure.
(b) Chaogas in lntemal ConbolOver Financial Reporting
NW Holdings and NW Natural management are lesponsiblo for establishing and maintaining sdequate i €mal conhol ov€r fnsncial roportiog, as such term is
definsd in the Exchang€ Act Rule 13a-15(0. Thsre have besn no changes in lntgmal control o\rgr financial rspofing that occunsd duling the quanor endsd
December 31, 2Ol9 that hav6 matEriatly afiec{ed, or are roasonably llkely to m.terially affEct, intsmal oontrol o\rer financial leportlng tor I'lW Holdings and ilw
N6turel.
The statom€nh contained ln Exhlbit 31.1, Exhibit 31.2, Exhlbft 31.3, and Exhibit 31.4 should be considered in tight ol, and read togotrEr with, the lnformation set
forth in lhis ltam 9(a).
ITEM 98. OTHER INFORMATION
Thls disdaEure i6 intended to 8a sry any obligation of gurs to prcvlde dlsclo6u.ss puIsuant to ltem 5.02 of Form 8-K. As previouSly dlsclosod, NW Netural has
sxecutod a doubl€-triggsr soverance agn66m6nt with 6ach narn€d executive offcer (NEO) tor changes o, control of cith6r NW Holdings or l'lw N8tutal (ClC
Agreements), On Febru dry 27 , 2020, t$ Boelds of Directors of l.IW Holding6 aod NW Natural amondod th636 aglE€mants to romove a provlsion lhat roducos
the tevel ol b€nelits provided und6r the CIC Agreements beglnnlng at ago 62 and comdot€ly sliminatBs bsnefrtB when the NEO6 reach age 65. Tho Form of CIC
Ag.6€m6nt approwd lo b6 onterod into wlth sa.h NEO is attachsd hsreto 8s Exhibit 10q
139
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO., INC,
Page 149 of 229
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The 'lnformation Conceming Nominees and Continuing Directo6' €nd 'Corporat€ Govemance' contain€d in l.lw Holdings' definitivo Proxy Statemont for lhe
2020 Annual Meeting of Shareholdors is hereby incoDoratsd by ief€rcnco.
EXECUTIVE OFFICER8
Aq.
Dec.31
at
,2019 Po6ition6 held during ls6t fve yosrslr)
David H. Anderson'
Frrnk H. Bui(hartsmey€f
Jahes R. Oowning
Sh€wn M. Filippi'
Klmbody A. Helting
Jon G, Huddlsstori
Ju8lln Patfreyman
Mollnda B. RogDrs
55
50
47
50
58
57
41
Chief Exocutlve Oflicer and Presid6nti2) (2016- ); Chiel Operating Otricer and Presidont (2015-2016);
Executive Vic€ Prosidonl and ChisfOperatlng Otrcor (2014-2015); Ex€cutivo Vice Presidenl
Operations and RogulEtion (?013-2014); Sonior Vice Pr8ident and Chiot Financisl Officer (20M-
2013).
Sooior Vlc6 Preridant and Chlsf Flnandal Oilc6r(2) (2017- ); Pr6sident €nd Chiet Executw Offic8r of
Rens\ ablos, Avangrid R6nawabl6s (20'l$2017I; Slnlor Vlc! ftrsldrnt ot Flnanca, lbord.ola
Rsn€wabl€s Holdir{8, lna (2012-2015).
Vic€ Presldent and Chief lntormation Offoer (2017- ); Chiel lnformation Ofilcer, WorleyParsons
(America's Oivision) {2016-2017); Exocutive Ssrvice D6llvery Manager for SAP, British Petroleum
(2011-2015).
Mco President, Chief Complianco Oficor and CorporatB Socretada (2016- ); Vlco PEsldont and
Corporate Socr6tary (2015-2016): S€nior Legal Counsel (20'11-2014); Assistant Corporato Socrotary
(201C2014).
Senior Vice President, Op6ratlons and Chigt Ma*€tinE Otlic6r (2018- ); Senior Vice President,
Communications and ChieI Markoting Offc.r (2018); Vice Pr6sid6nt, Cammunications and Chigf
Marketing Officer (20'l$2018); Chl6f Marketing & Communic€lions Otficer (2013-2014); Chief
Corporaie Communic€tions Omcer (201't-2013).
Mco Pr€sld6nt, Enginosrhg and Uulty Op€retions (2018- ); Sonhr Dlrrctor, Uullty Oprrstlons (2014-
20i8)i Diroctor, U tty Op€.atjon8 (201$2014); Plocass Oilgcior (2007-2013).
Vice Presidont, Strategy and Business Development (2017- );VicB Prosidenl, Business Devolopmont
(2016.20'17): Director, Powor, Enorgy and lnfrastructur€ Group, Lazard, Freres & Co. (200S-2016).
Vloo Prssldent, Chiof Hurrlan R.sourc.s and Olwrslty Offcrr (m1& ); Scnlor Dirocto. ol }fuman
R$ourc6E (2018); S6nio. Managor, Orcanizqtonal Efiscliveress and Tahnt Acquisilbn (20lS,mi 4;
Sonhr Aesodab, Point B (2014-2015)i Direc-tor, Exo.Utive Dovslopmont Csntor, \Mllomette
Univ€.Eity (201 1 -201 5).
Sonior Vlce Prosident, Regulalion and Gsneral Coufisel(3r(2016- ); Senior Vico President and
Gonoral Counsel (20'14-2016); Vice P.6sid6nt, Logal, Rlsk and Compliance (2013-2014); Deputy
G€n€ral Coun66l (20'10-2013); Chiof Governanoe Offcer and Corporato Secretary (2008-2014).
\rrcs President Gas Supply srd Utility Support Ssryicss (2019. ); PrBsident end Chlsl Exacutv€
Officar, NW Naturel Gas Storagc, LLC and Glll Rancfi Storag6, LLC (20,l1- ).
Vice Presidont, Publlc Affai6 (2019- ); Govemment and Cornmunity Afrai6 Director (2018-2019);
Stal€ Affai6 Msnager, Port of Portand (2015-2018); Business and Rail Relations Managsr, Port of
Portland (2007.2015).
Vrc6 Presldonl ChlEf Accounlng Ofic6r, Coobollor and TGs6ur6rG) (201 7- ); Chlsf Flnandal Offical
(lnterim), Treaeuler. Chlsf ABcounting Oficor and Contrdlcr (201 S20t7): Chlof Accountlng Officer,
Controll€r and Arsl6lant Troasure. (2018); Contpllsr (2013-2015); Acting Contrcllor (ml3);
Accounting Dlrec{or (2012-201 3).
140
Mardilyn gaathofl
David A, Web€r
Kathryn M. Wlliams
&ody J. wllson'
63
60
44
40
EXHIBIT 2
PALFREYI'AN, DI
FALLS WATER CO,, INC,
Page 150 of 229
Table of Conlerts
orREcroR (NoR?HWEST HATURAL GAg COMFAT{Y OI(LN*
Nam€
Age 8l
Dec. 31,2019 Positions h€ld durino lasl fvo yoals(11
Executiy€ Vic6 Prs6ident, Moda, lnc., a pdvatgly-h€ld healthcare insurancB company (2012- ): Dk€clor, FLIR
Systoms, lnc. (1999- ): Dhector. JELD-WEN Holdlng lnc. (2012- ); Dkector, Pendleton Woolen Mills, lnc. (2013-
): Dlre6{or, Lone Rock Resources, lnc. (2016- ); Dlrector, Chiryd hc. (2013- );Truste€, Wilbmetle university
(1999- ); Trustee, Portland C€nter Stage (2012- ); Ex€cutiv€ Vic€ President, JELD-WEN, lnc. (2011-2012);
President and Chief Exed.rtive Officer, SBI lntematioMl, Ltd. (2004-?007); Partner, A16r Wynn€ LLP (2001-
2002; 2003-2004); Prosidenl snd Chief Execulive Offic€r, AdidEs (19s5-2o0o)
Mr. wynne'6 E€nior manegomenl €xp€d€noo with a varioty ofcompanies, board service on a number of public
and privats companios and lonostanding legal practico In th6 ar6as of corporate fnanca, socuritios and
meeers and acquisitions qualify him lo prDvide insightard guidanco in the ar6as of coTDraIe govemanc€,
strategic planning. enteDdse risk managenrenl, finance and operations.
' E,dliw OIU@i ol Norttwst N.lur.l tloldin! C..nPany.nd ldlhwlsl Natiral G.s ComFrry.
Mating ol Sharohold.E,(t) UnLs. olh. i.. .Fofied, all FiitEs hdd ai Nortt'w.3i Naturd Ges Cotparry.
{2) Porilion hdd !r Nontrllsl Natu..l Holdaig Cmp6ny (boginnnE a\irch 2018) 8nd Nonhw6l NatiEl G65 Cohpsny.
Slewn E. Wynno'*67
Eadl executivo officer sorves successivo annual t€m8; prcEent t€lms end at ths 2020 annual me€ting. Th€re aro no family relationships among our executive
offc€rs, directors or any person chossn lo become onB of our offoers or direcloIs, NW Holdings 8nd NW Natural have adopted € Code of Elhlcs (Code)
appliceblc to all employees, officers, and dirsctors thst is available on our website at WJl6aulllbgldi0g$J@. We intend to discloss on our wabsite at
www.nwnaturalholdinos.com any amendments to the Cod6 or walvors of lhe Code for ex6cutiv6 offcers and dkectors.
'141
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page '151 of 229
Table of Contents
ITEM 11. EXECUTIVE COMPENSATION
Th. intormafion c4nccrnlng 'Exgcutlvo Complnsauon', 'R6port of th6 Organlzatbn and Exoanlivo Co.np6n66 on Committ6€', and 'Comp€n6ation Comminoo
lntsrlocks ard lnsidor Participation" containod in NW Holdings' d6finhiv6 Proxy Stet m.nl for lho 2020 Annuel Moctlng of Sharcholdec ls hsreby lncorporatcd
by rofcronco. lniormatiofi .elat6d tq Executiv€ OffcerE as of Dgcember 31, 2019 i6 reflec{od in Part lll, ltem 10, abovs,
ITEM 12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEO STOCKHOLDER
MATTERS
Aa d Fob^tary 24,2020, NW Holding6 off!6d ,l00% of the oulctandlng commolr 6tock of NW Natural-
Thc follo,ring tablo s€ts forth lnrormation .ega.ding compensalion plons undor whiqh oquity securities ol NW Holdings ars authorized for Bsuance aB of
Decombor 31,2019 (s66 Not6 8 to th6 Consolldated Fhanclal Stat6m.nts):
(!)(b)(c)
NurDor ot socuritoa
remalnlng avallablc ior
fuhrlr is8uance und€r
6quhy oomporEsdon plans
(oxcluding 66curiliss
.cncclod in cdum (r))Plsn Cotagory
Numb€r of r€curitbi to b€
ksu€d upon oxorcigo o,
outitanding oplbrls,
werrentl 6nd dghls
Wolghtod-avorage .xorcls€
prioe of out$anding
option6, werrenlt end righti
Eqt y @rtfdEdoi pbrE pr.oysd by r.drrtty h.ld.El
Long ToIm lnconliw Plall (LTIP) (1x'?)
Rr.trbd SM( Opdoo Plri
Ernpbyeo Stook Purchaso Plan
EqdV GfiTrrdon Cdl. tlot.ppror/.d by r.d,tdv hold.re
ExocutlvB O€hn6d Cornp.n6slioo PI (EoCPIl)
Irh.cioE D.i.nrd Cdtp.rB.don Plln (DDCPlt )
Irofenod Compenaaton Plan br OiroclorE end Executiv66 (OCPI')
Iot l
r 76,S62
r0,s3E 3
20,992
115-67
58-95
5r0,931
1E5,568
1,026
,t 1,06,1
206,505
fi n/r
6?,$7 t06,1109
(r) Aveads may bo gr€ntod und€r tho LTIP as Porfomanco Shara Awards, Restdcied Stoa* Unib, or stod( optois. SharB lssued purso6r( to Porformanco Sharo Awards
and R.,stticlod Stock Unil6 undor lhe LTIP do not includ€ an oxercise pric€, but are payablo rylBn lhe award crll€ria 6ro !!&fgd. Th€ numb€r of sharos shown in column
(a) lncludg 79,733 Rostrlcl€d Stock Unlta end 97,229 Porformsnc€ Shsr6 Ayrerd6, r€llocllng th6 hufilb€r of share6 to b6 l6su€d e6 pBrtorm6nc6 Bh6tr aw6rds uhder
ou,tshrding Porfonnarrcs SlEr6 Awards it lr.get p€r{omanca l€v6b aro achlewd, It th€ maiimum awards rvar6 pall punuenl to tr6 Pciom6nc6 Sharo Awards
outabdino at Decan$et 31, 2019, th€ nurnber of 6h6r6s 6hown in column (o) would i rcroas€ by g7,2eg ghares, iefloclin! lho moximum lh€ro aword o1200% of ta.g€t,
and iho nun$gr of sharos 3hoivn in co[mn (c) woold d€creas€ by lh€ sanB emounl c,f shen6s. No Btock optiixis or oth6r typo6 ot 6wErd h6v€ b€an b6usd under ttl€ LTIP.('?r Tho nunbor of qhs'rs sho n in column (c) indudB shar$ lhat al6 avallable lor fulur6 lssuanca unda, tha LTIP as Raslrictad Stock Units, Parformsnca Shalr Awaads, or
3t0ck oplioi6 et Decomb€r 31 . 2019-
Btock accounls, guch a,@ounts w6ro cr€dltod wllh a numbBr of sharGs of tlw Nstural (now NW Holdings) common .tock b.s€d m th€ purchssa prlce ot lhe oomnrn abck
on tho ner.l pun lss6 dals und€r our Dlvuend Rolnvgatnonl and Ohecl Slocl PurclEsa Plan, and 6uch acaounls s,'oro crdlted wlth additloml shall6 based on tha
doatnad rclnvoslrn€nt of divid€nds. CBsh 6ccDunl6 are croditEd qusrbrly wi& interssl at s rat€ oqual b Moody's Awrag€ Coryorato Bond YioH plu3 tr /o p€rcgntago
pointr, lubi€cl lo a 6% mlnlmum rata. At lha ebction ol lh6 padicipant. def6n6d balancss in lho 6Iock acaounis .16 payaDle altar tom*ralbn oI Bo6rd 66rvb€ or
omployrn€nt h a lump sum, in imtallmgnls ovgr a period nol to excged 10 yeaas h th6 cas6 of tha DOCP, or 15 yasas h the casa o, tha EOCP, or ln a comlrnalion ol
llxnp aurn and insttlltn€nt6. Ariounts crodited io rtoc* accounls 6r€ p6yoble sol€ly in sharss of aommon atock and ca3h lor factional ahalr6, snd amounk in tho abovelrue rapresanl thG tggrogato number ol sl|ar€6 cr6dit6d to pErticipant'3 stoct accounls. We have coit ibutod aommm 3tock lo tho lrurtoe of tho Urnbrolh Trusts such
tlat the Umbrslla Trusts hold apprcxlmatev th6 numb6r ol shares ot common stock oqud lo lh€ numbsr o[ 6har6s cEdltod io ell pErtcipents' slock eccount6.(') Ell6div6 Jenu6ry 1 , 2005, tE EDCP and DDCP rrere dosed to new partidpants ond roplac€d wlth $6 oCP, Ih6 oCP contlnuoc th6 b6slc provl6ion6 of tho EOCP aM
OOCP under rvhlch dofor€d amounts ar6 cr€ditEd to oither 6 "ca6h Eccounf or s "slock actounl.' Slock accounls rgplls€nt a ruht to roceivo shrros o,l.lw Holdings
corntmn stock on a delon€d basls, and such accounts ale s€ditod wilh addilimsl shar€s bas€d on lhe d€gli€d r6inv6stnlenl ol divid€nd6. Elkiva January I . 2007,
cesh accDunts 610 crsdited quart€dy wilh intoEBt at a rats equal to Moody s Avoraga Corporat6 Bond Yi€ld. Our obligali6n to pay d6l€r€d codpensaton lh eccod6nc6
with tho tems of tha DCP will g6n6Blly b€come due on r€liremont, desth, or olhor t€minalion of 39lvico. and will bo paid in a lump 3um or in installrl€nts of fvo, '10, or ts
yoar! as €bclad by th€ parliclpanl ln acaodenc€ with lhe terms of th€ DCP. Amounts creditod io 6tock accounts aro paysblo sololy in Bharos of cdnmon sbck 6M cash
lor fraclional shar€s, and amounb ln tha above table lepres6nt lh6 agorcgato numbor ot shsr€s cr6dll6d to perticlpantE stock eccounts. W6 hsv6 conlributod comrmn
sloc* to th6 lrusl€€ of tho Supple{nental Trust sudr tfut this trust holds approximalely tha numbor ot common 6haEs equal lo ths number ol shrros crodlted to all
porticipants' stock accounts. Th6 dght of 6ech padicipant in th€ DCP is lhst of s genersl, unsecured creditor of NW Naturel.
142
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 152 o1229
Table of Contenls
Th6 infomatlon csptlon6d 'Benefcial Ownership ot Common Stock by Dlroc{ors 8nd Exocutive Oftlcers' end 'Se.u.ity Owmrship of Common Stock of Certain
Beneficial Ouners' containod in NW HoldlngE' dBtinitivo Prory Statement for the 2020 Annual Moetlng of Shareholders is inco.porated har6in by ref6r€nc6.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND OIRECTOR INDEPENDENCE
Ths Informalion ceptlonsd 'Transaclion$ with Relalad P6rEons' and 'Comoratg Go\r6manca'in NW Holdings' definitivB Pmry Statementforth€ 2020 Annual
Mooting of Shareholdors ls her€by lncorporaisd by r6for6nc6.
ITEM 14, PRINCIPAL ACCOUNTANT FEES AND SERVICES
U$Ilalit!.cr
The intormation captioned '2019 and 2018 Audit Firm Fee3' in NW Holdings' defnitive Proxy Statement fo. th€ 2020 Annual Meetlng ol Shareholders h hereby
incorporatad by reiorenc€.
NW Natural
Tho followlng table shor.rs the f66s and expens66 of NW Natuial, pak, or accrusd lor the Intsgteted audiG ol the consolidatod financial statoments and other
s6rvic6s provided by NW Natural's independont r6gister6d public accounting frrm, Pricewatsrhous€CoopoB LLP, for fsg€l yearE 2019 and 2018:
,, thousands 2019 201A
A,rdt Fo68
Ardil-RBlated Foos
Tlx Fo6s
All Other Fees
Toi.l
$1,222 $
31
D,
3
1,379
30
4
4
1,278 $'1,117
AUDIT FEES. This category includes tees and expensas for soruic€s rendored for th6 integratod audit of ths consolidat€d financial statement6 includ6d in the
Annual Report on Form 10-K and the Jeview oftho quarterly linancial staterfl€nts included in the Ouartedy Ropons on Fo.m 10{. Tho intogratod audit includos
tho revigw ofour lnt6mal contol ovd fnancial rsporting in complianc6 wlth S6c{on 404 of th€ Sarbanes-Oxley Act of 2002 (Sarban6soxley Aci). ln addition,
amounts includo foos fo. servicss routinely provided by th6 audilo. in connoclion with rogulatory filings, including lssuance of consents and comton btters
rolating to th6 r6gictralion of Company socuritiss and sssistance with the rqvigw gt docurnoots tilod with tho SEC.
AUDITfiELATED FEES. This category lnclude8 fs6s fo. assurance snd relaied servic€s that are reasonably related to the pertormance orthe 6udit or r€vlew of
our tlnancisl stat€ments and lntemal control ovor financial rsporling, includlng f6rs snd exp€nlos r€lEtod to consuhations for fnancial accounting and reporting,
ln addition to feos for EPA 66suEnce letters.
TAX FEES- This category includ6s foes for tax compliance, and review services rendered lor NW Netural's lncome lax rstums.
ALL OTHER FEES, This category relate$ to sorvicas othor lhan thoso doscrib€d abov€. Tho amount refectg paym6nts for accounting resoarch tools in 6ach of
2019 and 201E, and oducational s.minars in 2018.
PRE-APPROVAL POLTCY FOR AUDJT At{D NON.AUDIT SERVICES, The Audit Commitles of NW Nalural app.owd or ,atiri€d 100 psrc€nt of 2019 and 2018
sarvicos for audit, audit-rBlatsd, tax servicGs and all other rgeo, including audit seMc€s r€lating to compliancs lrith Section 4M of the Sarbanes4xley Act. The
ch6ir of tho Audit Committge of NW Natural i6 authorlzed to pre-approva non-audit s6rvic6s betwson meetings of tho Audit Committee and mu6t repon such
approvab at the n€xt Audit Committe6 moodng.
PART IV
ITEM ,15. EXHIBITS ANO FINANCIAL STATEMENT SCHEDULES
(a) The following documenG arc filed as pad of this r6port:
'1. A list of all Financial Statements and Supplgmontal Schedul6s is Incorporatod by refersnce to ltom 8.
2. LiEt of Exhibits fled
Refergnce is mado to the Exhlblt lnd€x commoncing on page 146
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 153 ol 229
i
143
Ietrle.d.gcdedE
]TEM 16. FORM 1GK SUMMARY
No.le.
144
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Pags 'l 54 of 229
'3b.
'4a.
Tab e of Contenls
NORTHWEST NATURAL HOLDING COMPANY
NORTHWEST NATURAL GAS COMPANY
Exhibit lndex to Annual Report on Form 10-K
For the Fiscal Year Ended December 31,2019
Exhlblt Numbcr Documont
'3a. Amended and Restated Articles of lncorooration of Northwest Natural Holdino Comoanv {incoroorated bv relerence to Exhibit 3.1 to lhe Form 8-K
dated October 1.2018. File No. 1-38681).
Amended and Restated Articles of lncomoration of Nodhwesl Naiural Gas Companv lincorpomted bv reference to Exhibit 3.3 to the Form 8-K
dated October'1.2018. File No. 1-15973).
Amended and Restated Bvlaws of Northwesl Natural Holdino Comoanv {incorporated bv reference to Exhibil 3.1 to the Form 8-K daled Mav 30.
20'19. File No. 1-38681).
Amended and Restated Bvlaws of Northwest Natural Gas Comoanv iincorporated bv reference to Exhibit 3.2 to the Form 8-K filed Mav 30. 2019.
File No. 1-15973).
Copy ot Mortgage and Dsed of Trust of Northwsst Natur.l Gas Company, datsd as ol July 1, 1948 (Mongage and D€€d ot Trust), to Banksrs TruEt
(to whom D€utscha Benk Trust Company Amo.icas 16 th€ succ€asor), Ttust€a (hcomoratod by rsforonco to Elhibit 7(i) ln Flle No. 26494); and
ooplos of Supplomentd lndentu.es Nos. I tlrcugh 14 to the trtortgsgB 8nd Dsed of Trust, dated re6pe€{ively, as oI June 1, 19,19, Ma.dr 1, 1914,
Aprll 1, 1956, Fobruary'1, 1359, July 1, 1961, January 1, 1964, Mardr 1, 1966, Docomba|1, 1969, Apdl l, tS71, January 1, 1975, Dscombsr't,
1975, July 1, 198'1, Juno 1, 1985 and November 1, 1985 (incorporated by rofolBnco to Exhibit 4(d) in Fll6 No, 33-1929); Supplenlontal lnd€nturo
No. 15 to the Mongage end D6€d of Trust, daled as of July 1, 1986 (fi16d a6 Exhibit,l(c) ln Fflo No. 3!24168): Supplomontal lndontures Nos. ,6.
17 and 18 to th6 Mortsge and D6ad ofTrust, datrd, rospac{vely, as of Novombor 1, '1988. Octobor 1, 1s89 and July t, 1gg0 (incorporated by
.oturenca to Exhiblt 4(c) h File No. 3H0482); Supplsmontal lndenturo No. 19 to the Mortgago 8nd Osed of Trust, deted es of JunB 1, '1991
(incorporatad by lofareno€ to Exhiblt 4(c) ln Flla No- 33S,t014)-
:t!.Suoolemental lndenture No. 20 to the l\rortoaoe and Deed of Trust. dated as of June 1. 1993 {incoroorated bv reference to Exhibil 4a.{'1) to Form
10-K for vear ended December 31. 1993, File No. 0-00994).
Suool€mental lndenture No. 21 lo the Mortoaoe and De€d of Trust. dated as of October 15. 2012 iincoroorated bv reference to Exhibit 4.'1 to Form
8-K dated October 26. 2012. File No. 1-15973).
'4d.Suoolemental lndenture No. 22 to the Mortoaoe and Deed of Trust. dated as oi November '1. 2016 (incorporated bv reference to Exhibit 4.1 to
Form 10-O for the ouarter ended Seotember 30. 20'16. File No. 1-'15973).
,4e,Supolemontal lndenture No. 23 to the Mortoaoe and Deed of Trust. dated as of Seotember 1. 2018 (incoroorated bv reference to Exhibit 4(a) lo
Form 8'K daled Seolember 10.2018, Frle No. 1-'15973).
Cgpy of lndenb.€, datEd as of Jun6 1 , 1 99'1 , betwgen Northwest Nstural Gas Cgmpany snd Bank€6 Trust Cornpany (to whom Deutsch Bank
Trust Company Americas is succ66sor), Tru6los, relatlng to Northwast Natural Gas Companys Unsedrrgd D€bt Securities (lncorporatEd by
rsforancs ro Exhlblt 4(e) in File No. 33-64014).
:4s Credit Aoreement- dated as of October 2. 2018. amono Northwest Natural Holdino Comoanv and the lenders oarlv thereto. with JPl\,roroan Chase
Bank. N A as adminislralive aoent and Bank ofAmerica. N.A.. U.S. Bank National Association. and Wells Faroo Bank. National Association. as
co-svndication aoents (incoroorated bv referonce to Exhibil 4.1 to Form 8-K dated October 3. 2018. Fale No. 1-3868'1).
3h.Credil Aoreem6nt. dated as of Oclober 2. 2018. amono Northwost Natural Gas Comoanv and the lenders oartv thereto. with JPMoroan Chase
Bank. N.A. as adminiskative aoent and Bank of America. N.A.. [J.S. Bank National Association. and Wells Farco Bank. National Association. as
co-svndication aoents lincoroorated bv reference to Exhibit 4.1 to Form 8-K dated Oclober 3. 2018. File No. 1-159731.
Credlt Aoreement. dated as of June 27. 2019. amono NW Nalural Water Comoanv. LLC. Northwest Natural Holdino Comoany. the lenders oartv
thereio. and Bank of Montreal. as administrative aoent {incoroorated bv reference lo Exhibil 4.1 to th€ Form 10-O for lhe ouarter ended June 30
2019. File No. '1-38681).
'41
'4i.
145
EXHIBIT 2
PALFREYI\4AN, DI
FALLS WATER CO., INC.
Page 155 of 229
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 156 of 229
Table of Conlenls
4L
:L9 Purchase and Sale AorGement dated June 20. 2018. betwesn NW Natural Gas Storaoe LLC and SENSA Holdinos LLC (incomorated bv rsference
to Exhibit 10 lo Form 10-O for the ouatt6r snded Juno 30. 2018. FIl6 No. 1-159731.
Letter aoreemsnt. dated D€c€mbs||0. 2019. bet^reen NW Natural Gas Storaqe. LLC and SENSA Holdinos LLC. am€ndino the Purchase and
Sale Aoreement dated June 20. 2018 {incomorated bv reference to Exhibit 10.1 to the Fonn 8-K dated Decembor 13. 20'19. File No. 1-38681 )-
Letter ao.€6mont dated FebruaN 25.2020- between NW Natural Gas Storaoe LLC and SENSA Holdinos LLC. amendlno lho Purchase and Sale
Aor6om6nt. dated Jun€ 28. 20i8. as amonded (incoroorated bv refsrcnce to Exhibit 10.1 to the Form 8-K dated March 2. 2020. File No. 1-386811.
Subsidiariss of Northwest Natuml Holdino Comoanv.
Consgnt of Pricewatorhousecoooers LLP - NW Holdinos.
Consent ol Pricewaterhousecoooers LLP - NW Natural
Certification of Princioal Erecutive Officer of Northwest Natural Gas Comoanv Pu6uant to Rule 13a-14ia)/15d-141a). Section 3{)2 of the Salbanes-
Oxlev Act of2002.
Certificalioo of Princioal Financial Officer oI Northwest Natural Gas Comoanv PuGuant to Rule 134-14(al/15d-14(al. Sectioh 302 of the Sarbanes-
Oxlov Act of2002.
Certification of Principal Executive Oftlcsr of Northwest Natural Holdino Comoanv Pursuant to Rule 'l3a-'14(a'y15d-141a). Section 302 of the
Sarbanes-oxlev Acl of 2002.
Certification of Princioal Financial Officer of Northw€st Natural Holdino Comoanv Pu.suant to Rul6 13a-14(aV15d-14(a)- Section 302 of the
Sarbanes-Oxlev Act of 2002.
C€rtification of Princioal Executive Officer and Princioal Financial Ofllc€I of Northw€st Natu.al Gas Companv Pursuant to Section 906 oftha
Sarbanos-Oxlsv Act of 2002.
Certification o, Princioal Ex€cutive Ofticer and Princioal Financial Officer of Northwost NaturalHoldino Companv Pursuant to Soction 906 ofth€
Sarbanes.oxlev Ac't oI 2002.
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'10.2
23a.
23b.
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u,2
31.3
3.14
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101.The follo$ng r|aterlals tormatt d ln lnllno E)OBn3lblo Buslnoss Ropordng Lar|guage (ln n€ XBRL):
(l) C solldabd Stalamcnb ot lncorn.;
(ii) Consolldatld Brhmo Sh€st8;
(lll) CorBolldabd Stat6rn€nb ot C88h Florvs; and
(iv) Relatod noiu8.
104.The cov.r pago trom the Company6 Anrual Roport on Form 10.K tor tho y6ar ondod Drcomb€r 31, 2019, lqmattod h lnline XBRL 8nd conlainod
in Exhiblt 1 01 .
Ex€cutve Comp€n8lton Plana end Anangemont8:
'10a.Executive Suoolem€ntal Retirement lncorne Plan. 201E Restatemont lincoroorated he,ein bv rererence to Exhibit 10.6 to the Form 8-K dated
Octobor '1 . 20'18. Fil6 No. 1-38681).
Suoplemental Executive Retirement Plan ol Northwest Natural Gas Companv. 2018 Restatement. as amended Julv 25. 2019 lincorporated bv
reference to Exhibit 10.1 to the Form 10-O for the ouarter ended June 30. 2019. File No. 1-159731.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 157 ol 229
.10b.
146
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page '|58 of 229
Table of Contenls
'10c.Northwost Natural Gas Comoanv Suoplemental Trust. offoctlve Januarv 1. 2005. restaled as of Oc'tober 1. 2018 (incoroorated bv ref€rence to
Exhibit 10.9 to tho Form 8-K datcd Octobsr 1. 2018. Fils No. 1-38681).
'10d.Northwest Natuml Gas Comoanv LJmbrella Tn st tor Directors. €flgctive JanuaN 1. 'l ggt - resteted as of Octotler 1. 2018 fincorDorated bv
reterence to Exhibit '10.11 to the Form 8-K dat€d Oc{obor 't. 20'18. File No. 1-38681)
'10€.Nofthwest Nstural Gas Co,mpanv umbrella Trust for Ex€culivos. offoctive Januarv l. 1988- restat€d as of Octob€r 1. 2018 llncorooEtsd bv
reterence to Exhlbit 't 0.'10 to the Form 8-Kdatod October 1.2018. File No 1-38681).
''t 0f.Restated Stock Ootion Plan. as amonded ofisctive Decombgl 14. 2006 fincotooratsd bv roferencs to Exhibit loc- to Form 10-K for 2006. File No.
1-15973).
'10,0. Form of Restat€d Stock Ootion Plan Aoieem8nt finclrpo.ated bv reference to Exhibit 10h. to Form 10-K tor 2009. File No. 1.'15973).
.10h.Executive D€fe.red ComoEns€tion Plan. eff€ctive as of Januarv 1. 1987. rcGlated as of October l. 20'18 (incomor6ted tw rsf€rEnco to Exhibit 10.4
to th6 Form 8-K dated October 1. 2018. Flle No. 1-386811.
',l0i.Direcrtors Defened Compensalion Plan. effective June 1. 1981. ,estated as ot October 1. 2018 (incomorated bv relerence to Exhibit 10.5 to lhe
Fonn 8-K dated Octob€r 1. 2018. File No. 1-3868'l l.
'10i.Defened Compensation Plan for Directors ahd Executivos. sffective Januarv '1. 2005. restated as of October 1. 2018 fincoaooraled bv refuren@ to
Erhibit 10.3 to the Form 8-K dated octob€f 1. 2018. File No. 1-38681).
ruh Form of lndsmnitv AoEemsnt as 6nt6rad into b6tween NorlhwBst Nalural Gas Comoanv and 6ach direator and certain oxecutive ofiicars
(incorporated bv roferenc6 to Exhiblt 101. to Form 1$'K for 2018. File No. 1-38881).
'10t.Fom of lndemnitv Aoae€m€rt as entorsd lnto b€twesn Nodhw€st Natural Holdino Comoanv snd each diroctoa and certain ex€cutive ottice6
lincoroorated bv refe.enc€ to Exhibit 10m. to Form 10-K for 2018. File No. 1-3868i)-
'10m.Non-Emplove€ Dlr€ctors Stock Comoonsation Plan. as amended €fsctiv€ Decemb€r 15. 2005 lincorporat€d bv reference to Exhibit 10.2 to Form
8.K dat€d D€c€mbor 16. 2005. Filo No. 1-15973).
.'10n. Ex6cutivo Annual lrrcantive Plan- ofioclive Januarv l. 2019 aincotporat€d bv referonca to Erhibit '10o. to Form 10-K tor 2018. File No. 1-159731
1Oo. Executive Annual lncenlive Plan. effeclivo Januarv 1 2020.
'10o.Form ol Chanoo in C,ontrol Sev€rance Aor€emenl between Norlhwest Nalural Ga6 Comoanv and each executive offcer. as amended and restatgd
as of Octobor 1. 2018 (incoroorated bv reforencs to Exhibit 10.2 to the Form 8-l( dated Octob€r 1. 2018. Fil€ No. 1-386811-
10o.Form of Chanoe in Control Soverance Aoreernent b€tween Northw€st Natural Gas Companv and 6ach gxecutivo officgr. as amonded and restated
as of March 1. 2020.
'10r.Northwest Natural Gas ComDanv Lono Term lncenlive Plan. €s amended and restated efiective Mav 24. 20'12 {incorporated bv reference to Exhibit
l0r to Form IGK for 2012. File No. 1-15973).
:10r.Northwest Natural Gas Comoanv Lono Tern lncsntive Plan. es amended and restated effective Mav 25. 2017 lincomorated bv referenco to Exhibil
'l0s to Form lGK for 20'!7. File No. 1-15973).
'10r.Northwesl Natu€l Holdino Comoanv Lono Torm lncentive Plan. as amonded and rostated as of Octobet 1- 2018 {incoroorated bv referonce to
Exhibit 10.1 to the Form 8-K dated October 1. 201 8. File No 1-38581 \-
Form of Lono Term lncentive Award Aoreoment under Lono Torm lncentive Plan 12017-2019) {incorporaled bv reforenco to Exhittit 10x- to Form
'10-K fo.2016. Fll6 No. 1-15973).
',|0u.
147
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page 159 of 229
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Pago 160 of229
Table of Contenls
'10v-Fonn of Poafomances Share Lono Term lncentivs Aoroemenl under Long Term lnc€ntiw Plan 12018-2020) (inmrporated bY rclerence to Exhibit
l0v. to Form 10-K for 2017- File No. 1-159731.
'10w.Form of Lono T6nn Inc€ntlve Award Aor€ement under Lono Tsrm locentlv€ Plan (2019-2021) lincoroorated bv referenco to Erhitit '102. to Form
1GK ior 2018- Filo tlo. t-34541).
l!X, Form of Lono T€lm lncenlive Award Aorgsment under Lono Term lncentive Plan {2020-2022).
39lr Fom of Consent dated Decsmb€r 14. 2006 enterod into bv.ach 6xeculive oficerwith rssooct to amondments to the Executive Suoolomsnlal
Retiremont lncomo Plan. the Suorigmental Execulive Reiimlnont Plan and cenain chanoe in @nhd s€veran€ aoreeh€nts (incoporated bv
'102.Consent to Amondmont oI Deferrad Como€nsation Plan for Dil€ctors and Executivos. dated Februarv 28. 2008 entered into bv each executive
of,icer lincorporatEd bv tef€r€nce to Exhibit 'lobb to Fom 10-K for m07. File No 1-15973I
19AA. Form of Restrict€d Stock lJnil Award Aoroement und€r Lono Torm lnc€ntlvo Plan (20201-
Form of Rest'icted Stock UnitAward Aoreemenl undor Lono T6rm lncanlive Plen 120t9) lincoroorated by r€forenc€ to Exhibit 10cc. to Form 10_K
for 2018. File No. l-38681).
Form of Rest ict€d Stock unit Award Aor€€ment under Lono Term lnc€ntive Plan (2018) lincorooratod bv reference to Efiibit 10bb. to Form 10-K
for 20i7 Flle No- l-159731.
Correctod Form of Rastrici€d StoEk unit Award Aoroement under Lono T6rm lncsnuv€ PIan (20'r7t (incorpo.atad bv refer€nc€ to Exhibit 10.'l to
Form 10-O ior the ouad.r onded March 31. 2017. Fil€ No- 1-15973).
Form of Reshicted Stock unit Award Aoreement under Lono Term lncentive Plan {2016) (incorporated bv ref€rEnco to Exhlbit 10bb. to Form lo-K
,or 2015. FilG No. 1-'15973).
Severanc€ Aotooment between Norlhwest Nalulal Gas Comoenv end an execu6ve offic€r. dated Auoust 1. 2016 lincorDorated by.€ferenco to
Form of Reshictsd Stock Unit Award Aor€oment betwe€n Northwest Natural Gas Comoanv and an executive olficar dated as of Julv 27. 2016
{incoEorated bv retorence lo Exhibit 10.1 to Form 10-O fo. the ouarte. ended June 30. 2016. Fil€ No. 1-15973).
:1oh!.Form ot SeveGnce Aoreement between Nodhwesl Natural Gas Comoanv and an executive oficer. d6ted Mav 17. 2017 (incorporated bv reference
toExhibit 10.1 to Form 8-K dated April24.2017. File No 1-15973).
'1oii.Form of Sp€cial Restricted Stock Unit Aoreement between Northwest Natural Gas Companv and an €xecutive ofricer. dated Mav 17. 2017
fincoroorated bv reforenco to Exhibit 1O.2 to Form 8-K dat€d Aoril 24- 2017. File No. 1_'159731.
''t0ii.Fom of Sogclal Retontion R6stdct6d Stock Unil Aor€ement between Northwest NatuEl Gas Comoanv and an exocutiv€ offi@r. datod Sootember
30. 2016 (incoroorated bv reference to Exhibit 10oo. to Form 10-K for 2017. File No. 1-15973I.
1A$.Cash Retention Aor€Gmont between Northwest Natural Gas Comoanv and an executive otficer. dated as of March 1. 2018 {incomoraled bv
referenco to Eihibit 10ss. to Form IGK for 2017. File No. 1-15973).
Lono Torm lncentive Plan for NW Natural cas Storaoe. LLC. as amend€d efiective Januarv 1. 20'16 (incoroorated bv raference to Exhibit looD. to
Form 10-K for 2016. Filo No. '1-159731.
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14E EXHtEiT 2
PALFREYT'AN, DI
FALLS WATER CO., INC.
Page 161 of 229
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 162 o1229
Ttbl6 of Contenli
'lncomoralad by lsfal€flce ar ldd*puriuirn tu ft;m 601(bX32)tD ot Roguh{on S.K, lhls coltfoatr 18 not b6log 'nbf lbr puDcg3 of Sedon 18 d lh3 Socurif€8 E dEnga Acl of 1931, s
smsr&.
149
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Pags 163 of 229
Table of Contents
5'6'I'AIURES
PuEuanl to the requirements oI S€c1ion 13 or '15(d) of th€ Socuritias Exchange Art of l93,l, each roglsbant has duly caus6d 0rs r6port to be signed on its
b€hafi by th6 undorslgnod, thoraunto duly authorized. The gignalu.e tor each undorslgn€d company shsll bo deemed to relats only b rnattss havhg rufr]onco
to such comparry end ib subsldiarios.
ORTHWEST ATURAL HOLDIiIG COIIPANY
Bv: ,3/ D6vid H- And6r.on
David H. Andorson
PtgaHeot and Chief Exeqrtivs Officer
Drtc: Merch 2, 2020
ORIIIWEST NATURAL GAS GOT{PAI{Y
EviAlArvi4tLA0crEco
Davld H. And6.son
ProsHont and Chiof Er€cutivo Olfosr
Dsts; March 2, 20Q0
150
EXHIBIT 2
PALFREYI\,IAN, DI
FALLS WATER CO,, INC.
Page 164 of 229
Teble of Contents
pursuant to lh€ r6quir6m6 s of th6 Seou.itios Exchange Act of 1934, thi8 r€po.t has b€eo ettnsd below by the follo rlng pgrsons on behalf of ths regblrant and
in the capacities and on t|e date lndlc€tsd. Th€ slgnatures o, each of the undor8lgned sh8[ bs d€omed io relate only to matters having rgt€r€nce lo lhs b€low
named company and its subsidiarbs.
NORTHWEST NATURAL HOLDIIG COIIPAT{Y
Slgnrtur!Tlfl€D.te
/s/ David H. Andsrson P.ihcipal Er.clrtive Officsr End Diredor
Principal Financial Offcer
Princbal Accounting off cor
Dir6c'tor
Dheotor
Dlasctor
DkEcto.
Diraolor
Director
Dirgc{or
Dir€c{or
Dirsctor
Dir6clor
Diroctor
Ma,ch 2, 2020
tlarch2,2O2O
March 2, 2020
Merch 2,2020
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC.
Page 1 65 o{ 229
David H. AndeEon
Presid€nt and Chiet Executtua Offcer
/8/ Frank H. Burkiartsmeyer
Frank H. Buftharbmeyer
Sonlor Vice Pre6ident and Chief Financial Oflic€r
/s/ Brody J. Wilson
Brcdy J, Wilso0
Vlc€ Pr6sld6nt, Tr6a8urer, Chicf Accounting Offcar and Controller
/d Timothy P. Boyls
Timothy P. Boyte
/5/ Martha L. Bprum
Manha L. Byorum
/s/ John D, Cartor
John D, Ca,ler
/s/ Mark S. Dodson
Mark 3. Dodson
/6/ Monha Enand
Monica Enend
/d C. Scott Glbson
C. Scott Glb8on
/$/ Tod R. H8mectl€k
Tod R. Hamachok
/s/ Jan6 L. P6wrott
Jen€ L. Powreil
/E/ K6nn6lh ThEsher
K€nn6th Thrash6.
/B/ Malia H. Wasson
Malia H. Wosson
/si Chades A. Wilhoite
Charles A. Wilhdte
1sl
EXHIBIT 2
PALFREYMAN D]
FALLS WATER CO, INC
Page '166 of 229
Table of Contents
NORTHIIIEST NATURAL GAS CO PAIIY
Slgn.tur.TllL D.te
/d David H, And€.Eon
/s/ Brcdy J. Wilson
Brody J. Wilson
Vic6 President, Treasurer, Chi6f Accounling Ofiicsr aod Controller
/s/ Timothy P. Boyle
Timohy P. Boyle
/€/ Martha L. Byorum
Marlha L. Byorum
/s/ John D. Carter
John D, Cartsr
/s/ Me.k S- Dodson
Mark S. Dodson
/s,/ Monlce Enand
Mgnica Enand
/s/ C. Scott Gibson
C, Scott Gibson
/s/ Tod R. HemachDk
Tod R. Hamachek
ls,/ Jene L. Pev€rstt
Jane L. Pewretl
,/E/ Ksnnoth Thrashor
Konnoh Thrasher
/s/ Malia H. Wasson
Malia H. Wasson
/s,/ Chartes A, Wilhoite
Charles A, Wilhoite
/s/ St€ven E. Wynne
Principal Executivs Ofic€r and Dirsctor
Principal Financial Offi.ar
Principal Accounting Oflicer
Diroctoa
Oirector
Dirsctor
Olrodor
Direc,tor
Dir€otor
Dkector
Direqtor
Oirector
Direotor
DirBcbr
Diractor
March 2, 2020
March 2, 20?0
March 2, 2020
March 2,2O2O
Davld H, Andorson
P.68irent and Chief Executiv€ Oficor
/sy' Frank H. Bu*harbmeyer
Frank H. Burkha.tsmoyor
Senior Vic€ P.€sident and Chi6f Financial Oflicer
Steven E. Wynne
152
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 167 of 229
Exhlblt 4l
DESCRIPTION OF NORTHWEST NATURAL HOLDING COMPANY'S SECURITIES
REGISTERED PURSUANT TO SECTION 12
OF THE SECURITIES EXCHANGE ACT OF 1934
Gen€ral
The following is a summary of certain rights and privileges ofthe common stock ofNorthwest Natural Holding Company (NW
Holdings), which is registered under Section 12(b) ofthe Securities Exchange Act of 1934, as amended, and is traded on the New
York Stock Exchange under the symbol 'NWN",
This summary description does not purport to be complete. Reference is made to NW Holdings' Amended and Restated
Articles oflncorporation (Amended and Restated Articles of Incorporation) and NW Holdings' Amended and Restated Bylaws that
are filed as exhibits to the Annual Report on Form 10-K to which this is filed as an exhibit. The following also summarizes certain
applicable provisions ofthe laws ofthe State oforegon, and reference is made to those laws.
Under NW Holdings' Amended and Restated Articles oflncorporation, NW Holdings is authorized to issue 100,000,000 shares
ofcommon stock and 3,500,000 shares ofprefeffed stock.
Dlvidends and Liquidation Rights
Except as hereinafter stated, the common stock is entitled to receive such dividends as are declared by the Board ofDirectors
(Board) out of funds legally available for the payrnent ofdividends and to receive ratably on liquidation any assets which remain
after paynent of liabilities. NW Holdings has an authorized class of senior capital stock, refered to as "prefered stock," none of
which is currently outstanding. NW Holdings' preferred stock would be entitled, in preference to the common stock, (l ) to
cumulative dividends at the annual rate fixed for each series by the Board, and (2) in voluntary aad involuntary liquidation, to the
amounts fixed for each series by the Board, plus in each case, unpaid accumulated dividends.
Dividend Limitations
Should dividends on any prefcrred stock be in arrears, no dividends on the common stock may be paid or declared. Future series
ofthe prefened stock could contain sinking fund, purchase or redemption obligations under which no dividends on the common
stock may be paid or declared while such obligations are in default. Common stock dividends also may be restricted by the
provisions of future instruments pursuant to which NW Holdings may issue long-term debt.
Voting Rights
Except as provided by law or by resolutions establishing any series of preferred stock, only the common stock has voting rights.
Cumulative voting is permitted by the Amended and Restated Articles of Incorporation to holders of common stock at elections of
directors.
Page I
EXHIBIT 2
PALFREYMAN, OI
FALLS WATER CO,, INC,
Page 168 of 229
Classification of the Board of Directors
The Board may consist ofnot less than nine nor more than thirteen persons, as determined by the Board, divided into three
classes as nearly equal in number as possible. One class is elected for a three-year terrn at each annual meeting ofshareholders.
Vacancies, including those resulting from an increase in the size ofthe Board, may be filled by a majority vote ofthe directors then
in office, to serve until the next annual meeting ofshareholders. One or more ofthe directors may be removed, with or without
cause, by the affirmative vote ofthe holders ofnot less than two-thirds ofthe shares entitled to vote thereon; provided, however, that
if fewer than all ofthe directors should be candidates for removal, no one ofthem shall be removed ifthe votes cast against such
director's removal would be sufficient to elect such director ifthen cumulatively voted at an election ofthe class ofdtectors of
which such director shall be a part. Except for those persons nominated by the Board, no person shall be eligible for election as a
director unless a request from a shareholder entitled to vote in the election ofdirectors that such person be nominated and such
person's consent thereto shall be delivered to the Secretary of l.{W Holdings within the time period specified in advance ofthe
meeting at which such election shall be held. The foregoing provisions may not be amended or repealed except by the affirmative
vote oflhe holders ofnot less than twoJhirds ofthe shares entitled to vote at an election oldirectors.
Business Transactions with Related Persons
NW Holdings shall not enter into any business transaction with a related person or in which a related person shall have an
interest (except proportionately as a shareholder ofNW Holdings) without first obtaining both (1) the affirmative vote ofthe holders
ofnot less than twolhirds ofthe outstanding shares of the capital stock ofNW Holdings not held by such related person, and (2) the
determination ofa maiority ofthe continuing directors that the cash or fair market value ofthe property, securities or other
consideration to be received per share by the holders, other than such related person, ofthe shares of each class or series ofthe
capital stock ofNW Holdings in such business transaction shall not be less than the highest purchase price paid by such related
person in acquiring any of its holdings ofshares ofthe same class or series, unless the continuing directors by a majority vote shall
either (a) have expressly approved the acquisition ofthe shares ofthe capital stock ofNW Holdings that caused such related person
to become a related person, or (b) have expressly approved such business transaction. As used in this paragraph: a "business
transaction" includes a merger, consolidation, plan ofexchange or recapitalization, a purchase, sale, lease, exchange, transfer,
mortgage or other disposition ofall or a substantial part (l0olo or more ofthe fair market value ofthe assets) ofthe property and
assets ofNW Holdings or a related person, an issuanceJ sale, exchange or other disposition ofsecurities of NW Holdings and a
liquidation, spin-off or dissolution; a "related person" includes a person, organization or group thereof owning l0olo or more of the
capital stock ofNW Holdings; "continuing directors" are those directors who were directors of NW Holdings on the date the
Amended and Restated Articles oflncorporation first became effeclive or whose nominations have been approved by a majority of
the then continuing directors. 'l'he foregoing provisions may not be amended or repealed except by the affirmative vote ofthe holders
ofnot less than two-thirds ofthe shares ofthe capital stock ofNW Holdings (other than shares held by related persons).
Preemptive Rights
The holders ofthe common stock have no preemptive rights
PaEe 2
EXHIBIT 2
PALFREYMAN, OI
FALLS WATER CO,, INC,
Page '1 69 of 229
Certain Anti-Takeover Matters
NW Holdings' Amended and Restated Articles oflncorporation and Amcnded and Restated Bylaws include a number of
provisiors that may have the effect ofdiscouraging persons from acquiring large blocks of its stock or delaying or preventing a
change in its control. The material provisions that may have such an effect include:
establishment ofa classified Board, whereby approximately only one-third ofthe board stands for election each year;
limitations on certain business transactions (including mergers, consolidations, plans ofcxchangc) with any person or entity
and any persons or entities related thereto who beneficially own l0o/o or more of the capital stock of NW Holdings;
authorization for the Board (subject to any applicable law) to issue prefened stock in series and to fix rights and prel'erences
of the series:
advance noticc procedures with respect to nominations ofdirectors or proposals other than those adopted or recommended by
the Board; and
requirement that holdem ofnot less than twothirds ofthe shares entitled to vote arc rcquircd to removc direclors or to amcnd
certain provisions ofthe Amended and Restated Articles of Incorporation.
NW Holdings is subject to the provisions ofsections 60,825 to 60.845 ofthe Oregon Business Corporation Act (Oregon
Business Combinations Act) which generally provide that in the event a person or entity acquires 150/o or more ofNW Holdings'
voting stock (Interested Shareholder), NW Holdings and such Interested Shareholder and any affiliate may not engage in the
following business combinations for a period ofthree years following the date that person became an Interested Shareholder;
a mergcr or plan of share exchange;
any sale, lease, mortgage or other disposition ofthe assets ofthe corporation where the assets have an aggregate market value
equal to l0olo or more ofthe aggregate market value ofNW Holdings' assets or outstanding capital stock; and
transactions that result in the issuance ofcapital stock to the shareholder that acquired l5% or more ofthe voting stock.
These restrictions do not apply it
the Board ofDircctors approved either the business combination or the share acquisition that resulted in the person becoming
an Interested Shareholder before the time such person became an Interested Shareholder;
as a result ofthe sharc acquisition, the person became an Interested Shareholder and 85o/o owner ofthe outstanding voting
stock, excluding shares owned by persons who are directors and also officers and shares owned by certain employee benefit
plans; or
on or after the date the person became an Interested Shareholder, the business combination transaction is approved by the
Board ofDirectors and authorized by the affirmative vote ofat least two.thirds ofthe outstanding voting stock not ouned by
the Interested Shareholder-
NW Holdings is also subject to the provisions of Sections 60.801 to 60.816 of the Oregon Business Corporation Act (Oregon
Control Sharc Act), which generally provide that a person who acquires voting stock in a transaction which results in such pcrson
holding more than 20%,33-l/3T" or 50% ofthe total voting power cannot votc thc shares it acquires in the acquisition unless voting
rights are accorded to such conrol shares by the holders ofa majority ofthe outstanding voting shares, excluding the control shares
PaBe 3
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FALLS WATER CO,, INC.
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held by such penon and shares held by olficers and inside directors, and by the holders of a majority of the oulshnding voting
shares, including the control shares held by such person and shares held by officers and inside directors. This vote would be required
at the time an acquiring person's holdings exceed 20% of the total voting power, and again at the time the acquiring person's
holdings exceed 33 -l/3o/o and 50Yo, respectively. The acquiring person may, but is not required to. submit to NW Holdings an
"acquiring person statement" setting {brth certain infbmration about the acquiring person and its plans with respect to NW Holdings.
The acquiring person statement may also request that NW Holdings call a special meeting ofshareholders to determine whether the
control shares will be allowed to retain voting rights. Ifthe acquiring person does not request a special meeting ofshareholders, the
issue ofvoting riglits of control sharcs will be considered at the next annual meeting or special meeting of shareholders that is held
more than 60 days after the date ofthe acquisition ofcontrol shares. Shares are not deemed to be acquired in a control share
acquisition if, among other things, they are acquired from the issuing corporation, or are issued pursuant to a plan ofmerger or
exchange effected in compliance with the Oregon Business Corporation Act and the issuing corporation is a party to fhe mergcr or
exchange agreement.
Thc Oregon Control Share Act and the Oregon Business Combinations Act have antitakeover effects because they will
encourage any potential acquirer to negotiate with NW Holdings' Board ofDirectors and will also discourage potential acquirers
unwilling to comply with the provisions ofthese laws. An Oregon corporation may provide in its articles of incorporation or bylarvs
that the laws described above do not apply to its shares. NW Holdings has not adopted such a provision.
NW Holdings is also subject to Olegon Revised Statutes Chapter 757.51 1 which generally proyides that no person, directly or
indirectly, shall acquire the power to exercise any substantial influence over the policies and actions of a public utility without first
securing from the Oregon Public Utility Commission (OPUC) an order authorizing such acquisition if such person is, or by such
acquisition would become, an "affiliated interest" with such public utility as defined by Oregon law, Any applicant requesting such
an order bears thc burden ofshowing that granting the application is in the public interest. This provision of Oregon law may have
antitakeover effects by subjecting potential acquisitions to OPUC review and approval.
Page 4
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 17 1 ol 229
Erhihil loaa
RESTRICTED STOCK UNIT AWARD AGREEMENT
This Agreement is entered into as ofFebruary ,2020, between Northwest Natural Holding Company, an Oregon
corporation (the "Company"), and ("Recipient")
On February 26,2020, the Organization and Executive Compensation Committee (the "Committee") ofthe Company's
Board of Directors (the "Board") awarded restricted stock units to Recipient pursuant to Section 6 ofthe Company's Long Term
Incentive Plan (the "Plan"). Recipient desires to accept the award subject to the terms and conditions ofthis Agreement.
NOW, THEREFORE, the parties agree as follows:
)
2. Vestins: Forfeiture Restriction
2.I Vesting Schedule
(a) All ofthe RSUs shall initially be unvested. Subject to Sections 2.3, 2.4,2.5,2.10 and 5.2, the RSUS shall
vest as follows
(l) one-fourth ofthe RSUs shall vest on March 1,2021 ifthe Performance Threshold (as defined in
Section 2.2 below) is satisfied for 2020;
(2) an additional one-fourth ofthe RSUs shall vest on March 1,2022 if the Performance Threshold is
satisfied for 2021 ;
(3) an additional one-fourth of the RSUs shall vest on M arch 1,2023 if the Performance Threshold is
satislied for 2022; and
(4) the final one-fourth ofthe RSUs shall vest on March l, 2024 if the Performance Threshold is
satished for 2023
(b) lf the Performance Threshold is not satisfied for any year set forth in (l ), (2), (3) or (4) above, the RSUs
that would have vested ifthe Performance Threshold had been satisfied for that year (the "Performance Year") shall be forfeited to
the Company effective as ofthe last day ofthe Performance Year. For example, if the Performance Threshold is not
EXHIBIT 2
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FALLS WATER CO.. INC,
Page 172 of 229
satisfied for 2020, all RSUs that were scheduled to vest on March I , 2021 shall be forfeited effective as of December 31,2020.
(c) Ifa Change in Conkol (as defined in Section 2.6 below) occurs, the Performance Threshold shall be
deemed to be satisfied for all Performance Years that were not completed prior to the Change in Conrol, u/ith the efTect that the
RSUs outstanding at the time of the Change of Control shall vest upon completion of the applicable time periods in Section 2. I (a)
2.2 Performance Threshold.
(a) For purposes ofthis Agreement, the "Performance Threshold" for any year shall be satisfied ifthe ROE
(as defined below) for that year is greater than the 5 Yr Avg Cost ofLT Debt (as defined below) tbr that year.
(b) The "ROE" fbr any year shall be calculated by dividing the Company's Adjusted Nct Income (as dehned
below) for the year by the Average Equity (as defined below) for the year. Subject to adjustment in accordaace with Section 2.2(c)
below, the Company's "Adjusted Net Income" for any year shall be equal to the Company's net income attributable to common
shareholders for the year, as set forth in the audited consolidated statement of income ofthe Company ald its subsidiaries for the
year, Subject to adjustment in accordance with Section 2.2(c) below, "Average Equity" for any year shall mean the average ofthe
Company's total common stock equity as ofthe last day ofthe year and the Company's lotal common stock equity as ofthe last day
ofthe prior year, in each case as set forth on the audited consolidated balance sheet of the Company and its subsidiaries as of the
applicable date.
(c) The Committee nay, at any time, approve adjustments to the calculation ofROE to take into account
such unanticipated circumstances or significant, non-recurring or unplanned events as the Committee may determine in its sole
discretion, and such adjustments may increase or decrease ROE. Possible circumstances that may bc thc basis for adjustments shall
include, but not be limited to, any change in applicable accounting rules or principles; any gain or loss on the disposition ofa
business; impairment of assets; dilution caused by Board approved business acquisition; tax changes and tax irnpacts ofother
changes: changes in applicable laws and regulations; changes in mte case timing; changes in the Company's structure; and any other
circumstances outside of management's control.
(d) The "5 Yr Avg Cost ofLT Debt" for any year shall mean the average offive numbers consisting ofthe
Avg Cost ofLT Debt (as defined below) for that year and for each ofthe four preceding years. The "Avg Cost ofLT Debt" for any
year shall be equal to the sum of th€ Weightcd Costs (as defined below) calculated for each series or tranche of long-term debt of the
Company outstanding on the last day ofthe year. Thc "Wcightcd Cost" for a series or tranche oflong-term debt as of any date shall
be ca)culated by multiplying the Effective lnterest Rate (as defined below) on the debt as ofthat date by the outstanding principal
balance of the debt on that date, and then dividing the resulting amount by the Company's total outstanding principal balance of
long-term debt as ofthat date. The "Effective Interest Rate" for a series or tranche of long-term debt as of any date shall be the yield
calculated based on the
2
EXHIBIT 2
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FALLS WATER CO,, INC,
Page 173 of 229
settlement date for the original issuance ofthe series or kanche, the maturity date ofthe series or tranche, the stated annual irterest
rate ofthe series or tranche in effect on that date, the number of interest pa).ments per year under the terms of the series or tranche,
the initial borrowing ofan amount equal to the principal balance net ofDebt lssuance Costs (as defined below) for the series or
tranche, and the repayment ofprincipal at maturity or otherwise according to the terms ofthe series or hanche. The "Debt Issuance
Costs" for a series or fianche of long-term debt shall include the fees, commissions and expenses ofissuance ofsuch debt, any other
purchase discount from the face amount of such debt, and any premiums, write-offs of unamortized debt issuance costs and other
costs incurred in connection with retiring debt refinanced with the proceeds of such debt, all as reflected in the Company's
accounting records. For purposes of this Section 2.2(d), the Company's long term debt and the interest rates and outstanding
principal balances ofthe outstanding series or ranches of long-term debt as ofany date shall be those amounts as set forth in the
audited consolidated financial statements ofthe Company and its subsidiaries for the year ending on that date, and shall in all cases
include the current portion of any long-tcrm dcbt and exclude borrowings undcr a rcvolving crcdit facility. For thc avoidancc of
doubt, the Effective Interest Rate for purposes ofthis Agreement of each series offixed-rate long-lerm debt outstanding as ofthe
date of this Agreement is set lorth on Exhibit A hereto.
2.3 Effcct ofRctircmcnt. Dcath. or Disabilit],.
(a) IfRecipient's employment by the Company or any parent or subsidiary ofthe Company (the
"Employer") temrinates because of Retirement (as detined below), death or physical disabiliry (within the meaning of Section 22(e)
(3) ofthe Code and a Change in Control has not previously occured, all outstanding RSUs shall remain outstanding and subject to
potential future vesting upon satisfaction ofthe Performance Threshold for the applicable years.
(b) lfRecipient's emplol,nent by the Employer terminates because of Retirement, death or physical
disability and a Change in Control subsequently occurs, all outstanding RSUs shall immediately vest. Ifa Change in Control occurs
and Recipient's employment by the Employer subsequently terminates because of Retirement, death or physical disability, all
outstanding RSUs shall immediately vest.
(c) The term "Retirement" means termination ofemployment (l) on or after the first anniversary ofthe date
of this Agrecment, and (2) after the Recipient is (i) age 62 with at least trve years ofservice as an employee ofthe Company or a
parent or subsidiary ofthe Company, or (ii) age 55 with age plus years of service (including fiactions) as an employee ofthe
Company or a parent or subsidiary ofthe Company totaling at least 70; provided, however, that a termination ofRecipient's
employment hy the Employer for Cause (as defined in Section 2.8 below) shall not constitute a Retirement.
2.4 CIC Acceleration if Pa4v to a Severance Agreement. IfRecipient is a party to a Change in Control Severance
Agreement with the Company or a parent or subsidiary ofthe Company, all outstanding RSUs shall immcdiately vcst ifRccipicnt
becomes entitled to a Change in Conhol Severance Benefit (as defined below)- A "Change in Control Scvcrancc Bcncfit" means thc
severance benefit provided for in Recipient's Change in Control Scvcrance
3
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 17 4 of 229
Agrcement with thc Company or a parent or subsidiary ofthe Company; provided, however, that such severancc benefit is a
"Change in Control Severancc Benefit" ibr purposes ofthis Agreement only if, under the terms ofRecipient's Change in Control
Severance Agreement, Recipient becomes entitled to the severance benefit (a) after a change in control of the Company has
occurred, (b) because Recipient's employment with the Employer has been terminated by Recipient for good reason in accordance
with the terms and conditions ofthe Change in Control Severance Agreement or by the Employer other than for cause, and
(c) because Recipient has satisfied any other conditions or requirements specified in the Change in Control Sevcrance Agreement
and necessary for Recipicnt to becom€ entitled to receive the severance benefit- For purposes ofthis Section 2,4, the terms "change
in control," "good reason," "cause" and "disability" shall have the meanings sct forth in Recipient's Change in Control Severance
Agreement.
2.5 CIC Acccleration ifNot a Partv to a Severancc Agrecmcnt. IfRecipient is !91 a party to a Change in Control
Severance Agreement with the Company or a parent or subsidiary ofthe Company, all outstanding RSUs shall immediately vest ifa
Change in Control (as defined in Scction 2.6 below) occurs and at any time after the earlier of Shareholder Approval (as defined in
Section 2.7 below), ifany, or the Change in Control and on or before the second anniversary ofthe Change in Control, (a)
Recipient's employmcnt is terminated by thc Employer (or its successor) without Cause (as detined in Section 2.8 bclow), or
(b) Recipient's emplolment is terminated by Recipient for Good Reason (as defined in Section 2.9 below).
2.6 Change in Control. For purposes ofthis Agreement, a "Change in Control" ofthe Company shall mean the
occurrence ofany of the following events:
(a) The consummation of
(l ) any consolidation, merger or plan of share exchange involving the Company (a "Mergcr") as a
result of which the holders of outstanding securities of the Company ordinarily having the right to vote for the election of directors
("Voting Securities") immediately prior to the Merger do not continue to hold at least 50% of the combined voting power of the
outstanding Voting Securities ofthe surviving corporation or a parent corporation ofthe surviving corporation immediately after the
Merger, disregarding any Voting Securities issued to or retained by such holders in respect of securities of any other party to the
Merger; or
(2) any consolidation, merger, plan ofshare exchange or other transaction involving Northwest
Natural Gas Company ("NW Natural") as a result of which the Company does not continue to hold, directly or indirectly, at least
50olo ofthe outstanding securities ofNW Natural ordinarily having the right to vote for the €lection ofdirectors; or
(3) any sale, lease, exchange or other transl'er (in one transaction or a series ofrelated transactions) of
all, or substantially all, the assets ofthe Company or NW Natural;
(b) At any time during a period of two consecutive years, individuals who at the beginning of such period
constituted the Board ("lncumbent Directors") shall cease
4
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 175 o1229
for any reason to constitute at least a majorily thereof; provided, however, that the term "Incumbent Director" shall also include each
new director elected during such two-year period whose nomination or election was approved by two-thirds ofthe Incumbent
Directors then in office: or
(c) Any pemon (as such term is used in Section l4(d) of the Securities Exchange Act of 1934, other than the
Cornpany or any employee benefit plar sponsored by the Company or NW Natural) shall, as a rcsult ofa tender or exchangc offcr,
open market purchases or privately negotiated purchases from anyone other than the Company, have become the beneficial owner
(within the meaning of Rule l3d-3 under the Securities Exchange Act of 1934), directly or indirectly, of Voting Securities
representing twcnty pcrcent (20%) or more ofthe combined voting power ofthe then outstanding Voting Securities.
2.7 Shareholder Aooroval. For purposes of this Agreement, "Shareholder Approval" shall be deemed to have
occurred if the shareholders ofthe Company approve an agreement entered into by the Company, thc consummation of which would
result in the occurrence ofa Change in Control.
2.8 Cause. For purposes ofthis Agreement, "Cause" shall mean (a) the willful and continued failure by Recipient to
perform substantially Recipient's assigned duties with the Employer (other than any such failure resulting from incapacity duc to
physical or mental illness) after a demand for substantial performance is delivered to Recipient by the Employer which specifically
identifies the manner in which Recipient has not substantially performed such duties, 1b) willful commission by Recipient of an act
offraud or dishonesty resulting in economic or financial injury to the Company or Employer, (c) willful misconduct by Recipient
that substantially impairs the business or reputation of the Company or Employer, or (d) willful gross negligence by Recipient in the
performancc ofhis or her duties.
2.9 Good Reason. For purposes of this Agreement, "Good Rcason" shall mean thc occurrcnce aftcr Sharcholder
Approval, ifapplicable, or the Change in Control, ofany ofthe following circumstances, but only if(x) Recipient gives notice to
Employer ofRecipient's intent to terminate employment for Good Reason within 30 days after the later of (l) notice to Recipient of
such circumstances, or (2) the Change in Control, and (y) such circumstances are not fully corrected by the Employer within 90 days
after Rccipient's notice:
(a) the assignment to Recipient ofa different title, job or responsibilities that results in a decrease in the level
ofRecipient's responsibility; provided that Good Reason shall not exist ifRecipient continues to have the same or a greater general
level of responsibilily for the former Employer operations after the Change in Control as Recipient had prior to the Change in
Control even though such responsibilities have necessarily changed due to the former Employcr operations becoming a subsidiary or
division ofthe surviving company;
(b) a reduction by the Employer in Recipient's base salary as in effect immediately prior to the earlier of
Shareholder Approval, ifapplicable, or the Change in Control;
5
EXHIBIT 2
PALFREYMAN, DI
FALLS WAIER CO.. INC,
Page 176 of 229
(c) the failure by Employer to continue in effect any employee benefit or incentive plan in which Recipient is
participating immediately prior to the eadier of Shareholder Approval, ifapplicable, or the Change in Conhol (or plans providing
Recipient with at least substantially similr benefits) other than as a result ofthe normal expiration of any such plan in accordance
with its terms as in effect immediately prior to the earlier of Shareholder Approval, ifapplicable, or the Change in Control, or the
taking ofany action, or the failure to act, by Employer which would adversely affect Recipient's continued participation in any of
such plans on at least as favorable a basis to Recipient as is the case immediately prior to the earlier of Shareholder Approval, if
applicable, or the Change in Control or which would materially reduce Recipient's benefits in the future under any ofsuch plans or
deprive Recipient of any material benefit enjoyed by Recipient immediately prior to the earlier of Shareholder Approval, if
applicable, or the Change in Conhol;
(d) the failure by the Employer to provide and credit Recipient with the number of paid vacation days to
which Recipient is then entitled in accordance with the Employer's normal vacation policy as in effect immediately prior to the
earlier of Shareholder Approval, ifapplicable, or the Change in Control; or
(e) the Employer's requiring Recipient to be based more than 30 miles from where Recipient's office is
located immediately prior to the earlier of Shareholder Approval, if applicable, or the Change in Control except for required travel on
the Employer's business to an extent substantially consistent with the business havel obligations which Recipient undertook on
behatf ofthe Employer prior to the earlier of Shareholder Approval, if applicable, or the Change in Control.
2.10 Fofeitue: Possible Restoration. If Recipient ceases to be employed by the Employer for any reason or for no
reason, with or without cause, other than because of Retirement, death or physical disability (within the meaning of Section 22(eX3)
ofthe Code), any RSUs that did not vest pursuant to this Section 2 or Section 5.2 at or prior to the time ofsuch termination of
employment shall be forfeited to the Company; provided, however, that ifRecipient's emplo)rynent is tcrminated by the Employer
wilhout Cause or by the Recipient for Good Reason after Shareholder Approval but before a Change in Control, any RSUs that are
forfeited under this sentence shall be restored to the Recipient and vested if a Change in Control subsequently occurs within two
years.
3. Certification and Deliverv. As soon as practicable following the completion ofeach Performance Year, the Company
shall calculate the ROE and the 5 Yr Avg Cost ofLT Debt for that Performance Year, and shall submit those calculations to the
Committee. At or prior to the regularly scheduled meeting of the Committee held in February of the year immediately following
each Performance Year (each, a "Certification Meeting"), the Committee shall certify in writing (which may consist ofapproved
minutes of the meeting) whether or not the Performance Threshold was satisfied for that Performance Year. Unless otherwise
required under this Agreement as a result ofthe occurrence ola Change in Conhol, no amounts shall be delivered orpaid unless the
Committee certifies that the Performance Threshold has been satisfied for the applicable Performance Year. Subject to applicable tax
withholding, on a date (a
6
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 177 ot 229
"Payment Date") that is on or as soon as practicable after the date any ofthe RSUs become vested or, if later, fivc business days
following the Certification Meeting relating to those RSUs, the Company shall deliver to Recipient (a) the number of Shares
underlying the RSUs that vested (rounded down to the nearest whole share), and (b) the dividend equivalent cash payment
determined under Section I with respect to the number of Shares that are delivered; provided, however, that ifaccelerated vesting of
the RSUs occurs pursuant to Section 2.3(b) as a result ofRecipient's Retirement after a Change in Control has previously occurred,
the Payment Date shall be delayed until a date that is on or as soon as practicable after the eadier of(x) the date the RSUs would
have vested under Section 2.1, or (y) the date that is six months after Recipient's separation from service (within the meaning of
Section 409,{ ofthe Intemal Revenue Code). Notwithstanding the foregoing provisions ofthis Section 3, if Recipient shall have
made a valid election to defer receipt ofthe Shares and dividend equivalent cash palment pursuant to the terms of Northwest
Natural's Defened Compensation Plan for Directors and Executives (the "DCP"), payment ofRSUS that vest shall be made in
accordance with that election.
4. Tax Withholdins.
4.1 Recipient acknowledges that, on any Payment Date when Shares are delivered to Recipient, the Value (as
dehned below) on that date ofthe Shares so delivered (as well as the amount ofthe related dividend equivalenl cash payment) will
be treated as ordinary compensation income for federal and state income and FICA tax purposes, and that the Employer will be
required to withhold taxes on these income amounts. To satisff the required withholding amount, the Employer shall first withhold
all or part ofthe dividend equivalent cash pa).ment, and ifthat is insufficient, the Employer shall withhold the number ofShares
having a Value equal to the remaining withholding amount. Forpurposes ofthis Section 4, the "Value" ofa Share shall be equal to
the closing market price for Company Common Stock on the last trading day preceding the Payment Date.
4.2 Recipient acknowledges that under curent tax law, the Employer is required to withhold FICA taxes with
respect to the RSUs at the earlier of(a) the issuance of shares underlying the RSUs or (b) the date after a Change in Control on
which Recipient becomes eligible for Retirement (or the date of the Changc in Control if Recipient is eligible for Retirement at the
time ofthe Change in Control). To satisry the required minimum FICA withholding in tbe event that subsection (b) applies,
Recipient sha[[, immediately upon notification ofthe amount due, pay to the Company in cash or by check amounts necessary to
satisry applicable FICA withholding requirements. IfRecipient fails to pay the amount demanded, the Company may withhold that
amount from other amounts payable to Recipient, including salary, subject to applicable law.
4.3 Notwithstandhg the foregoing, Recipient may elect not to have Shares withheld to cover taxes by giving notice
to the Company in writing prior to the Payment Date, in which case the Shares shall be issued or acquired in Recipient's name on the
Pa),ment Dale thereby triggering the tax consequences, but the Company shall rctain the certificate for the Shares as securjty until
Recipient shall have paid to the Company in cash any required tax withholding not covered by withholding ofthe dividend
equivalent cash payment.
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5. Sale ofthe Company. Ifthere shall occur a merger, consolidation or plan ofexchange involving the Company pursuant to
which the outstanding shares ofCommon Stock ofthe Company are converted into cash or other stock, securities or property, or a
sale, lease, exchange or other transfer (in one transaction or a series ofrelated transactions) ofa[[, or substantially all, the assets of
the Company, then either:
5 . I the unvested RSUs shall be converted into restricted stock units for stock of the surviving or acquiring
corporation in the applicable transaction, with the amount and type ofshares subject thereto to be conclusively determined by the
Committee, taking into account the relative values ofthe companies involved in the applicable transaction and the exchange rate, if
any, used in determining shares ofthe surviving corporation to be held by the former holders ofthe Company's Common Stock
following the applicable transaction, and disregarding fractional shares; or
5.2 all of the unvested RSUs shall immediately vest and the underlying Shares and related dividend equivalent cash
pa),ment shall be delivered simultaneously with the closing of the applicable transaction such that Recipient will participate as a
shareholder in receiving proceeds from such transaction with respect to tbose Shares.
6. Changes in Caoital Structure. If, prior to the full vesting of all of the RSUs granted under this Agreement, the outstanding
Common Stock ofthe Company is increased or decreased or changed into or exchanged for a different number or kind ofshares or
other securities olthe Company by reason ofany stock split, combination ofshares or dividend payable in shares, recapitalization or
reclassification, appropriate adjustrnent shall be made by the Committee in the number and kind of shares subject to the unvested
RSUs so that Recipient's proportionate interest before and after the occurrence ofthe event is maintained. Notwithstanding the
foregoing, the Committee shall have no obligation to eflect any adjustment that would or might result in the issuance offtactional
shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the
Committee. Any such adjustments made by the Committee shall be conclusive.
7. Recoupment On Misconduct.
7.1 If at ary time before a Change in Control and witbin th.ree years after any date on which any RSUs vested, (a)
the Company's financial statements for the corresponding Performance Year are the subject of a restatement due to the Misconduct
(as defined below) of any person (whether or not Recipient was personally involved in such Misconduct), and (b) based on the
Company's financial statements as restaled, the Performance Threshold was not satisfied for that Performance Year, then Recipient
shall repay to the Company the Shares (the "Excess Shares") and dividend equivalent cash payment (the "Excess Dividends") that
vested under this Agrcemenl on that vesting dat€. Ifany Excess Shares are sold by Recipient prior to the Company's demand for
repaymcnt (including any shares withheld for taxes under Section 4 ofthis Agreement), Recipient shall repay to the Company 100%
ofthe proceeds ofsuch sale or sales. The Committee may, in its sole discretion, reduce the amount to be repaid by Recipient to take
into account the tax consequences ofsuch repayment for Recipient.
t!
EXHIBIT 2
PALFREYMAN, DI
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Page 179 of 229
7 .2 lf the Committee detcrmines that Recipient engaged in any Misconduct after the date of this Agreement and
prior to a sale ofany ofthe Shares (the "Tainted Shares"), and this determination is made before a Change in Conhol and within
th.ree years after the vesting ofthe Tainted Shares, Recipient shall repay to the Company the Excess Proceeds (as defined below).
The Comrnittee may, in its sole discretion, reduce the amount ofExcess Proceeds to be repaid by Recipient to take into account the
tax consequences of such repayment or any other factors. The retum ofExcess Proceeds is in addition to and separate from any other
relief available to the Company due to Recipient's Misconduct.
T.3 "Misconduct" shall mean (a) willful commission ofan act offraud or dishonesty resulting in economic or
financial injury to the Company, (b) willful misconduct that substantially impairs the Company's business or reputation, or
(c) willful gross negligence in the performance of the person's duties; provided, however, that such acts shall only constitute
Misconduct if the Committee determines that such acts contributed to an obligation to restate the Company's financial statements for
any quarter or year or otherwisc had (or will have when publicly disclosed) an adverse impact on the market price ofthe Company
Common Stock.
?.4 "Excess Proceeds" shall mean the excess of(a) the actual aggregate sales proceeds from Recipient's sales of
Tainted Shares, over (b) the aggregate sales proceeds Recipient would have received from sales ofTainted Shares at a price per share
determined appropriate by the Committee in its discretion to reflect what the market price ofthe Company Common Stock would
have been ifthe restatement had occurred or other Misconduct had been disclosed prior to such sales.
7.5 If any portion of the Excess Shares and Excess Dividends was defbrred under the DCP, that portion shall he
recovered by canceling the amounts so deferred under the DCP and any dividends or other eamings credited under the DCP with
respect to such cancelled amounts. The Company may seek direct repayment from Recipient ofany Excess Shares, Excess
Dividends and Excess Proceeds not so recovered and may, to the extent permitted by applicable law, offset such amounts against any
compensation or other amounts owed by lhe Company to Recipient. In particular, such amounts may be recovered by offset against
the after-tax proceeds of deferred compensation payouts under the DCP, Northwest Natural's Executive Supplemental Retirement
Income Plan or Nofihwest Natural's Supplemental Executive Retirement Plan at the times such deferred compensation payouts occur
under the terms ofthose plans. Amounts that remain unpaid for more than 60 days after demand by the Company shall accrue
interest at the rate used flom time to time for crediting interest under the DCP.
8. Anorovals. The obligations of the Company under this Agleement are subject to the approval ofstate and federal
authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal
law or applicable regulations, including rules and regulations ofthe Securities and Exchange Commissiofl and any stock exchange
on which the Company's shares may then be listed, in connection with the award under this Agreement. The foregoing
notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under this Agreemenr ifsuch issuance or
delivery would violate applicable state or federal law.
9
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 180 of 229
9. No Right to Employment. Nothing contained in this Agreement shall confer upon Recipient any right to be employed by
the Employer or to continue to provide services to the Employer or to interfere in any way with the right ofthe Employer to
terminate Recipient's services at any time for any reason, with or without cause.
10. Misstllaneous.
10.1 Entire Asreement: Amendment. This Agreement constitutes the entire agreement ofthe parties with regard to
the subjects hereof and may be amended only by written agreement between the Company and Recipient.
10.2 Notices. Any nolice required or permitted under this Agreement shall be in writing and shall be deemed
sufficient when delivered personally to the party to whom it is addressed or when deposited into the United States Mail as registered
or certified mail, retum receipt requested, postage prepaid, addressed to the Company, Attention: Corporatc Secretary, at its principal
executive of'fices, or to Employer, Attention: Corporate Secretary, at its pdncipal executive offices, or to Recipient at thc address of
Recipient in the Company's records, or at such other address as such party may designate by ten (10) days' advance written notice to
the other parly.
10.3 Assignmenr: Rights and Benefits. Recipient shall not assign this Agreement or any rights hereunder to any
other party or parties without the prior written consent of the Company. The rights and benefits ofthis Agreement shall inure to the
benefit of ard be enforceable by the Company's successors and assigns and, subject to the foregoing restriction on assignment, be
binding upon Recipient's heirs, executors, administrators, successors and assigns.
10.4 Further Action. The parties agree to execute such further instruments and to take such fi.rther action as may
reasonably be necessary to carry out the intent ofthis Agreement.
10.5 Applicable T aw: Attomeys' Fees. The terms and conditions ofthis Agreement shall be govemed by the laws of
the State ofOregon. In the event either party institutes litigation hereunder, the prevailing party sha[[ be entitlcd 10 reasonable
attomeys' fees to be set by the trial court and, upon any appeal, the appellate court.
10.6 Countemarts. This Agreement may be executed in two or more counterparts, cach ofwhich shall be deemed an
original.
10
EXHIBIT 2
PALFREYI\4AN, DI
FALLS WATER CO,, INC,
Page 181 of 229
IN WITNESS WHEREOF, the paties hereto have executed this Agreement as ofthe day and year first above written.
NORTHWEST NATURAL HOLDING COMPANY
Title
RECIPIENT
ll
By
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 182 of 229
EXIIIBIT A
EFFECTIVE INTEREST RATES OF OUTSTANDING LONG.TERM DEBT
The outstanding series or tranches of long-term debt ofthe Company outstanding as ofthe date of this Agreement and the
Effective Interest Rate of each such series or tranche are as follows:
Series
Corp 5000:
5.370 % Series due 2020
9.050 % Series due 2021
3 . I 76 % Series due 202 I
3.542 % Series due 2023
5.620 % Series due 2023
7.720 Yo Seies dre 2025
6.520 % Series due 2025
7.050 % Series due 2026
3.21 I % Series due 2026
7.000 % Series due 2027
6.650 o/o Seies due 2027
2.822 To Series due 2027
6.650 % Series due 2028
3.141 % Series due 2029
7.740 % Series due 2030
7.850 % Series due 2030
5.820 % Series due 2032
5.660 % Series due 2033
5.250 % Series due 2035
4.000 % Series due 2042
4.136 % Series due 2046
3.685 % Series due 2047
4.1l0 % Series due 2048
3.869 % Series due 2049
Corp 6000:
3.250 % weighted rate Notes
5.000 % Note due 2028
LIBOR Loan - weighted rate
Effectlve Interest Rrte
7.327%
9.163%
3.319%
3.696%
6.360%
8.336%
6,589%
7 .121%
3.383%
7.062o/t,
6.714%
2.966%
6.727v"
3.27 5%
8.433%
8.551%
5.913%
5.723%
5.316%
4.062,D4
4.22604
3.7 54o/r
4.t45%
3.938%
3.2s0%
5.000%
2.747%
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Pago 183 01229
Exhibit 10ll
ANNUAL INCENTIVE PLAN
NW Natural Gas Storage LLC
("company", or "the company")
PTJRPOSE,
The purpose of the Annual Incentive Plan (AIP) is to recognize and reward Non-Bargaining Unit (NBU) employees who have
performed well and contributed to successful company performancc as measured by key performance indicators,
PROGRAM TERM
This Plan is an annual incentive plan and each new calendar year commences a new Program Term. Each Program Term will begin
on January I and conclude on December 31.
PARTICIPATION
All NBU regular employees of the company are eligible to participate in the Annual Incentive Plan. For all purposcs of this AIP, a
person who is an employec of Northwest Natural Cas Company (NW Natural) on full-time assignment to the company and
designated by the Company Board of Directors (BOD) shall be considered to be a regular employee of the company during the
period of that full-time assignment. In these situations, a designated participant in this AIP shall not be eligible for incentive
compensation from NW Natural.
NW Natural oversight
Ifthe President ofNWNGS is considered by NW Natural to be an exccutive officer ofNW Natural lbr purposes ofpublic disclosure,
any decision of the BOD under this AIP that affects an award to the President shall be subject to and conditioned upon the approval
of that decision by the Board of Directors of NW Natural or as delegated by the Board of Directors of NW Natural to the
Organization and Executive Compensation Committee.
To be eligible for an award the Participant must have bcen employed by th€ compary in an NBU role for at least one month during
the Program Term. In addition, the Participant must
EXHIBIT 2
PALFREYI\4AN, DI
FALLS WATER CO., INC,
Page 184 ot 229
be employed on the date ofthe plan payout to be eligible for any award for thc Program Term unless the Participants' employment is
terminated prior to the payout date of the Program Term due to one of the following: retirement(*), disability or death, Board
approved exception due disposition of an affiliated business which results in the participant's termination of employment with
NWNGS. Prorated awards will be determined by prorating the Participant's final award by the number ofdays employed during the
Program Term. ln the case of a Board approved exception due to disposition of an affiliated business occurring during the Program
Term, the participant's prorated award will be based upon thek target award and not actual Company performance for the Program
Term. Such award will be paid within thirty (30) days following thc completion ofthe transition period as defined by the Board. The
disposition of Gill Ranch Storage qualifies as Board approved and the Board will define the end of the transition period. However,
participating employees with Company approved Retention Agreements, will be eligible for prorated AIP awards consistent with
such agreements.
Employees who transfer to or from employment or full-time assignment to Northwest Natural or another subsidiary will be eligible
for a prorated award based upon the number ofdays they were eligible to participate in the AIP.
(*) Retirernent is defined as a minimum of 5 years of service (with the company or with an affiliate company) and age and service
equals 70.
INCENTIVE TARGETS
Target incentive award opportunities will be established by salary grade for each Plan Year and approved by the Board of Directors,
The target incentive levels for each salary grade are shown in Exhibit I to the Plan document for the Plan Year- The target incentive
opportunity is assigned by salary gmde and calculated by multiplying the Target Incentive percentage times the following for each
employee category:
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 185 of 229
NBU Salary Paid/Exempt - Annual Base Salary as of December 31't ofthe plan year
NBU Hourly Paid/Non-Exempt - Actual eligible eamings, including regular pay, overtime pay, & lump sum merit payments
INCENTI\'E FORMULA
The formula for calculating the incentive award for the Program Term is as tbllows:
Participant Award =
Target Award X ((CPF X CPF Factor Weight) + (IPF X IPF Factor Weight))
COMPANY PERFORMANCE FACTOR (CPF)
The company performance goals in the Plan are intended to align the intcrcst of Participants with those of the company. The goals
and the formula for determining the Company Performance Factor will be established by the NW Natural Gas Storage, LLC Board
of Directors (the "Board of Directors") at the start of each Program Term and set forth as Exhibit IIa and Exhibit IIb. After the goals
and formula are established for a Program Term. the Board ofDirectors retains discretion to modify the goals and formula, including
adjusting the calculation of any financial or other goal to eliminatc the effects of significant cxtraordinary, non-recurring or
unplanned iterns.
INDIVIDUAL PERFOR-I\{AN CE FACTOR (IPF)
The IPF weight used in calculating the lndividual Performance Factor will be established for each Participant by the President,
subject to the approval of the Board of Directors at the beginning of the Program Term. Individual goals for each Participant will be
established by the Participant's leader (subject to the approval of the President, and for the President subject to the approval of the
Board of Directors) at the beginning of each Program Term. Performance against these goals will be assessed by the Participant's
leader at thc end of the Program Term (subject to the approval of the President, and for the President subject to the approval of the
Board of Directors), This assessment will result in a rating on a scale of 0 to 1.5 (the "Individual
EXHIBIT 2
PALFREYi/AN, DI
FALLS WATER CO., INC.
Page 186 of 229
Performance Factor")- The Participant will not receive an award ifthe Individual Performance Factor is less than 0.5,
ADMINISTRATION
Awards will be calculated and paid no later thal March 15 following the end of the Program Term. Awards are subject to tax
withholding unless the Participant made a prior election to defer the Award under the terms of the NW Natural Gas Company
Deferred Compensation Plan for Directors and Executives if they are eligible for this plan. Atl awards shall be audited and approved
by the Board ofDirectors prior to pa).ment.
The Plan shall be administered by the Board of Directors. Except to the extent provided under *NW Natural Oversight" above. The
Board of Directors shall have the exclusive authority and responsibility for all matters in connection with the operation and
administration of the Plan. Except to the extent provided under "NW Natural Oversight: above. Decisions by the Board of Directorc
shall be final and binding upon all parties affected by the Plan, including the beneficiaries ofParticipants.
Thc Board ofDirectors may rely on information and recommendations provided by management. The Board ofDirectors may
delegate to management the responsibility for decisions that it may make or actions that it may take under the tcrms oflhe Plan,
subject to the Board of Directors reserved right to review such decisions or actions and modiff them when necessary or appropriate
under the circumstances. The Board of Directors shall not allow any employee to obtain control over decisions or actions that affect
that employee's Plan benefits.
AMENDMENTS AND TERMINATION
The Board ofDirectors has the power to terminate this Plar at ary time or to amend this Plan at any time and in any ma]lner that it
may deem advisable.
EXHIBIT 2
PALFREYI\4AN, DI
FALLS WATER CO,, INC,
Pase 187 of 229
Erhibil l0o
As amended
efl'ective October l, 2018
NORTHWEST NATURAL GAS COMPANY
EXECUTIVE ANNUAL INCENTIVE PLAN
This amended Executive Annual lncentive Plan (the "Plan") is executed by Northwest Natural Gas Company, an Oregon corporation
(the "Company"), effective October 1,2018. Effective October 1,2018, the Company became a wholly-owned subsidiary of
Noflhwest Natural Holding Company ("Parent") and holdcrs of Company common stock bccamc holders of Parent common stock
("Parent Common Stock").
PUR-POSE OF PLAN
The success of the Company is dependent upon its ability to athact and retain the services of key executivcs of the highest
competence and to provide incentivcs for supcrior pcrformancc. Thc purpose ofthe plan is to advance the interests of the Company
and its shareholders through an incentivc compensation program that will attract and retain key executives and motivate them to
achieve pcrformance goals.
PROGRAM TERM
This Plan is an annual incentive plart and each new calendar year commences a new Program Term. Each Program Term will bcgin
on January I and conclude on Deccmber 31 .
PARTICIPATION
All cxccutivc officcn of thc company and any other highly compensated employees as designated by the Company's Organization
and Executivc Compensation Committee (the "Committee") are eligible to receive awards ("Awards") under the Executive Annual
Inccntivc Plan.
At the beginning of each Program Term, the Committee shall determine eligibility for Awards and establish for each participant, the
target incentive level as a percentage of year-end annualized based salary ("Target Award"). This information will be set forth in
Exhibit I ofthe Plan document for the Prograrn Term. Each such participating employee shall be refered to as a "Participant."
To be eligible for payout of an Award the Participant must have a minimum of three months of service during the Program Term. If
the Participant is a new employee or is newly eligible to participate in the Plan, that Participant must be in an eligible position on or
before September 30 of the Program Term and will receive a prorated Award. In addition, the Participant must be employed by the
Company or Parent on December 3 I of the Program Tcrm to be eligible for payout of the Award for the Program Term unless the
Participant is eligiblc for a prorated Award as provided in the next sentence. Eligibility tbr a prorated Award occurs when a
Participant has three or more months of participation in the Program Term but the Participant's employment is terminated prioi to
December 3l ofthe Program Term due to one ofthe following: Retirement (unless such Retirement
Erhibit I0o
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 188 of 229
Erhihir l0o
results from a termination of the Participant's cmploymcnt by the Company or Parent for Cause), disability and death. Prorated
Awards will be determined by prorating the Participant's final Award by the number ofdays employed during the Program Term.
"Retirement" shall mean termination ofemployment after Participant is (a) age 62 with at least five years of service as an employee
of the Company and Parent, or (b) agc 55 with age plus years of service (including fractions) as an employee of the Company and
Parcnt totaling at lcast 70-
"Cause" shall mean (a) the willful and continued failure by a Participaat to perform substantially the Participant's assigned duties
with the Company or Parent (othcr than any such failure resulting fiom incapacity due to physical or mental illness) after a demand
for substantial performance is delivcrcd to the Participant by the Company or Parent which specifically identifies the manner in
which the Participant has not substaatially performcd such dutics, (b) willful commission by a Participant of an act of fraud or
dishonesty resulting in economic or financial injury to thc Company or Parent, (c) willful misconduct by a Participant that
substantially impairs the Company's or Parent's business or reputation, or (d) willful gross negligence by a Participant in the
performance ofhis or her duties.
In the event of a change in job position during the Program Term, the Committee may, in its discretion, increase or decrease the
amount of a Participant's Award to reflect such change.
INCENTIYE FORMULA
The fbnnula for calculating Awards for each Program Term is as follows:
Target
Award x [(
Company
Performance
Factor (CPF)
CPF Factor
Weight
Priority/Individual
Performance Factor X
(IPF)
+
Pi]PF
Factor
Weight )l:Participant
Award
COMPANY PERFORMANCE FACTOR
Thc Company performance goals in the Plan are intended to align the interest of Participants with those of the shareholders. The
goals and the ibrmula for determining the Company Performance Factor u.ill be established by the Committee at the start of each
Program Term and set forth as Exhibit Il. The Committee may, at any time, approve adjustments to the calculation of the results
under any Company performance goal to take into account such unanticipated circumstances or significant, non-recurring or
unplanned events as the Committee may detcrmine in its sole discretion, and such adjustments may increase or decrease the results.
Possible circumstanccs that may be the basis for adjustments shall include, but not be limited to, any change in applicable accounting
rules or principles; any gain or loss on the disposition of a business; impairment of assets; dilution caused by acquiring a business;
tax changes and tax impacts of other changes; changes in applicable laws and regulations; changes in rate case timing; changes in the
Company's structure; and any other circumstances outside ofmanagement's control.
Exhibit l0o
EXHIEIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 189 of 229
Erhibit l0o
PRIORITY/INDIVIDUAL PERFORMANCE FACTOR
The PflPF weight used in calculating the Priority/lndividual Performance Factor will be established for each Participant by the
Committee at the begir:ning ofthc Program Tcrm and set forth as part ofExhibit I. Also included in Exhibit I will be the CPF Factor
Weight for the Company Performance Factor, Priority/lndividual goals for each Participant will be established at the beginning of
each Program Term and perfbnnance against these goals will be assessed by the Participant's superior and approved by the C.E.O. at
the end of the Program Term. This assessment will result in a rating on a scale of 0% to 175%. This rating is called the
Priority/Individual Performance Factor. The Participant will not receive a payout under the Priority/lndividual Performance
component of an Award if the Priority/lndividual Performancc Factor is less thaa 50%.
ADMINISTRATION
Award payouts will be calculated and paid no later than the March 15 following the end of the Program Term. Award payouts are
subject to tax withlolding unless the Participant made a prior election to defer the Award payout under the terms of the Deferred
Compensation Plan for Directors and Executives ("DCP").
All Award payouts shall be audited by the Internal Audit departnent ard approved by the Commiftee pdor to payment.
The Plan shall be adrninistered try the Committee. The Committee shall have the exclusive authority and responsibility for all matters
in connection with the operation and administration of the Plan. Decisions by the Committee shall be final and binding upon all
parties affected by the Plan, including the beneficiaries ofParticipants.
The Committee may rely on information and recommendations provided by management, The Committee may delegate to
management the responsibility for decisions that it may make or actions that it may take under the terms of the Plan, subject to the
Committee's reserved right to review such decisions or actions and modi! them when necessary or appropriate under the
circumstances. The Committee shall not allow any employee to obtain control over decisions or actions that affect that employee's
Plan benefits.
RECOUPMENT ON EARNINGS RESTATEMENT
If at any time before a Change in Control and within three years after thc payout of Awards for a Program Tcrm, Parcnt's hnarcial
statcmcnts for that Program Tetm arc thc subject of a rcstatcmcnt duc to thc Misconduct of any pcrson. cach Participant who
received an Award payout for that Program Term (whether or not such Participant was personally involved in such Misconduct)
shall repay to the Company the Excess Bonus Compensation (as defined below). For purposes of the Plan, "Excess Bonus
Compensation" for any Participant means the positive difference, if any, between (i) the Participant's Award payout as originally
calculated, and (ii) the Participant's Award payout as rccalculated witl the results for Company performance goals being based on
Parent's financial statements as rcstatcd. Exccss Bonus Compensation shall not include any amounts in respect of any individual
performance goals or in respect of Company perlbrmance goals that are not measured in whole or in part on financial results
reported in Parent's financial statements. The
E\hihil I0o
EXHIBIT 2
PALFREYMAN, OI
FALLS WATER CO,, INC,
Page 190 of 229
Erhibit l0o
Committee may, in its sole discretion, reduce the amount of Excess Bonus Compcnsation to be repaid by any Palticipant to take into
account the tax consequences ofsuch repayment for the Participant,
If any portion of an Award payout was dcfcned under the DCP, any Excess Bonus Compensation to be repaid with respect to that
Award shall first be recovered by canceling all or a portion of thc amount so deferred under the DCP and any interest credited under
the DCP with respect to such cancelled amount. The Company may seek direct repaymcnt from the Participant of any Excess Bonus
Compensation not so recovered and may, to the extent permitted by applicable [aw, ofTset such Excess Bonus Compensation against
any compensation or other amounts owed by the Company to the Participant. In particular, Excess Bonus Compensation may be
recovered by offset against the after-tax procccds of defened compensation payouts under the DCP, the Compaay's Exccutivc
Supplemental Retirement Income Plan or the Company's Supplemental Executive Retirement PIan at the times such deferred
compensation payouts occur under the tems of those plans. Excess Bonus Compensation that remains unpaid for more than 60 days
after demand by the Company shall accrue interest at the rate used from time to time for crcditing interest under the DCP.
"Misconduct" shall mean (a) willful commission by any person of an act of fraud or dishonesty or (b) willful gross negligence by
any person in the performance ofhis or her duties.
"Change in Control" shall mean the occurrence of any of the following events:
(a) The consummation of:
(1) any consolidation, merger or plan of sharc exchange involving Parent (a "Merger") as a result of which thc
holders of outstanding securities of Parent ordinarily having thc right to vote for the election of directors ("Voting Sccuritics")
immediately prior to the Merger do not continue to hold at least 50% of the combined voting power of the outstanding Voting
Securities of the surviving corporation or a parent corporation of the surviving corporation immediately after the Merger,
disregarding any Voting Securities issued to or retained by such holders in respect ofsecurities ofany other party to the Merger;
(ii) any consolidation, merger, plan of share exchange or other transaction involving the Company as a result of
which Parent does not continu€ to hold, directly or indirectly. at least 50% of the outstanding securities of the Company ordinarily
having thc right to vote for the election of directors: or
(iiD any sale, lease, exchange or other traasfer (in one transaction or a series of related transactions) of all, or
substantially all, the assets of Parent or the Company;
(b) At any time during a period of two consecutive years, individuals who at the beginning of such period constituted
Parent's Board of Di-rectors ("Incumbent Directors") shall cease for any reason to constitute at least a majority thereof; provided,
however. that the term "Incumbent Director" shall also include each new director elected during such two-year period whose
nomination or election was approved by two-thirds ofthe Incumbent Directors then in officc; or
Erhibit l0o
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC,
Page '!91 of 229
Exhibit l0o
(c) Any person (as such term is used in Section l4(d) of the Securities Exchange Act of 1934, other than Pa.rent or any
employee benefit plan sponsored by Parent) shall, as a result of a tender or exchange offer, open market purchases or privately
negotiated purchases from anyone other than Parent, have become the beneficial owner (within the meaning of Rule I 3d-3 under the
Secwities Exchange Act of 1934), directly or indirectly, of Voting Securities reprcsenting twenty percent Qia/oj or more of the
combined voting power ofthe then outstanding Voting Securities.
AMENDMENTS AND TERMINATION
The Board has the power to terminate this Plan at any time or to amend this Plan at any time and in any manner that it may deem
advisable.
IN WITNESS WHEREOF this Plan was duly amended effective as of October 1,2018.
NORTHWEST NATURAL GAS COMPANY
By: /s/ DAVID H. ANDERSON
David H. Anderson
President and Chief Executive Officer
Exhibit l0o
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 192 of 229
Exhlblt I
Effective January 1, 2020
Participants, Targot Awards and lndividual Pedormance
Program Term: January l, 2020 - Dccember 31, 2020
Exhihir l0o
Erhibit l0o
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 'l 93 of 220
Company Perfomance Factor Formula:
N€t lncome
Component x71.430/o Operations
Compon6nt X 28.57o/o
Erlibit l0o
Company
Performance Factor
Exhibtt ll
Company Parformanoe Factor
Program Term: January l, 2020 - December 31, 2020
()+(
l{et Income Componcnt:
The Net lncome (Nl) Component will be determined using the formula in Note 1 below using Holding Company
consolidated Nl results. The table shows values rounded.
l{otG on Nl Componont:
1) Valu68 b6tw66n tho6e shown abovs will be interpolated using ttle fomula shown b€low;
Regresslon lntgrpolation LirE for Nl betwe6n $_ and t_ ls y = r(- _ and line foI Nl bstween t
and $_ is y = _ whsra X is th6 Nl rrsults lor th€ y€ar
2) Flnal Nl Number will bo mundsd to two placas to the ]ight of the d6clmal, Thb will be the sam€ number as reported to sharshoHsrs before any
approwd exceptons,
Exhibit l0o
2020 Nl Results N I Pcformance Component
o%
50%
1000/o
175%
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 194 o1229
Erhibit l0o
Operataons Gomponent:
The Operations Component (previously called Expanded Key Goals which aligns with BU and NBU incentive goals) for
2020 will be determined using the following formula and table:
Sum of Goal Performance Rating x Goal Weight Operations Component Factor(l )
2020 Operatlonal Goals
Goal3 God Po]fo]manco Rafng Go.l W.lght
Customer SatEfactlon Cust. S!t.Retlnq
oo
500/0
100%
150%
200%
16.667./.
Cu3tom.r Sethfaction
(Stafr lntGradion)
Cu3t- S!t. EdIDCo/. o%
o/o 10O'/.
b/" 200%
16.667%
Mlrkct ShaE & Grow{h
Ootal New Meter Sets)
Tot l lliwllltrr Srts_o%_1myo
2mo/o
R.tlnd
1G.86,7.h
Public Slfoty - Damagas
(o/. of calls Wresponse time less than 45 minutes)
:t-G.l[8!!. BslDc
% 100o/o
% 200%
16.067%
Publlc Sately . Odor Response
(% o, calls w/r€sponsg time less than 45 minutes)
:(3dt8u. E!ilnco/. ooa
% 100%
olo 2O0%
18.fi704
Employee Safety
Each factor weighted 50%
DART Rrto
Days Away R€strict6d Time
Pl{VC
No. of Pr€vsnlabh Motor Vahicle Collison
Ohere will be no payout under this metric in the went
of an on th€ job employe€ latality du€ to a prevenleble
safety incidont)
DART Rate Rttlnq
%00/o
o/b 1OO%
%zoooh
tG.G67%
PflVC E9IID!
0%
100%
2@oh
TOTAL 100%
Exhibit l0o
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 195 or229
Notoa on Oporations Goals
1) Goal ratings will be interpolated bstw€en amounG shown.
2) The Goal Performanca Rating for 6ach goal is limited to 200%.
3) The Operations Component is limited to 200% and the aggregate perlormance from this componsnt for use in the EAIP is limited lo 175olo
Final Notos on Company Performance Fac{or and Gencral:
1) Final EAIP Participant Awards to participanls willbe rounded up to the nearest $1,000,
2) Final Nl results for 2020 could be adiusted for the impact of certain events as determined by the OECC
Exhibit 10o
Exhibit l0o
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC-
Page I 96 of 229
Exhibit loq
,20-
Re: Change in Control Severance Agreement
Dear
Northwest Natural Gas Company, an Oregon corporation (the "Company"), a wholly-owned subsidiary ofNorthwest Natural
Hotding Company, an Oregon corporation ("Parent"), considers the establishment and maintenance ofa sound and vital management
to bc cssenlial to protecting and eniancing the best interests of the Company. In this connection, the Company recognizes that, as is
the case with many publicly held corporations like Parent, the possibility of a change in control may exist and that such possibility,
and the uncertainty and qucstions which it may raise among management, may result in the departure or distraction of management
personnel to the detriment of the Company, its customers and its shareholders. Accordingly, the Board of Directors ofthe Company
(the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and
{edication of members of the Company's management to their assigned duties without djstraction in circumstances arising from the
possibility ofa changc in control ofParcnt or the Company.
In order to induce you to remain in the employ ofthe Company, this letter agreement, which has been approved by the Board,
sets forth severance benefits which the Company agrees will be provided to you in the event your etnployment with the Company is
terminated in connection with a Change in Control (as defined in Section 3 hereot) under the circumstances described bclow. Thc
Company and you have entered into a prior letter agreement regarding change in control scvcrance benefits dated
20_. Upon your signature of this letter agreement, the prior agreement shall be amended and restated in its entirety in the form of
this agreement.
1. Ageement to Provide Services: Right to Terminate.
(i) Except as otherwise provided in paragraph (ii) bclow, the Company or you may terminate your employment at
any time, subject to the Company's providing the benefits hereinafter specified in accordance with the terms hereof.
(ii) tn the cvent ofa Potential Change in Control (as defined in Section 3 hereof), you agtee that you will not leave
the employ of the Company (other than as a result of Disability, as such term is bereinafter defined) and will render the services
contemplated in the recitals to this Agreement until the earliest of (a) a date which is 270 days from the occulrence of such Potential
Change in Control. or (b) a termination ofyour emplolment pursuant to which you become entitled under this Agreement to receive
the benefits providcd in Section 5(iii) bclow.
2. Term of Agreement. This Agreement shall commence on the date hereofand shall continue in effect until December 31,
2020; provided, however. that commencing on Jaauary 1,2021 and each January I thereafter, the term of this Agreement shall
automatically be extended for one additional year unless at least 90 days prior to such January I date, the Company or you shall have
given notice that this Agreement shall not be extended (provided that no such notice may be given by the Company during the
pendency of
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page'lg7 of 229
a Potential Change in Control); and provided, further, that this Agreement sha[[ continue in effect for a period of twenty-four (24)
months beyond the term provided herein if a Change in Control shall have occurred during such term. Nonvithstanding anything in
this Section 2 to the conEary, this Agreement shall terminate automatically if you or the Company terminate your employment prior
to the earlier of Shareholder Approval (as defined in Section 3 hereof), if applicable, or the Change in Control. In addition, the
Company may terminate this Agreement during your employment if, prior to the earlier of Shareholder Approval, if applicable, or
the Change in Control, you cease to hold your cunent position with the Company, except by reason ofa promotion.
3.
(i) For purposes of this Agreement, a "Change in Control" shall mean the occunence of any ofthe following events:
(A) The consummation of:
(1) any consolidation, merger or plan of share exchange involving Parent (a "Merger") as a result of which
the holders ofoutstanding securities ofParent ordinarily having the right to vote for the election ofdirectors ("Voting
Securities") immediately prior to the Merger do not continue to hold at least 50% ofthe combined voting power ofthe
outstanding Voting Securities of the surviving corporation or a parent corporation of the surviving corporalion
immediately after the Merger, disregarding aay Voting Securities issued to or retained by such holders in respect of
securities of any other party to the Merger;
(2) any consolidation, merger, plan of share exchange or other transaction involving the Company as a result
of which Pzrent does not continue to hold, directly or indirectly, at least 50% of the outstanding securities of the
Company ordinarily having the right to vote for the election of directors; or
(3) any sale, lease, exchange or other tmnsfer (in one tmnsaction or a series ofrelated transactions) ofall, or
substantially all, the assets ofPareflt or the Company;
(B) At any time during a period of fwo consecutive years, individuals who at the beginning of such period
constituted the board ofdirectors ofParent ("Incumbent Directors") shall cease for any reason to constifute at least a majority
thereof; provided, however, that the term "Incumbent Director" shall also include each new director elected during such two-
year period whose nomination or election was approved by two-thirds ofthe Incumbent Directors then in office; or
(C) Any Person (as hereinafter defined) shall, as a result of a tender or exchange offer, open market purchases or
privately negotiated purchases from anyone other than Parent, have become the beneficial owner (within the meaning ofRule
l3d-3 under the Securities Exchange Act of 1934), directly or indirectly, of Voting Securities representing twenty percent
(20%) or more ofthe combined voting power ofthe then outstanding Voting Secwities.
Notwithstanding anything in the foregoing to the contrary, unless otherwise determined by the Board, no Change in Control shall be
deemed to have occurred for purposes of this Agreement if (1) you acquire (other than on the same basis as all other holders of
shares of Common Stock of Parent or the Company) an equity interest in an entity that acquires Parent or the Company in a Change
in Conhol otherwise described under subparagraph (A) above, or (2) you are part of a group that constitutes a Person which becomes
a beneficial
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 198 of 229
owner of Voting Securities in a tra$action that otherwise would have resulted in a Change in Control under subparagraph (C) above
(ii) For purposes of this Agreement, a "Potential Change in Control" shall be deemed to have occurred if:
(A) Parent or the Company enters into an agreement, the consummation of which would result in the occurrence of a
Change in Control;
(B) any Person (including Parent or the Company) publicly anaounces an intention to take or to consider taking
actions which if consummated would constitute a Change in Confol; or
(C) the Board adopts a resolulion to the effect that, for purposes of this Agreement, a Potential Change in Control
has occurrcd.
(iii) For purposes of this Agreement, "Shareholder Approval" shall be deemed to have occurred if the shareholders
of Parent approve an agreement entered into by Parent, the consummation of which would result in the occulrence of a Change in
Contro[.
(iv) For purposes of this Ageement, the term "Person" shall mean and include any individual, corporation,
partnership, group, association or other "person," as such term is used in Section l4(d) ofthe Securities Exchange Act of 1934 (the
"Exchange Act"), other than Parent or the Company or any employee benefit plan sponsored by Parent or the Company.
4, Termination Following Shareholder Aooroval or Chanqe in ConEol. Ifa Change in Control occurs, you shall be entitled
to the benefits provided in Section 5(iii) hereof in the event that (x) a Date of Termination (as defined in Section 4(v) below) ofyour
employment with the Company occurred or occurs after the earlier of Shareholder Approval, if applicable, or the Change in Control
and no later than twenty-four (24) months after the Change in Control, or (y) your emplol,rnent with the Company is terminated by
you for Good Reason (as defined below) based on an event occuring concuffent with or subsequent to the earlier of Shareholder
Approval, if applicable, or the Change in Control and your Notice of Termination (as defined in Section 4(iv) below) in connection
therewith shall have been given no later than twenty-four (?4) months after the Change in Control; provided, however, that if any
such termination is (a) because of your death, (b) by the Company for Cause (as defined below) or Disability, or (c) by you other
than for Good Reason based on ar event occuring concurent with or subsequent to the earlier of Shareholder Approval, if
applicable, or the Change in Control, then you shall not be entitled to the benefits provided in Section 5(iii) hereof
(D Disabililv. Termination by the Company of your unployment based on "Disability" shall mean termination
because ofyour absence from your duties with the Company on a full-time basis for one hundred eighty (180) consecutive days as a
result ofyour incapacity due to physical or mental illness, unless within thirty (30) days after Notice of Termination is given to you
following such absence you shall have retumed to the full-time performance ofyour duties.
(ii) gAnEe. Termination by the Company of your employment for "Cause" shall mean termination upon (a) the
willful and continued failure by you to perlorm substantially your assigned duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness) after a demand for substantial performance is delivered to you by
the Chairman of the Board or Chief Executive Officer of the Company which specifically identifies the manner in which such
executive believes that you have not substantially performed your duties or (b) the willful engaging by you in illegal conduct
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO-. INC.
Page 1gg of 229
which is materially and demonstrably injudous to the Company. For purposes ofthis paragraph (ii), no act, or failure to act, on your
part shall be considered "willful" unless done, or omitted to be done, by you in knowing bad faith and without reasonable beliefthat
your action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority
given pwsuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by you in good faith and in the best interests of the Company. Notwithstanding the
foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy
of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a
meeting of the Board called and held for the purpose (after reasonable notice 1o you and an oppoflunity for you, togcther with your
counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of the conduct set forth
above in (a) or (b) of this paragraph (ii) and specifying the particulars thereof in detail.
(iiD Good Reason. Termination by you of your employment with the Company for "Good Reason" shall mean
termination by you of your employment with the Company based on any of the following events provided you give Notice of
Termination after the occurrence ofany ofthe following events and no later than 30 days after the later of(l) noticc to you ofsuch
event. or (2) the Change in Control:
(A) a change in your status, title, position(s) or responsibilities as an officer of the Company which does not
represent a promotion from your status, title, position(s) and responsibilities as in effect immediately prior to the earlier of
Shareholder Approval, if applicable, or the Change in Control, or the assignment to you of any duties or responsibilities
which are inconsistent with such status, title or position(s), or any removal of you ftom or any failure to reappoint or reelect
you to such position(s), except in connection with the termination of yoru employment for Cause or Disability or as a result
ofyour dcath or by you other than for Good Reason;
(B) a reduction by the Company in your base salary as in effecl immediately prior to the earlier of Shareholder
Approval, ifapplicable, or the Change in Conhol;
(C) the failure by the Company or Parent, as applicable, to continue in effect any Plan (as hereinafter defined) in
which you are participating immediately prior to the earlier of Shareholder Approval, if applicable, or the Change in Conhol
(or Plans providing you with at least substantially similar benefits) other than as a result ofthe normal expiration of any such
Plan in accordance with its terms as in effect immediately prior to the earlier of Shareholder Approval, if applicable, or the
Change in Control, or the taking of any action, or the failure to act, by the Company or Parent which would adversely affect
your continued participation in any ofsuch Plans on at least as favorable a basis to you as is the case immediately prior to thc
earlier of Shareholder Approval, if applicable, or the Change in Control or which would materially reduce your benefits in
the future under any of such Plans or deprive you of any material benefit enjoyed by you immediately prior to the earlier of
Shareholder Approval, ifapplicable, or the Change in Control;
(D) the failure by the Company to provide and credit you with the number of paid vacation days to which you are
then entitled in accordance with the Company's normal vacation policy as in effect immediately prior to the earlier of
Shareholder Approval, ifapplicable, or the Change in Control;
(E) the Company's requiring you to be based more than 30 miles from where your office is Iocated immediately
prior to the earlier of Shareholder Approval, if applicable, or the Change in Control except for required travel on the
Company's business to an extent substantially consistent with the business travel obligations which you undertook on behalf
ofthe Company prior to the earlier ofShareholder Approval, if applicable, or the Change in Control;
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Page 200 of 229
(F) the failwe by the Company to obtain from any Successor (as hereinafter defined) the assent to this Agreement
contemplated by Section 7 hereof;
(G) any purported termination by the Company of your emplol.rnent which is not effected pursuant to a Notice of
Termination satisrying the requirements of paragraph (iv) below (and, if applicable, paragraph (ii) above); and for purposes
ofthis Agreement, no such purported termhation shall be effective; or
(H) the failure by the Company to pay you any portion of your current compensation, to credit your account under
any defened compensation plan in accordance with your previous election, or to pay you any portion of an installment of
deferred compensation under any Plan in which you participated, within seven (7) days ofthe date such compensation is due.
For purposes ofthis Agreement, "Plan" shall mean any compensation plan such as an incentive, stock option or restricted stock plan
or any employee benefit plan such as a savings, pension, profit sharing, deferred compensation, medical, disability, accident, Iife
insurance, or relocation plan or policy or any other plan, program or policy ofthe Company or Parent intended to beneflt employees
ofthe Company.
(iv) Notice of Termination. Any purported termination by the Company or by you (other than termination due to
your death, which shall terminate your employment automatically) following the earlier of Shareholder Approval, if applicable, or a
Change in Control shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(A) With respect to any Notice of Termination given by you for Good Reason, such Notice of Termination may
indicate that such termination for Good Reason shall be conditioned upon, and postponed until, the date on which it is finally
determined, either by mutual written agreement of the parties or by the arbitrators in a proceeding as provided in Section 13
bereof, that Good Reason exists for such termination. Ifa Notice of Termination given by you for Good Reason indicates that
such termination shall be so conditioned and postponed, then, if the Company disputes the existence of Good Reason, the
Company shall, within thirty (30) days after the Notice of Termination is given, notifo you that a dispute exists conceming
the termination, whereupon Section 13 hereof shall apply to such dispute. If no such notice is given by the Company within
such 30-day period, then a final determination that Good Reason exists shall be deemed to have occurred on the date thirty
(30) days after the Notice ofTermination for Good Reason is given.
(B) Notwithstanding anlthing to the contrary in this Agreement:
( I ) if, at any time before the Date of Termination delermined pursuant to this Ageement with respect to any
purported termination by you of your employment with the Company, there exists a basis for the Company to
terminate your employment for Cause, then the Company may, regardless ofwhether or not you have given Notice of
Termination for Good Reason and regardless of whether or not Good Reason exists, terminate your employment for
Cause, in which event you shall not be entitled to the benefits provided in Section S(iii) hereof, and
(Z) if you die or your employment is terminated based on Disability after you have given Notice of
Termination for Good Reason and before the Date ofTermination determined
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 201 of229
under this Agreement with respect to that Notice of Termination, and it is subsequently finally determined that Cood
Reason existed at the time your employment terminated, then termination of your employment shall be deemed to
have occured for Good Reason (and not due to your death or Disability) and you shall be entitled to the benefits
provided in Section 5(iii) hereof.
(v) Date of Termination. "Date of Termination" shall mean the date your employment with the Company is
terminated following the earlier of Shareholder Approval, if applicable, or a Change in Conhol, which date shall be detennined as
follows:
(A) if your employment is to be terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that, if you shall have retumed to the performance of your duties on a full-time basis dwing such thirty (30) day
period, then the termination for Disability contemplated by the Notice of Termination shall not occur),
(B) if your emplo).rnent is terminated due to your death, the date of your death,
(C) ifyour employment is to be terminated by the Company other than for Disability, or ifyour employment is to be
terminated by you without a claim ofGood Reason, the date specified in the Notice ofTermination, and
(D) if your employment is to be terminated by you for Good Reason, the date ninety (90) days after the date on
which a Notice ofTermination is given, unless either:
( 1) an earlier date has been agreed to by the Company either in advance o{ or after, receiving such Notice of
Termination (in which case such earlier date shall be the Date ofTermination),
(2) pursuant to and in accordancc with Section 4(iv) you have indicated in your Notice of Termination that
you are conditioning your termination upon (and postponing such termination until) the date on which it is finally
determined that Good Reason exists for such termination (in which case the later of such date as determined in
accordancc with Section 4(iv) above, or the date otherwise determined under this Section 4(v)(D), shall be the Date of
Termination),
(3) the Company shall not have notified you within fifteen (15) days after a Notice of Termination for Good
Reason is given that it intends to fully correct the circumstances giving rise to Good Reason (in which case the date
fifteen (15) days after the Notice of Termination shall be the Date ofTermination), or
(4) if the Company gives notice as provided in Section a(vXD)(3) and if the circumstances giving dse to
Good Reason are fully corrected on or prior to the date that is ninety (90) days after such Notice of Termination was
given, then the termination for Good Reason contemplated by such Notice of Termination shall not occur.
(E) You shall not be obligated to perfonn any services after the Date of Termination that would prevent the
termination of your employment on such Date of Termination from qualifying as a "sqraration from service" as defined in
Treasury Regulations $ 1.409,{-1(h).
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO.. INC,
Page 2O2 of 229
5. Compensation Uoon Termination or During Disability.
(i) During any period following the earlier of Shareholder Approval, if applicable, or a Change in Conhol that you
fail to perform your duties as a result of incapacity due to physical or mental illness, you shall continue to receive your full base
salary at the rate then in effect and any benefits or awards under any Plans shall continue to accrue during such period, to the extent
not inconsistent with such Plans, until your employment is terminated pursuant to and in accordance with Sections 4(i) and 4(v)
hereof. Thereafter, your benefits shall be determined in accordance with the Plans then in effect
(ii) If your employment shall be terminated for Cause or as a result of death following the earlier of Shareholder
Approval, ifapplicable, or a Change in Control, the Company shall pay you your full base salary through the Date ofTermination at
the rate in effect just prior to the time a Notice of Termination is given plus any benefits or awards which pursuant to the terms of
any Plans have been eamed or become payable, but which have not yet been paid to you. Thereupon the Company shall have no
further obligations to you under this Agreement.
(iii) If a Change in Control occurs and either (a) after the earlier of Shareholds Apptoval, if applicable, or the
Change in Control and no later than twenty-four (24) months after the Change in Control, a Date ofTermination ofyour employment
with the Company occurred or occurs as a result of a termination by the Company other than for Cause or Disability, or (b) your
employment with the Company is terminated by you for Good Reason based on an event occurring concurrent with or subsequent to
the earlier of Shareholder Approval, if applicable, or the Change in Control and your Notice of Termination in connection therewith
shall have been given no later than twenty-four (24) months after the Change in Control, then, by no later than the fifth day
following the later ofthe Date of Termination or the Change in Control (except as may otlerwise be provided), you shall be entitled,
without regard to any contrary provisions ofany Plan, to a severance benefit as follows:
(A) the Company shall pay your fulI base salary through the Date of Termination at the rate in effect just prior to the
time a Notice of Termination is given plus any benefits or awards which pursuant to the terms of any Plans have been earned
or become payable, but which have not yet been paid to you; provided, however, that with respect to a termination of your
employment for Good Reason based on a reductiofl by the Company in your base salary as in effect immediately prior to the
earlier of Shareholder Approval, if applicable, or the Change in Control, the Company shall pay your full base salary through
the Date of Termination at the rate in effect just prior to such reduction plus any benefits or awards which pursuant to the
terms ofany Plans have been eamed or become payable, but which have not yet been paid to you;
(B) as severance pay and in lieu of any further salary for periods subsequent to the Date ol Termination, the
Company shall pay to you in a single payment an amount in cash equal to _ fimes the sum of (l ) the geater of (i) your
anxual rate of base salary in effect on the Date of Termination or (ii) your annual rate of base salary in effect immediately
prior to the earlier of Shareholder Approval, if applicable, or the Change in Conrol and (2) the greater of (i) the average of
the last three annual bonuses (annualized in the case of any bonus paid with respect to a partial year) paid to you preceding
the Date of Termination or (ii) the average of the last thee annual bonuses (annualized in the case of any bonus paid with
respect to a partial year) paid to you preceding the earlier of Shareholder Approval, if applicable, or the Change in Control;
and
(C) for a twenty-four (24) month period after the Date of Termination (specifically including a Date of Termination
that occurs aftcr Shareholder Approval and prior to a Change in Control), the Company shall arrange to provide you, your
spouse and your dependents with [ife,
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 203 of 229
accident and health insurance benefits substantially similar to those which you were receiving immediately prior to the earlier
of Shareholder Approval, if applicable, or thc Change in Control. Notwithstanding the foregoing, the Company shall not
provide any benefit otherwise receivable by you pursuant to this subparagaph (C) to the extent that a similar beneht is
actually received by you ftom a subsequent employer during such twenty-four (24) month period, and any such benefit
actually received by you shall be reported to the Company.
(iv) The amount ofany payment provided for in this Section 5 shall not be reduced, offset or subject to recovery by
the Company by reason of any compensation eamed by you as the result of employment by another ernployer after the Date of
Termination, or otherwise. Your entitlements under Section 5(iii) are in addition to, and not in lieu of, any rights, benefits or
entitlements you may have under the terms or provisions ofany PIan.
6. Parachute Pavments. Notwithstanding any other provision in this Agreement or any other agre€ment or arangement
between the Company or Parent and you with respect to compensation or benefits (each an "Other Arrangement"), in the event that
the provisions of Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended, or any successor provisions (the
"Code"), would cause you to receive a greater after-tax benellt from the Capped Benefit (as defined below) than from the amounts
(including the monetary value of any non-cash beneflts) otherwise payable pursuant to this Agreement or any Other Arrangement
(the "Specified Benefits"), the Capped Benefit shall be paid to you in lieu of the Specified Benefits. The 'Capped Benefit" shall
equal the Specified Benefits, reduccd by thc amount necessary to prevent any portion of the Specified Benefits from being a
"parachute pa)ment" as defined in Section 280G(bX2) of the Code. The Capped Benefrt would therefore equal 2.99 multiplied by
your applicable "base amount" as defined in Section 280G(bX3) of the Code, For purposes of determining whether you would
receive a greater after-tax benefit liom the Capped Benefit than from the Specified Benefits, there shall be taken into account any
excise tax that would be imposed under Section 4999 ofthe Code and all federal, state and local taxes required to be paid by you in
respect of the receipt of such payments. The parties acknowledge that the application of Section 280G is uncertain in many respects
and agree that the Company shall make all calculations and determinations under this section (including application and
interpretation of the Code and related regulatory, administrative and judicial authorities) in good faith, which calculations and
determinations shall be conclusive absent manifest error. The Company shall provide you with a reasonable opportunity to review
and comment on the Company's calculations ofthe Capped Benefit and to request which ofthe Specified Benefits shall be reduced.
If, after payment of any amount ulder this Agreement or any Other Arrangement, it is determined that the calculation ofthe Capped
Benefit was calculated inconectly, the amount of the Capped Benefit will be adjusted, the Company shall pay to you any additional
amount that should have been paid to you, ard you shall repay to the Company any amount that should not have been paid to you, in
each case with interest at the discount rate applicable under Section 280G(d)(4) ofthe Code,
7. Successors: Binding Aqreement
(i) Upon your written request, the Company will seek to have any Successor (as hereinafter defined), by agreement
in form and substance satisfactory to you, assent to the fulfillment by the Company of its obligations under this Agreement. For
purposes of this Agreement, "Successor" shall mean any Person that succeeds to, or has the practical ability to control (either
immediately or with the passage of time), the Company's business directly, by merger, consolidation or purchase of assets, or
indirectly, by purchase ofParent's or the Company's Voting Securities or otherwise.
(i0 This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be
payable to you hereunder ifyou had continued to live, all such
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 2O4 of 229
amounts, unless otherwise provided herein, shall be paid in accordancc with the terms of this Agreement to your devisee, legatee or
other designee or, ifthere be no such designee, to your estate.
8. Fees and Exnenses. The Company shall pay to you all legal fees and related expenses incurred by you in good faith as a
result of (i) your termination following the earlier of Shareholder Approval, ifapplicable, or a Change in Conhol (including all such
fees and expenses, if any, incurred in contesting or disputing in good faith any such termination) or (ii) your seeking to obtain or
enforce in good faith any right or benefit provided by this Agreement,
9. Survival. The respective obligations of, and benefits afforded to, the Company ard you as provided in Sections 5, 6, 7(ii),
8 and 13 of this Agreement shall survive termination of this Agreement, but only with respect to a Change in Control occurring
during the term ofthis Agreement.
10. Notice. For the purposes ofthis Agreement, notices and all other communications provided for in this Agreement shall
be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, retum receipt
requested, postage prepaid and adclressed to the address ofthe respective party set forth on the first page ofthis Agreement, provided
that all notices to the Company shall be directed to the attention of the Chairman of the Board or Chief Executive Officer of the
Company, with a copy to the Secretary ofthe Company, or to such other address as either party may have fumished to the other in
writing in accordance herewith, except that notice of change ofaddress shall be effective only upon receipt.
I l. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such modification,
waiver or discharge is agreed to in a writing signed by you and the Chairman of the Board or Chief Executive Officer of the
Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any
condition or provision of this Agreernent to be performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this Agreement shall be govemed by the laws of the State
of Oregon.
12. Validitv. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or
enforceability ofany other provision ofthis Agreement, which shall remain in full force and effect.
13, Arbitration, Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively
by arbitration in Portland, Oregon by tkee arbitrators in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrators' award, which award shall be a final and binding determination of the dispute or
controversy, in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance ofyour right
to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this
Agreement. The Company shall bear all costs and expenses of the arbitrators arising in connection with any arbitration proceeding
pursuant to this Section 13.
14. Related Aqreements. To the extent that any provision of any other agreement between the Company or any of its
subsidiaries and you shall limit, qualiff or be inconsistent with any provision of this Agreement, then for purposes of this
Agreement, while the same shall remain in force, the provision of this Agreement shall control and such provision of sucb other
agreement shall be deemed to have been superseded,
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 205 o1229
and to be of no force or effect, as if such other agreement had been formally amended to the extent necessary to accomplish such
PurPose,
15. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original,
but all of which together will constitute one and the same instrument.
If this letter correctly sets forth our agreement on the subject matter hereo{ kindly sign and r€tum to the Company the
enclosed copy ofthis letter which will then constitute our agreement on this subject.
Sincerely,
NORTHWEST NATURAL GAS COMPANY
By:
Agreed to this _ day
of _, 20_.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 208 ol 229
Exhibit l0x
PERI'ORMANCE SHARE LONG TERM INCENTIVE AGREEMENT
This Agreement is entered into as of February ,2020, between Northwest Natural Holding Company, an Oregon
corporation (the "Company"), and ("Recipienf')
On February 26, 2020, the Organization and Executive Conrpensation Committee (the "Committec") ofthe Company's
Board ofDirectors (the "Board") authorized a performance-based stock award (the "Award") to Recipient pursuant to Section 6 of
the Company's Long Term Incentive Plan (the "Plan"). Recipient desires to accept the Award subject to the terms and conditions of
this Agreement-
NOW, THEREFORE, the parties agree as follows:
L Award. Subiect to the terms and conditions ofthis Ageemcnt, the Company shall issue or otherwise deliver to the
Recipient the number of shares ofCommon Stock ofthe Company (tht "Performance Shares") determined under this Agreement
based on (a) the performance of the Company during lhe lhree-year period from January I . 2020 lo December J l, 2022 (the "Au ard
Period") as described in Secrion 2 and 1b) Recipient's continued employment during the Award Period as described in Section l. If
the Company issues or otherwise delivers Perfonnance Shares to Recipient. the Company shall also pay to Recipient the amomt ol
cash det6rm[ned under Section 4 (the "Dividcnd Equivalent Cash Award"). Recipient's 'Target Share Amount'' lbr purposes oI this
Asreement is shares
2. PerformanceConditions
2.1 Pavout Factor. Subject to possible reduction under Section 3, the number ofPerformance Shares to be issued or
otherwise delivcrcd to Recipient shall be determined by multiplying thc Payout Factor (as deflned below) by the Target Share
Amount. The "Payout Factor" shall be equal to (a) the TSR Modifier as determined under Section 2.2, rnultiplied by (b) the EPS
Payout Factor as determined under Section 2.3 below; provided, however, that the Payout Factor shall not be greater than 200% and
the Payout Factor shall be 0% ifthe ROIC Performance Threshold (as defined in Section 2.4 below) is not satisfied. Notwithstanding
the foregoing, ifa Change in Control (as defined in Section 3.7) occurs before the last day olthe Award Period, thc Payout Factor
shall be 100%.
2.2 TSR Modifier
(a) The "TSR Modifier" shall be determined under the table below based on the TSR Percentile Rank (as
dcfined bclow) ofthe Company:
TSR Percentile Rank TSR Modiher
less than 25%
Z5Y, to 15Y.
more than 75olo
75%
100%
125%
(b) To determine the Company's "TSR Percentilc Rank," the TSR ofthe Company and each ofthe Peer
Group Companies (as defined below) shall be calculated, and the Peer Group Companies shall be ranked based on their respective
TSR's from lowest to
EXHIBIT 2
PALFREYIIIAN, DI
FALLS WATER CO,, INC.
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highest. Ifthe Company's TSR is equal to the TSR ofany other Peer Group Company, the Company's TSR Percentile Rank shall be
equal to the number ofPeer Group Companies with a lower TSR divided by the number that is one less than the total number ofPeer
Group Companies, with the resulting amount expressed as a percentage and rounded to the nearest tenth of a percentage point. If the
Company's TSR is between the TSRs ofany two Peer Group Companies, the TSR Percentile Ranks ofthose two Peer Group
Companies shall be determined as set forth in the preceding sentence, and the Company's TSR Percentile Rank shall be interpolated
as follows. The excess ofthe Company's TSR over the TSR ofthe lower Peer Group Company shall be divided by the excess ofthe
TSR ofthe higher Peer Group Company over the TSR ofthe lower Peer Group Company. The resulting fiaction shall be multiplied
by thc difference between the TSR Percentile Ranks of the two Peer Group Companies. The product ofthat calculation shall be
added to the TSR Percentile Rar < of the lower Peer Group Cornpany, and the resulting sum (rounded to the nearest tenth of a
percentage point) shall be the Company's TSR Percentile Rank. The intent ofthis definition ofTSR Percentile Rank is to produce
the same result as calculated using the PERCENTRANK frnction in Microsoft Excel to determine the rank of the Company's TSR
within the array consisting ofthe TSRs ofthe Peer Group Companies.
(c) The "Peer Group Companies" consist ofthose companies that were components ofthe Russell 2500
Utilities Index on October l, 2019 and that continue to be components ofthe Russell 2500 Utilities Index through December 31,
2022. lf the Russell 2500 Utilities Index ceases to be published prior to December 31, 2022, the Peer Group Companies shall consist
of those companies that rvere components ofthe Russell 2500 Utilities Index on October l, 2019 and that continued to have publicly-
traded cofilmon stock through December 31,2022.
(d) The "TSR' for the Company and each Peer Group Company shall be calculated by ( I ) assuming that
$100 is invested in the common stock ofthe company at a pdce equal to the average ofthe closing market prices ofthe stock for the
period from October l, 2019 to December 31, 2019, (2) assuming that for each dividend paid on the stock during the Award Period,
the amount equal to the dividend paid on the assumed number ofshares held is reinvested in additional shares at a price equal to the
closing market price ofthe stock on the ex-dividend date for the dividend, and (3) determining the final dollar value ofthe total
assumed number of shares based on the average of the closing market prices ofthe stock for the period from October 1,202? to
December 31,2022. The "TSR" shall then equal the amount determined by subkacting $ 100 from the foregoing final dollar value,
dividing the result by 100 and expressing the resulting fraction as a percentage.
(e) Ifduring the Award Period any Peer Croup Company enters into an agreement pursuant to which all or
substantially all ofthe stock or assets ofthe Peer Group Company will be acquired by a third party (a "Signed Acquisition"), and if
the Signed Acquisition is not completed by the end ofthe Award Period, then that company shall not be a Peer Group Company. If a
Signed Acquisition ofa Peer Group Company is terminated (other than in connection with the execution ofanother Signed
Acquisition) before the end ofthe Award Period, then that company shall remain a Peer Group Company, and the TSR for that Peer
Group Company shall be calculated as provided in Section 2.2(d), except that ifthe announcement of
z
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Paga 208 of 229
the tcrmination ofthe Signed Acquisition occurs during the last three months ofthe Award Period, for purposes ofdetermining the
final dollar value under clausc (3) of Section 2.2(d), the three-month period for which closing market priccs are averaged shall be
shortened to exclude any trading days preceding the announcement ofthe termination ofthe Signed Acquisition.
2.3 EPS Pavout Factor.
(a) The "EPS Payout Factor" shall be determined under the table below based on the Cumulative EPS
Achievement Percentage (as defined below) achieved by the Company for the Award Period:
Cumulative EPS Achievement
Perc€ntage EPS Pavout Factor
0%
40%
100%
I 85%
Ifthe Company's Cumulative EPS Achievement Percentage is between any two data points set forth in thc first column ofthe above
table, the EPS Payout Factor shall be interpolated as follows. The excess ofthe Company's Cumulative EPS Achievement
Perccntagc over the Cumulative EPS Achievement Percentage of the lower data point shall be divided by the excess ofthe
Cumulative EPS Achievement Percentage ofthe higher data point over the Cumulative EPS Achievement Percentage ofthe lower
data point. The resulting fraction shall be multiplied by the difference between the EPS Payout Factors in the above table
corresponding to the two data points- The product ofthat calculation shall be rounded to the nearest hundredth of a percentage point
and then added to the EPS Payout Factor in the above table conesponding to the lower data point, and the resulting sum shall be the
EPS Payout Factor.
(b) The Company's "Cumulative EPS Achievement Percentage" for thc Award Period shall equal the
Cumulative EPS (as defined bclow) divided by the Cumulative EPS Target (as defined beJow), cxprcssed as a percentage and
rounded to the nearest tenth of a percentage point.
(c) Thc Company's "Cumulative EPS" for the Av',ard Period shall cqual the sum ofthe Company's diluted
eamings per share of common stock ("EPS") for each ofthe three years in the Award Period. Subject to adjustment in accordance
with Section 2.5 below, the Company's diluted eamings per share of common stock for any ycar shall be as set forth in the audited
consolidated hnancial statem€nts ofthe Company and its subsidiaries for that year. After giving effect to any adjustments required
by Section 2.5, the EPS for each year shall be rounded to the nearest penny.
(d) Thc Company's "Cumulative EPS Target" for the Award Pcriod shall equal the sum ofthe EPS targets
approved by the Committee for each ofthe three years in the Award Period. The EPS target for the first year ofthe Award Period as
approved by the Committee is $_. Within the first 90 days of the second year of the Award Period, the
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PALFREYMAN. DI
FALLS WATER CO,, INC,
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Committee shall approve the EPS target for that year. Within the first 90 days ofthe third year ofthe Award Period, the Committee
shall approve the EPS target for that year.
2.4 ROIC Performance Threshold.
(a) For purposes ofthis Agreement, the "ROIC Performance Threshold" shall be satisfied if the Company's
Average ROIC (as defined below) for the Award Period is greater than or equal to _%.
(b) Thc Company's "Avcrage ROIC" for the Award Period shall equal the simple average ofthe Company's
ROIC (as defined below) for each ofthe three years in the Award Period, rounded to the nearest hundredth ofa percentage point.
The Company's "ROIC" for any year shall be calculated by dividing the Company's Adjusted Net lncome (as defined below) for the
year by the Company's Average Long Term Capital (as defined below) for the year, and rounding the result to the nearest hundredth
ofa percentage point. Subject to adjustment in accordance with Section 2.5 below, the Company's "Adjusted Net Income" for any
year shall be equal to the Company's net income for the year, increased by the Company's interest expense, net for the year and
reduced by the Company's interest income (including net interest on defered regulatory accounts) for the year, in eacb case as set
forth in the Company's Annual Report on Form 10-K for that year. "Average Long Term Capital" for any year shall mean the
average ofthe Company's Long Term Capital (as defined below) as ofthe last day ofthe year and the Company's Long Term
Capital as ofthe last day ofthe prior year. Subject to adjustment in accordnnce with Section 2.5 below, "Long Term Capital" as of
any date shall equal the sum ofthe Company's total shareholders' equity as ofthat date and the Company's long-term debt
(including current maturities) as ofthat date, in each case as set forth on the audited consolidated balance sheet of the Company as of
that date.
2.5 EPS and ROIC Adjustments. The Committee may, at any time, approve adjustments to thc calculation of
Cumulative EPS and/or Average ROIC to take into account such unanticipated circumstances or significant, non-recurring or
unplamed events as the Committee may determine in its sole discretion, and such adjustments may increase or decrease Cumulative
EPS and/or Average ROIC, Possible circumstances that may be the basis for adjustments shall include, but not be limited to, any
change in applicable accounting rules or principles; any gain or loss on the disposition ofa business; impainnent ofassets; dilution
caused by Board approved business acquisition; tax cbanges and tax impacts of other changes; changes in applicable laws and
regulations; changes in rate case timing; changes in the Company's structurei and any other circumstances outside ofmanagement's
control.
3- Emolor,ment Condition.
3.1 Except as provided in Sections 3.2,3.3 or7.2, in order to receive a payout ofPerformance Shares, Recipient
must be employed by the Company or any parent or subsidiary ofthe Company (the "Employer") on the last day ofthe Award
Period,
3.2 IfRecipient's employment by the Employer is terminated at any time prior to the end ofthe Award Period
because ofdeath, physical disability (within the meaning of Section 22(e)(3) ofthe Intemal Revenuc Code of 1986 (thc *Code")), or
Retircmcnt (unless such
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EXHIBIT 2
PALFREYT,IAN, DI
FALLS WATER CO,, INC,
Page 210 ot 229
Retirement results fiom a termination ofRecipient's employment by lhe Employer for Cause), Recipient shall be entitled to receive a
pro-rated award. The number of Performance Shares to be issued or otherwise delivered as a pro-rated award under this Section 3.2
shall be determined by multiplying the number of Performance Shares determined under Section 2 by a fiaction, the numerator of
which is the number ofdays Recipient was employed by Employer during the Award Period and the denominator ofwhich is the
number ofdays in the Award Period. IfRecipient's employment by the Employer terminates because of Retirement, death or
physical disability and a Change in Contrcl subsequently occurs before the end ofthe Award Period, the number ofPerformance
Shares determined under Section 3.3 shall immediately be paid to Recipient. Ifa Change in Control occurs and Recipient's
employment by the Employer subsequently terminates before the end ofthe Award Period because of Retirement, death or physical
disability, the number ofPerformance Shares determined under Section 3.3 shall immediately be paid to Recipient,
3.3 CIC Acceleration.
(a) IfRecipient is a party to a Change in Control Severance Agreement with the Company or a parent or
subsidiary ofthe Company, Recipient shall immediately be paid a pro-rated award ifRecipient becomes entitled to a Change in
Control Severance Benefit (as defined below). The number ofPerformance Shares to be issued or otherwise delivered as a pro-rated
award under this Section 3.3 shall be determined by multiplying the Target Share Amount by a fraction, the numerator ofwhich is
the number of days Recipient was employed by the Employer during the Award Period and the denominator of which is the number
ofdays in the Award Period. A "Change in Control Severance Benefit" means the severance benefit provided for in Recipient's
Change in Control Severance Agreement with the Company or a parent or subsidiary ofthe Company; provided, however, that such
severance benefit is a "Change in Control Severance Benefit" for purposes ofthis Agreement only it under the terms ofRecipient's
Change in Conhol Severance Agreement, Recipient becomes entitled to the severance benefit (i) after a Change in Control ofthe
Company has occuned, (ii) because Recipient's employment with the Employer has been terminated by Recipient for good reason in
accordance with the terms and conditions ofthe Change in Conhol Severance Agreement or by the Employer other than fbr cause,
and (iii) because Recipient has satisfied any other conditions or requirements specified in the Change in Control Severance
Agreement and necessary for Recipient to become entitled to receive the severance benefit- For purposes ofthis Section 3-3(a), the
terms "change in control," "good reason," "cause" and "disability" shall have the meanings set forth in Recipient's Change in
Control Severance Agreement.
(b) lf Recipient is loll a party to a Change in Control Severance Agreement with the Company or a parent or
subsidiary ofthe Company, Recipient shall immediately be paid a pro-rated award in the amount stated in Section 3.3(a) ifa Change
in Conhol (as defined in Section 3.7 below) occurs and at any time after the earlier of Shareholder Approval (as dehned in Section
3.8 below), if any, or the Change in Control and on or before the second anniversary of the Change in Control, (i) Recipient's
employment is terminated by the
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EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Paae 21 1 of 229
Employer (or its successor) without Cause (as defined in Section 3.6 below), or (b) Recipient's employment is terminated by
Recipient for Good Reason (as dcfined in Section 3.9 below).
3 .4 If Recipient's employment by the Employer is terminated at any time prior to the end of the Award Period and
Section 3.2, 3.3 rr1 7.2 does not apply to such termination, Recipient shall not be entitled to receive any Performance Shares.
3.5 "Retirement" shall mean termination ofemployment (a) on or after the first annivcrsary ofthc datc ofthis
Agreement, and (b) after Recipient is ( l) age 62 with at least five years ofservice as an employee ofthe Company or a parent or
subsidiary of the Company, or (2) age 60 with age plus years ofservice (including fractions) as an employee ofthe Company or a
parent or subsidiary of the Company totaling at least 70.
3.6 "Cause" shall rnean (a) the u.illful and continued failure by Recipient to perform substantially Recipient's
assigned duties with the Employer (other than any such failure resulting from incapacity due to physical or mental illncss) aftcr a
demand for substantial performance is delivered to Recipient by the Employer which specifically identifies the manner in which
Recipient has not substantially performed such duties, (b) willful commission by Recipient of an act of fiaud or dishonesty resulting
in economic or flnancial injury to the Company or Employer, (c) willful misconduct by Recipient that substantially impairs the
business or rcputation of the Company or Employer, or (d) willful gross negligence by Recipient in the performance ofhis or her
duties.
71
following events:
For purposes of this Agreement, a "Change in Control" of the Company shall mean the occuffence of any ofthe
(a) The consummation of:
(l) any consolidation, merger or plan ofshare exchange involving the Company (a "Merger") as a
result of which the holders ofoutstanding securities ofthe Company ordinarily having the right to vote for the election ofdirectors
('Voting Securitics") immcdiatcly prior to thc Mcrgcr do not continue to hold at least 50% ofthc combined voting power ofthe
outstanding Voting Securities ofthe surviving corporation or a parent corporation ofthe surviving corporation immcdiately aftcr thc
Merger, disregarding any Voting Securities issued to or retained by such holders in respect ol'securities ofany other party to the
Merger; or
(2) any consolidation, merger, plan ofshare exchange or other tmnsaction involving Northwest
Natural Gas Company ("NW Natural") as a result of which the Company does not continue to hold, directly or indirectly, at least
50% ofthe outstanding securities ofNW Natural ordinarily having the dght to vote for the election of directorsl or
(3) any sale, lease, exchange or other transfer (in one transaction or a series ofrelated transactions) of
all, or substantially all, the assets ofthe Company or NW Natural;
(b) At any time during a period of two consccutive years, individuals who at thc beginning of such period
constituted the Board ("Incumbent Directors") shall cease
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FALLS WATER CO,, INC,
Page 212 ot 229
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for any reason to constitute at least a majority thereof; provided, however, that the term "Incumbent Directol'shall also include each
new dircctor clcctcd during such hvo-year period whose nomination or election was approved by two-thirds ofthe Incumbent
Directors then in office; or
(c) Any person (as such term is used in Section l4(d) ofthe Securities Exchangc Act of 1934, other than the
Company or any employee benefit plan sponsored by the Cornpany or NW Natural) shall, as a result of a tender or exchange offer,
open market purchases or privately negotiated purchases from anyone other than the Company, have become the beneficial owner
(within the meaning of Rulc l3d-3 underthe Securitics Exchange Act of 1934), directly or indirectly, of Voting Securities
representing twenty percent (20%) or more ofthe combined voting power ofthe then outstanding Voting Securities.
3.8 For purposes ofthis Agreement, "Shareholder Approval" shall be deemed to have occurred if the shareholders of
the Compaay approve an agreement entered into by the Company, the consummation ofwhich would result in the occurrence ofa
Change in Conhol.
3.9 For purposes of this Agrccment, "Good Reason" shall mean the occurrence after Shareholder Approval, if
applicable, or the Change in Conhol, olany ofthe following circumstances, but only if(x) Recipient gives notice to Employer of
Recipient's intent to terminate employment for Good Reason within 30 days after the later of ( 1) notice to Recipient of such
circumstances, or (2) the Change in Control, and (y) such circumstances arc not fully corrected by the Employer within 90 days after
Recipient's notice:
(a) the assignment to Recipient ofa different title,job or responsibilities that results in a decrease in the level
ofRecipient's responsibility; provided that Good Reason shall not exist ifRecipient continues to have the same or a greater general
level of responsibility for the formcr Employer operations after the Change in Control as Recipient had prior to the Change in
Conftol even though such responsibilities have necessarily changed due to the former Employer operations becoming a subsidiary or
division of the surviving company;
(b) a reduction by the Employer in Recipient's base salary as in effect immediately prior to the earlier of
Shareholder Approval, if applicable, or the Change in Control;
(c) the failure by Employer to continue in effect any employee benefit or incentive plan in which Recipient is
participating immediately prior to the earlier of Shareholder Approval, ifapplicable, or the Change in Control (or plans providing
Recipient with at least substantially similar benefits) other than as a result of the normal expiration of any such plan in accordance
with its terms as in effect immediately prior to the earlier of Shareholder Approval, ifapplicable, or the Change in Confiol, or the
taking of any action, or the failure to act, by Employer which would adversely affect Recipiert's continued participation in any of
such plans on at least as favorable a basis to Recipient as is the case immediately prior to the earlier of Shareholder Approval, if
applicable, or the Changc in Control or which would materially reduce Recipient's benefits in tlre future under any of such plans or
deprive Recipient of any material benefit enjoyed by Recipient immediately pdor to the earlier of Shareholder Approval, if
applicable, or the Change in Conttol;
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EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 213 of 229
(d) the failure by the Employer to provide and credit Recipient with the number of paid vacation days to
which Recipient is then entitled in accordance with the Employer's nomral vacation policy as in effect immediately prior to the
earlier of Shareholder Approval, ifapplicable, or the Change in Conffol; or
(e) the Employer's requiring Recipient to be based more than 30 miles from where Recipient's offrce is
located immediately prior to the earlier ofShareholder Approval, ifapplicable, or the Change in Control except for required travel on
the Employer's business to an extent substantially consisteflt with the business havel obligations which Recipient undertook on
behalf ofthe Employer prior to the earlier of Shareholder Approval, ifapplicable. or the Change in Control.
4. Dividend Equivalent Cash Award. The amount of the Dividend Equivalent Cash Award shall be determined by
multiplying the number of Performance Shares deliverable to Recipient as determined under Sections 2 and 3 by lhe total amount of
dividends paid per share ofthe Company's Common Stock for which the dividend record date occuned aftcr the beginning ofthe
Award Period and before the date ofdeliverv ofthe Performance Shares.
5. Certification and Pa,rrment. At the regularly scheduled meeting of the Committee held in February of the year
immediately following the final year of the Award Period (the "Certification Meeting"), the Committee shall review the Company's
results for the Award Period, Prior to the Certification Meeting, the Company shall calculate the number ofPerformance Shares
deliverable and the amount ofthe Dividend Equivalent Cash Award payable to Recipient, and shall submit these calculations to the
Committee. At or prior to the Certification Meeting, the Committee shall certify in writing (which may consist of approved minutes
ofthe Certification Meeting) the number ofPerformance Shares deliverable to Recipient and the amount ofthe Dividend Equivalent
Cash Award payable to Recipient. Subject to applicable ta\ withholding, the amounts so certified shall be delivered or paid (as
applicable) on a date (the "Payment Date") that is the later of March l, 2023 or five business days following the Certification
Meeting, and no amounts shall be delivered or paid prior to certification. No fractional shares shall be delivered and the number of
Performance Shares deliverable shall be rounded to the nearest whole share- Notwithstandiflg the foregoing, ifRecipient shall have
made a valid election to defer receipt ofPerformance Shares or the Dividend Equivalent Cash Award pursuant to the terms of
Northwest Natural's Deferred Compensation Plan for Directors and Executives (the "DCP'), payment of the award shall be made in
accordance with that election.
6. Tax Withholding. Recipient acknowledges that, on the Payment Date when the Performance Shares are issued or
otherwise delivered to Recipient, the Value (as defined below) on that date ofthe Performance Shares (as well as the amourt ofthe
Dividend Equivalent Cash Award) will be treated as ordinary compensation income for federal and state income and FICA tax
purposes, and that the Employer will be required to withhold taxes on these income amounts. To satisf,i the required withholding
amount, the Employer shall first withhold all or part of the Dividend Equivalent Cash Arvard, and ifthat is insuffrcient, the Employer
shall withhold the number of Performance Shares having a Value equal to the remaining withholding amount. For purposes ofthis
Section 6, the "Value" of a Performance Share shall be equal to the closing market price for Company Common Stock on the last
trading day preceding the Payment Date.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 214 ol 229
8
Notwithstanding the foregoing, Recipient may elect not to have Performance Shares withheld to cover taxes by giving notice to the
Company in writing prior to the Payment Date, in which case the Performance Shares shall be issued or acquired in the Recipient's
name on the Payment Date thereby triggering the tax consequences, but the Company shall retain the certificate for the Performance
Shares as security until Recipient shall have paid to the Company in cash any required tax withholding not covered by withholding
ofthe Dividend Equivalent Cash Award,
7. Sale ofthe Comnanv. Ifthere shall occur before the Payment Date a merger, consolidation or plan of exchange involving
the Company pursuant to which the outstanding shfies ofCommon Stock ofthe Company are converted into cash or other stock,
securities or property, or a sale, lease, exchange or other transfer (in one transaction or a series ofrelated transactions) ofall, or
substantially all, the assets ofthe Company (either, a "Company Sale"), then either:
7.1 the unvested Performance Shares shall be converted into reshicted stock units for stock ofthe surviving or
acquiring corporation in the applicable transaction, with the amount and t)?e ofshares subject thereto to be conclusively determined
by the Committee, taking into account the relative values of the companies involved in the applicable transaction and the exchange
rate, ifany, used in determining shares ofthe surviving corporation to be held by the former holders ofthe Company's Common
Stock following the applicable transaction, and disregarding fractional shares; or
7.2 a pro-rated number of Performance Shares and the related divrdend equivalent cash payment shall be delivered
simultaneously with the closing ofthe applicable transaction such that Recipient will participate as a shareholder in receiving
proceeds fiom such transaction with respect to those shares. The number of Performance Shares to be delivered as a pro-rated award
under this Section 7.2 shall be determined by multiplying the Target Share Amount by a ftaction, the numerator of which is the
number of days ofthe Award Period elapsed prior to the closing ofthe transaction and the denominator of which is the number of
days in the Award Period.
8. Changes in Capital Structure. Ifthe outstanding Common Stock ofthe Company is hereafter increased or decreased or
changed into or exchanged for a different number or kind of shares or other securities ofthe Company by reason of any stock split,
combination ofshares or dividend payable in shares, recapitalization or reclassification, appropriate adjustment sha[[ be made by the
Committee in the number and kind of shares subject to this Agrcement so that the Recipient's proportionate interest before and after
the occurrence ofthe event is maintained.
9. Recounment On Misconduct.
9 , I If at any time before a Change in Control and within three years after the Pa),ment Date, the Committee
determines that Recipient engaged in aay Misconduct (as defined below) during the Award Period that contributed to ar obligation
to restate the Company's financial statements for any quarter or year in the Award Period or that otherwise has had (or will have
when publicly disclosed) an adverse impact on the Company's cornmon stock price, Recipient shall repay to the Company the
Excess LTIP Compensation (as defined below). The term "Excess LTIP Compensation" means the excess of(a) the number of
Performance Shares
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EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC.
Page 215 of 229
and the amount ofthe Dividend Equivalent Cash Award as originally calculated and certified under Section 5 ofthis Agreement,
over O) the number of Performance Shares and the amount of the Dividend Equivalent Cash Award as recalculated (1) for the TSR
Modifier, assuming that the average ofthe closing market prices oflhe Company's common stock for the period from October 1,
2022 to December 31, 2022 was an amount determined appropriate by the Committee in its discretion to reflect what the Company's
common stock price would have been if the restatement had occurred or other Misconduct had been disclosed prior to October 1,
2022, and (2) for the EPS Payout Factor and the ROIC Performance Threshold, based on the Company's financial statements for all
years ofthe Award Period as restated. The Committee may, in its sole discretion, reduce the amount ofExcess LTIP Compensation
to be repaid by Recipient to take into account tlle tax consequences of such repayment or any other factors. Ifany Pcrformance
Shares included in the Excess LTIP Compensation are sold by Recipient prior to the Company's demand for repayment (including
any shares withheld for taxes under Section 6 ofthis Agreement), Recipient shall repay to the Company 100% ofthe proceeds of
such sale or sales. The retum ofExcess LTIP Compensation is in addition to and separate from any other reliefavailable to the
Company due to Recipient's Misconducl.
9.2 "Misconduct" shall mean (a) willful commission by Recipient of an act of fraud or dishonesty resulting in
economic or financial injury to the Company, (b) willful misconduct by Recipient that substantially impairs the Company's business
or reputation, or (c) willful gross negligence by Recipient in the performance of his or her duties.
9.3 If any portion ofthe Performance Shares or the Dividend Equivalent Cash Award was deferred under the DCP,
the Excess LTIP Compensation shall first be recovered by canceling all or a portion ofthe amounts so deferred under the DCP and
any dividends or other earnings credited under the DCP with respect to such caacelled amounts. The Company may seek direct
repayment from Recipient ofany Excess LTIP Compensation not so recovered and may, to the extent permitted by applicable law,
offset such Excess LTIP Compensation against any compensation or other amounts owed by the Company to Recipient. In
particular, Excess LTIP Compensation may be recovered by offset against the after-tax proceeds ofdeferred compensation payouts
under the DCP, Northwest Natural's Executive Supplemental Rettement Income PIan or Northwest Natural's Supplemental
Executive Retirement Plan at the times such deferred compensation payouts occur under the terms ofthose plans. Excess LTIP
Compensation that remains unpaid for more than 60 days after demand by the Company shall accrue interest at the rate used from
time to time for crediting interest under the DCP.
10- Approvals. The obligations ofthe Company uader this Agreement are subject to the approval ofstate and federal
authorities or agcncies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal
law or applicable regulations, including rules and regulations ofthe Securities and Exchange Commission and any stock exchange
on which the Company's shares may then be listed, in connection with the award under this Agreement. The foregoing
notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under this Agreement if such issuance or
delivery would violate applicable state or federal law.
l0
EXHIBIT 2
PALFREYI.IAN, DI
FALLS WATER CO., INC.
Page 216 o1229
1 1. No Right to Emplovment. Nothing contained in this A$ccmcnt shall confer upon Recipient any right to be employed by
the Employer or to continue to provide services to the Employer or to interfere in any way with the right ofthe Employer to
terminate Recipient's services at any time for any reason, with or without caus€.
12. Miscellaneous.
12.1 Entire Agreemcnt: Amendrnent. This Agreement constitutes the entire agreenent ofthe parties u'ith regard to
the subjects hereofand may be amended only by written agreement between the Company and Recipient.
12.2 Nglicss. Any notice required or permitted under this Agreement shall be in writing and shall be deemed
sufficient when delivered personally to the party to whom it is addressed or when deposited into the United States Mail as registered
or certified mail, retum receipt requested, postage prepaid, addressed to the Conrpany, Attention: Corporate Secretary, at its principal
exccutivc ofhces, or to Employer, Attention: Colporate Secretary, at its principal executive offices, or to Recipient at the address of
Recipient in the Company's records, or at such other address as such party may designate by ten ( l0) days' advance wr-itten notice to
th€ other party.
12.3 Assignment: Rights and Bcncfits- Recipient shall not assign this Agreement or any rights hereunder to any
other party or parties without the prior $Titten consent ofthe Compmy. The rights and benefits ofthis Agreement shall inure to the
benefit of and be enforceable by the Company's successors and assigns and, subject to the loregoing restriction on assignment, be
binding upon Recipient's heirs, cxecutors, administrators, successors and assigns.
12.4 Further Action. The parties agree to execute such further instruments and to take such further action as may
reasonably be necessary to carry out the intent ofthis Agreement.
12.5 Aoolicable Law: Attomevs' Fees. The terms and conditions ofthis Agreement shall be govemed by the laws of
rhe State of Oregon. In the event either party institutes litigation hereunder, the prevailing party shall be entitled to reasonable
attomeys' fees to be set by the trial court and, upon any appeal, the appellate court.
12.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original.
ll
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 217 o1229
IN WITNESS WHEREOF, tho parties hereto have executed this Agreement a$ ofthe day and year first above urritten.
NORTHWEST NATIJRAL HOLDING COMPANY
By
Title
RECIPIENT
t2
EXHIBN 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 218 ot229
Exhlblt 2'l
SUBSIDIARIES OF NORTHWEST NATURAL HOLDING COMPANY
an Oregon Corporation
Namo ofsubsidiary Juri3diction Organized
Norther€6t Nalural Gas Company (dba NW Natural)
Northwest Energy Corporation(1)
NWN Gas Reserves LLC(1)
Gill Ranch Slorage, LLC
NW Natuml Energy, LLC
NW NaturBl Gas Storage, LLC
NNG Financial Corporation
Trail Wesl Holdings, LLC
Trail West Pipeline. LLC
BL Credit Holdings, LLC
Northwesl Biogas, LLC
KB Pipelln€ Company
NW Natural Water Company, LLC
NW Natural Water Company of Oregon, LLC
Sunstone W€ter, LLC
Sunstone lnfrastructure, LLC
Sunrlvcr Water LLc
Sunriv€r Environm6ntal LLC
NW NaturalWater Company ofWashin$on, LLC
Cascadia Water, LLC
Cascadia lnfrastructure, LLC
Suncadia Water Company, LLC
Orsgon
Oregon
Orcgon
Oregon
Oregon
Oregon
Oregon
Delawere
O€lawarc
Delaware
Oregon
Oregon
Or€gon
Oregon
Oregon
Oregon
Oregon
O169on
Washington
Washington
Washington
Washington
Suncadia Environmental Company, LLC Washington EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 219 ot 229
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 220 of 229
Exhlbtt 21
NW Natural Weler company of Idaho, LLC
Gsm Stat6 Water Company, LLC
Gem State lnf.astructurE, LLC
NW NaturalWat6r of T€xas, LLC
Blug Topaz Water, LLc
Blu6 Topaz lnfrastmcture, LLC
Salmon Vall.y Water Company
Fall$ Wator Co., lnc.
(l ) Sub6kiiery of Nodh\.rost NatuEl Gas Company
ldaho
ldaho
ldaho
T6xas
Texas
Texes
Oragon
ldaho
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC.
Page221olz?9
E lbll l3r
CONSENT OF INDEPENDENT REGISTERED PI]BLIC ACCOIJNTING FIRM
We hereby corsent to the incorporation by rcference in th€ Regishation Statements or Fomr S"8 (Nos. 333-187005-01, 333-180350-01, 333-134973-01, 313-
100885-01, 3 33 -13 9819 -01,333-221347 -01,333-22'7687, and 333-234539) and Forrn S-3 (No. 333-227662) ofNothvest Natu&l Holding Company ofour r€port
dated March 2, 2020 relating to the financial statements, financial statemeot schoduler aDd the offectivercss of iltemal contlol over financial aeporting, which
appears in this Form lo-K.
/s/ Pricewaterhousecoop€rs LLP
Portland, Oregon
Malch 2, 2020
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC.
P88,e 222 o1229
B lt'ft 23b
CONSENT OF INDEPENDENT REGISTERED P1JBLIC ACCOUNTINC FIRM
We h.Eby cotsent to the tucorporation by refe*nce in tte Registarion StitQments on Form S-8 (No. 333-221347) ad FoIm S-3 (No. 333-227662"'0I) of
NorttrwesiNatuBl Gas Compony ofour iepoft datcd March 2, 2020 relathg to tle filancial statemetrts aud firEncisl statcment schedule {hich appcars is this FoIm
10i(
/V PricewatErho$ecoope$ LLP
Po latrd, Orcgon
Malch 2, 2020
EXHIBIT 2
PAI.FREYMAN, OI
FALLS WATER CO., INC,
Pa(,s223 olzS
EXHtBtT 31.1
CERTIF'CATION
l, David H. Anderson, certify thatl
I have reviewed this annual report on Form 10-K for the year ended December 31, 2019 of Northw€st Natural Gas Company;
2. Based on my knowledge, this report does not contain any unhue statement of a material fact or omit to state a material fact n6csssary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my know,edge, the financial statements, and other financial information included in lhis report, fairly present in all material respects the
fanancial condition, results of operations and cash flows of the regislrant as of, and for, lhe periods presented in this report;
4. The registrant's other cerlifying ofticer and I are responsible for eslablishing and maintaining disclosure controls and procedures (as detined in
Exchange Act Rules 13s-15(e) and 15d-15{e)) and internal control over financial reporting (as defined in Exchange Acl Rules 13a-15(f) and '15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure conhols and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidaled subsidiaries, is made known to us by others within those entities, particularly during the
period in which lhis report is beino prepared;
(b) Designed such internal control over financial reporting, or caused such inlernal control over fnancial reporting to be designed under our supeavision, to
provide reasonable assurance regarding lhe reliability of financial reporting and the preparation offlnancial statements for external purposes in accordance wilh
generally accepted accounting principles;
(c) Evaluaied the effectiveness of the regiskant's disclosure controls and procedures and presented in this repori our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of lhe period covered by this report besed on su6h evaluationi and
(d) Disclosed in this rGporl any change in the registrant's internal control over fnancial reporting that occur6d during th€ regishant's most recent fiscal quarter
(the r€gistrant's lourlh fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to malerially affecl, the registranl's
intemal control over financial reporting; and
5. The regislrant's othor c€rtifying ofllcer and I have disclosed, based on our most recent evaluation of intemal control over fnancial reportjng, to the
registranl's auditors 6nd lhe audit committee of the registrant's board of directors (or persons performing the equivalent funclions)i
(a) All significant deficiencies and material w€aknesses in the design or operation of internal conhol over tinancial r€porting which are reasonably likely to
adversely aff€ct the r€gistrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves managemenl or olher employees who have a significanl role in the registrant's internal control over financial
reporting.
Dale: March 2,2020
/s/ David H. Anderson
David H. Anderson
President and Chief Executive Olficer
EXHIBIT 2
PALFREYI\4AN. DI
FALLS WATER CO,, INC.
Page 224 ot 229
EXHtBtT 31.2
CERTIHCANON
l, Frank H. Burkhartsmeyer, certify thatl
I have reviewed this annual report on Form '10-K for the year ended December 31, 20'19 of Norlhwest Natural Gas Company:
2. Based on my knowledge, this report does nol contain any untrue statement of a meterial fect or omit to state a mat€.ial fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the inancial statements, and olher financial information included in lhis report, fairly present in all material resp€cts the
financial condition, results of operations and cash flows ofthe regislrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 'l5d-15(e)) and internel control over financial reporting (as defned in Exchange Act Rules 13a-,l5{0 and '15d-15(0) for the
regiskant and have:
(a) Designed such disclosure controls and prccedures, or caused such disclosure controls and procedures to be designed under our supervision. to ensure that
material information relaling to the registrant, including its consolidated subsidiaries, is made known to us by olhers within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporiing, or caused such internal control over financial repo(ing to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation ofllnancial statements for exlernal purposes in accordance wilh
qenerally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure conirols and pmcedures and presented in this report our concluslons about the effectiveness of the
disclosure controls and procedures, as of the end of lhe period covercd by this report based on such evaluation; and
(d) Disclosed in this repon any change in the registrants internal conirol over linancial reporting that occurred during the registranl's most recent fscal quarter
(the registrant's fourth fiscal quarler in the case of an annual reporl) that has malerially atfected, or is reasonably likely to materially affect, the registranfs
intemal contol over financial reporting; and
5. The registrant s other certifying officer and I have disclosed, based on our most recent evalualion of inlernal contrcl over financial roporting, to the
registrant's auditors and the audit committee of lhe registranfs board of directors (or persons performing the equivalent functions):
(a) Atl significant deficiencies and mal€rial weaknesses in the design or operation of internal conkol over financial reporting which are reasonably lik€ly to
adversely afiect the registrant's ability 1o record, procsss, summarize and report financial infomation; and
(b) Any fraud, whether or nol material, that involves management or other employees who have a significant role in the regiskant's internal control over finanoal
reporting.
Date: March 2, 2020
/s/ Frank H. Burkhartsmever
Frank H. Burkhartsmeyer
Senior Vice President and Chief Financial Officer
EXHIBIT 2
PALFREYMAN. DI
FALLS WATER CO,, INC.
Page 225 ot 229
EXHIBtT 31.3
CERTIFICATION
l, David H. Anderson, certify that
I have reviewed this annual report on Fo.m 10-K for the year ended December 31, 2019 of No(hwest Natural Holding Company;
2. Based oh my khowledge, this report doos not cohtain any untrue stat€menl of a material fact or omit to state a malerial fact necessary to lnake the
slatements made, in light of the circumstances underwhich such statemenls were made, not misleading with respect to the period covered by this repod;
3. Based on my knowledge, the financial stalemenls, and olher financial information included in this report, fsirly present in all material respects the
financial condition, resulls of operations and cash flows ofthe regislrant as of, and for, the periods presented in this report;
4. The regislrant's other certifying officer 6nd I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules '13a-15(e) and 15d-15(e)) and internal controlover financial reporting (as defined in Exchange Act Rules 13a-'15(0 and 15d-'15(0) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisiofi, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period ia which lhis reporl is being prepared;
(b) Designed such intemal contlol over financial reporting, or caused such inlernal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability offinancial reporting and the preparation offinancial statements for exlernal purposes in accordance with
generally accepted accounting principles;
(c) Evaluated lhe effectiveness ofthe registrant's disclosure conkols and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as ofthe end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the regiskanl's internal control over fnancial reporting that occuned during the registranl's most recent fiscal quarter
(the registrant's fourth fiscal quarler in the case of an annual report) that has materially afiected, or is reasonably likely io materially affect, the registrant's
intemal control over financial reporting; and
5. The registrant's other certifying oflicer and I h6ve disclosed, based on our most recent evalualion of internal control over financial reporting, to the
registrant's auditors and the audil committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficienci€s and mat€rial weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect lhe registrant's ability to record, process, summarize and report flnancial information; and
(b) Any fraud, whether or not material, that involves management or olher €mployees who have a significanl role in the registrant's intemal control over financial
rePorting.
Dale: March 2, 2020
/s/ David H. Anderson
David H. Anderson
President and Chief Execulive Otficer
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 226 oi 229
EXHtBtT 3t,4
CERTIFICATION
l, Frank H. Burkhartsmeyer, certify that
1 . I have reviewed lhis annlal report on Form 10-K for the year ended December 31 , 2019 of Northwest Natural Holdino Company;
2. Based on my knowledge, this report does nol contain any untruo statom€nt of a material fact or omit to slate a material facl necessary to make the
statements made, in light ofthe circLrmstances under which such statements were made, not misleading with resp€ct to the period covered by this report;
3. Based on my knowledge, the financial statemenls, and olher financial information inclirded in this report, fairly present in all malerial respects the
financial condition, results of operations and cash flows ofthe registrant as ol and for, the periods presenled in this report;
4. The registrant s other certifying omcer and I are responsible tor establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules '13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 134-'15(f) and '15d-15(f)) for the
registlant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
mste al information relating to the registrant, including its oonsolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal conkol over financial repo(ing, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability oflinancial reporting and the preparation ol financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the eflectiveness ofthe registEnt's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report ba6ed on such evaluation; and
(d) Disclosed in this report any change in the r€gistrant's intemal control over financial reporting that occurred during the registrant's most recent fiscal quarter
(the registrant's fourth fiscal quarter in the case of an annual report) thal has malerially affectod, or is reasonably likely to materially affect, the .egistrant's
internal conlrol over financial reporting; and
5. The registrant s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over tinancial reporting, to tho
reqistranl's auditors and the audit committee of the registrant's board ofdirectors (or persons performing the equivalenl functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal conlrol over linancial reporting which are reasonably likely to
adversely affect the regislrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, lhat involves management or other employees who have a signiflcanl role in the registrant's internal control over tinancial
reporting.
Date: lrlarch 2, 2020
/s/ Frank H. Bu*hartsmever
Frank H. Burkhartsmeyer
senior Vice President and Chief Financial Officer
EXHIBIT 2
PALFREYi'AN. DI
FALLS WATER CO,, INC.
Page 227 ot 229
EXHtBtT 32.1
NORTHWEST NATURAL GAS COMPANY
Certillcate Pursuant to Section 906
of Sarbanes - Oxley Act of 2002
Each ofthe undersignod, DAVID H. ANDERSON, Chief Executive Offlcer, and FRANK H. BURKHARTSMEYER, the Chief Financial Ofiicor, o, NORTHWEST
NATURAL GAS COMPANY (the Company), DOES HEREBY CERTIFY that:
1. The Company's Annual Report on Form 10-K for the year ended December 31, 2019 (th6 R6port) fully complies with the requirements of section '13(a) or
15(d)olthe Securities Exchange Act of 1934, as amendedi and
2. lnformation contained in the Report fairly presents, in all material r€specls, the financlal c4ndition and results ofoperations of the Company
lN WITNESS WHEREOF, each ofthe undersigned has caused this instrument to be executed this second day of March 2020.
/s/ David H. Anderson
David H- Anderson
President and Chief Executive Offlcer
/s/ Frank H. Burkhartsmev€r
Frank H. Burkhartsmeyer
Senior Vice Presidont 6nd Chiel Financial officer
A signed original of this written statement required by Section 906 of lhe Sarbanes-Oxley Act of 2002 has been provided to Northwest Natural Gas Company
and will be relained by Northwest Natural Gas Company and furnished to the Securilies and Exchgnge Commission or its staff upon request.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 228 o1229
EXH|B|T 32.2
NORTHWEST NATURAL HOLDING COMPANY
Certificate Pursuant to Section 906
of Sarbanes - Oxlev Act of 2002
Each of the undErsigned, DAVID H. ANDERSON, Chief Executive Ofilcer, and FRANK H. BURKHARTSMEYER, th6 Chief Financial Ofiicer, of NORTHWEST
NATURAL HOLDING COMPANY (the Company), DOES HEREBY CERTIFY that:
1. The Company's Annual Report on Form 1O-K for lhe year ended December 31,2019 (the Report) fully complies wlth the requirements of section 13(8)or
15(d) of the Seourities E(change Act of 1934, as amendedi and
2. lnformation oontained in thg Report fairly prosents, in all mat€rial rospects, the financial condition and results of operation6 ofthe Company.
lN WTNESS WHEREOF, each of the undersigned has causgd this instrument to be executed this second day of March 2020.
g-acvi4-HJldsIseo
David H. Andersofl
Presidsnt and Chiet Executive Ofiicor
/s/ Frank H. Burkhartsmever
Frank H. Bu*hartomeyer
Senior Vice President and Chief Financial Ofric€r
A signed originalofthis written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Northwest Natural Holding Company
and will be retained by Northwest Natural Holding Company and furnlshed to the Securilies and Exchange CommiEsion or its staff upon request.
EXHIBIT 2
PALFREYMAN, DI
FALLS WATER CO,. INC,
Page 229 o1229
EXHIBIT 3
FALLS WATER CO., INC.
- This Exhibit contains trade secret or confidential
material and is filed separately -
EXHIBIT 4
FALLS WATER CO., INC.
Morning View Water Company's
Final Facility Plan
(ss PAGES)
Contents
Chapter Page
Contents
Chapter I Summary
Introduction
Water Requirernents
Water Quality and Regulations
Capital Improvement Program
Recommendations/Conclusion
Storage....
Distribution
Supply
History
Chapter 2 Introduction
Current Assets
Operations/Administration
Rates
Chapter 3 Existing System
Supply
Treatment.....
Pressure Zone
Standby Power
... 10
Chapter 4 Water Requirements
Storage
Telemetry System
Distribution System
Definition of Terms
Demand
................ 13
................ 13
................ 13
Consumption ......
Peaking Factors
Water Production ...........
Per Cormection Demand
" Unaccounted-For" Water
Demand Projections
Population Projections
Future Water Demands
Chapter 5 Water Supply and Storage
Moming View Water Company
Final Facility Plan
t7
dogBrt 4
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 2 of 55
I
J
3
J
J
J
4
4
4
4
6
6
7
8
8
9
9
0
... 11
I
ll
11
ll
14
14
14
l5
t5
t5
l5
16
Water Rights
Water Supply and Storage Requirements
Water Supply Criteria
Water Demand Proj ections
... l7
Chapter 6 Distribution
Regulations ......
tl
t7
18
22
22
t9
19
19
20
20
21
22
Peak Hour Demand Under Normal Operating Conditions
Maximum Day Demand Under Normal Operating Conditions ...
Current System Evaluation
Chapter 7 Water Quality and Regulations
Chapter 8 Capital Improvement Program
Cost Estimating
Water Meters
Variable Frequency Drives .............
Backup Power Generation
Drill Water Supply Well
Appendices
Appendix A Consent Order Documents
Appendix B Maps
Appendix C Water Rights
Appendix D Well Logs
Appendix E Water Production Data
Appendix F Water Company Documents
Moming View Water Company
Final Facility Plan
.....22
...22
22
E llJErT 4plrnef i-nlor
FALLS WATER CO,, INC,
Page 3 of 55
CHAPTER 1
Summary
Introduction
The Moming View Water Company (MWVC) has contracted with Aspen Engineering to
complete a Facility Plan in accordance with the Consent Order from the Department of
Environmental Quality. The consent order identified multiple deficiencies including
insufficient pressure, significant amounts ofsand, non-flushable dead end mains, and operator
licensing. Each of the eight items listed in the consent order, required action from Morning
View Water Company. A detailed facility plan (this report) is listed as requirement 9d in the
consent order. MVWC has completed all of the items listed in the consent order in addition to
complying with items listed in recent sanitary surveys.
The hndings of this study are summarized below:
Water Requirements
The population serviced by MVWC is approximately 250 people via approximately 100 active
individual connections. Moming View Water Company's historical average daily demand
(ADD) for the years 2005 through 2008 was 170,750 gallons.
As an un-metered community, MVWC's ADD consumptive values are very high (2.6 to 3.0
times) in comparison with metered communities. It is recommended that MVWC implement
conservation measures including individual meters and a tiered rate structure. The ADD water
use for the 2008 year is 178,560 gallons, with an MDD of 446,400 gallons and a peak hour
demand (PHD) of 535,685 gallons. Water demand projections for the end of the 3-year study
period (2011) are 184,000 gallons for ADD, 460,000 gallons for MDD, and 800,000 for PHD.
Supply
MVWC currently utilizes groundwater as its sole source of water. The groundwater is supplied
by two wells. Both wells are located on a single lot and are separated by a distance of 100 feet.
Both wells lie within the Company's platted service area. Total pumping capacity of the two
active production wells is estimated at 600 gpm or 864,000 gallons per day.
The current firm capacity (largest well out ofservice) ofthe Company's production wells is 200
gpm or 288,000 gallons per day. Current firm capacity does not meet PHD or MDD flow
requirements and an additional well is needed immediately.
Storage
The only storage in MVWC's water system provided in the two air over water pressure tanks
at the pump building and has no practical/useable quantity.
Moming View Water Company
Final Facility Plan EXHIBIT 4 pun. 3PALFREYMAN, DI -
FALLS WATER CO,, INC,
Page 4 oI 55
Distribution
The distribution system is composed of both 4 inch and 6-inch main lines. These mains are
exclusively class 200 PVC. Future expansions should continue to incorporate similar materials
throughout the distribution system. The water system does not have fire hydrants, and the
distribution mains are adequate to supply domestic flows.
Water Quality and Regulations
All of Morning View's water is supplied by groundwater wells. Water quality is good, and
compliance with both State and Federal regulations for contaminants is currently being
maintained. Currently, There is no water treatment available or provided at the MVWC
facilities. Lack of adequate pressure during the inigation season has been and still is a large
concern for the system. Compliance with current regulations is also an issue as discussed in
Chapter two.
Federal drinking water regulations proposed or promulgated by the Environmental Protection
Agency (EP A) as part of the mandates of the Safe Drinking Water Act (SDWA) Amendments
must be met and certain new regulations are in effect and future regulations are anticipated to
be finalized within the next few years.
Capital Improvement Progrrm
Currently there are no capital improvements planned for the system. However, a new well with
adequate capacity to meet the firm ADD demand must be planned and completed within the
next three years. The estimated cost to complete the new well and pump is $150,000.
Additionally it is recommended that backup power generation and/or storage be provided in
order to prevent depressurization events during power outages.
Recommendations/Conclusions
Providing and maintaining adequate system pressure is the first priority for the MVWC water
system. System operating pressures were adjusted in late July of2008 to 50 psi min and 75 psi
max. Pressure monitoring data collected November 13-20, 2008 indicates adequate pressures
are being maintained in system indicating the low pressures are due to the increased demand
during the irrigation season.
Installation of meters to promote water conservation should be the first capital improvement
to the system. Implementation of a tiered rate structure, after installation of the meters, will
further aid conservation efforts and reduce the ADD.
If adequate pressures are still not maintained then installation of variable frequency drives
(VFD) should be installed first on the main well and secondarily on the smaller well. This will
eliminate the need for the air over water pressure tanks and will provide a much tighter range
for pressure fluctuation.
Moming View Water Company
Final Facility Plan EXHtBtr 4 Pape 4
PALFREYMAN, DI "
FALLS WATER CO,, INC,
Page 5 of 55
In summary, the following items have been addressed by Morning View Water Company
Maintain a minimum of 40 psi throughout the system
a. Adjust pressure settings.
b. Eliminate all individual booster pumps. (Only one could be verified)
c. Install VFD - still required after meter installation ifneeded.
Install screening at end of discharge pipe from well house (west side) and provide a
minimum clearance of 12 inches above the ground. (2003 Sanitary Survey
Requirement).
Clean out well house (2003 Sanitary Survey Requirement).
a. remove all hazardous materials.b. remove all non-water related items.
c. organize items on shelves.
d. remove all old/used/worn out parts and equipment.
Secure underground vault - prcvide locking cover to vault (1997 & 2003 Sanitary
Survey Requirement).
Remove the threads from sample tap located in well house (2003 Sanitary Survey
Requirement).
Cleanup well lot
a. mow/cut down all weeds
b. fill in hole next to well #2
c. remove trash, wood, and debris
d. llll in hole where sand separator is purged and pour concrete pad or provide rip
rap Io prevent I ture erosion.
Ultimately, the system cannot meet the firm pumping capacity requirements and an additional
water source, including water rights, is needed to provide adequate capacity. Installation of
backup power generation is also recommended in order to maintain system usefulness during
outages from the primary power source.
Moming View Water Company
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CHAPTER 2
Introduction
The Morning View Water Company (MVWC) is a privately held public water system that is
cunently regulated by the Idaho Public Utilities Commission. The system services
approximately 100 single family residences in an unincorporated area of Jefferson County
Idaho. The intended purpose of this report is to provide an assessment of the existing water
system and provide recommendations to maintain and improve the facilities.
The following topics are contained in the report:
Existing System (Chapter 3)
Water Requirements (Chapter 4)
Water Supply and Storage (Chapter 5)
Distribution (Chapter 6)
Water Quality and Regulations (Chapter 7)
Capital Improvement Plan (Chapter 8)
The report covers the current configuration ofthe water system as well as a projection ofthree
years from now when the system will likely be completely finished - i.e. all interior lots sold
and occupied. As a reference for construction time frame, in 2002 the system serviced
approximately 65 corurections.
History
In October 2007, MVWC entered into an agreement with the State of Idaho Department of
Environmental Quality (DEQ) known as a consent order. The order made arrangements for
MVWC to complete eight action items to come into compliance with current state and federal
drinking water regulations. The eight items requiring MVWC action are:
Correct and report deficiencies noted from the October 2003 sanitary survey and
schedule a new sanitary survey with DEQ.
Provide quarterly public notices to each residence on the system informing them ofthe
DEQ's dis-approval of the system.
Submit a written plan to DEQ detailing how MVWC will maintain 40 psi throughout the
distribution system
Complete a detailed facility plan in accordance with IDAPA 58.01.08.502
Contract with a licensed operator.
Submit a sampling plan addressing how MVWC will monitor the distribution system for
bacteria.
Sample four times for sand and report sampling results to DEQ or install a DEQ
approved sand separator.
Install adequate means of flushing dead-end mains.
a.
b.
d.
e.
f.
s.
h.
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b
c
MVWC has taken the following actions in response to the consent order action items. Records
of such actions are included in Appendix A.
a.Cleanup at the well lot and pump house has been completed and a draft cross-connection
control plan has been submitted. The overflow piping still needs to have a screen
covering and the erosion at the sand separator discharge needs to be filled in. All other
items listed previously has been completed.
Quarterly notices have been sent.
Pump control settings have been changed to 50 psi (low) and 75 psi (high) to improve
system pressures. DEQ pressure monitoring showing minimum pressures above 20 psi
during the irrigation season has been established and a minimum pressure of 40 psi
during the non-irrigation season has been maintained.
Final Facility Plan submitted by Aspen Engineering to DEQ on April 13, 2009.
Nolan Gneiting completed the requirements to update and make current his Idaho
Drinking Water Operators license.
MVWC submitted a "System Sampling Plan" to DEQ in March of 2008.
Installation of a sand soparator in the pump building is complete and separator is
currently in operation.
h. All dead-end mains have been fitted with flushing hydrants.
Current Assets
Current assets of MVWC include two deep wells, a 30' x 32' wood frame pump house, and 2.5
miles of distribution lines. The pump house encloses two 900 gallon tanks, a 40 gallon air
compressor, meters, valves, and piping. Two Furnas brand pump controllers are also located
in the pump house. The following table presents the various components and their anticipated
useful life and replacement data.
Morning View Water Company - Capital Replacement
Item Date Installed Anticipated
Life Cycle
Replacement
Date
Replacement
Cost
30 well pump July 2007 l5 years 2022 $ 12,000
10 well pump Julv 2007 l5 years 2022 $8,000
900 gallon
galvanized
storage tanks
1998 30 years 2028 $7,500 Ea
d
f.
5
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Motor
Controllers
2002 I 0 years 2012 $5,000 Ea
Well House 1998 40 years 2038 $s0,000
Flushing
Hydrants
2007 20 years 202'.7 $300 Ea
Operations/Administration
MVWC maintains an office located at 3996 East 200 N Rigby, Idaho. The office handles
billings, customer service, complaints, notifications to its customers and correspondence with
DEQ and the Idaho Public Utilities Commission (IPUC). Office personnel document each
occurence and have a complete recording of customers and correspondence. The office is
operated Monday through Friday 8 am to 3 pm. In order to be responsive to customers needs,
a 24 hour answering service (Ideal Answering -Roberts ldaho 228-2094) takes calls during
weekends and off business hours. Their goal is to "keep our customers aware ofwhat we are
here for, and that is to serve them in the best way we can and to let them know the extent ofthe
management of MVWC."
In case ofemergencies or outages, Nolan Gneiting, "Owner/Operator" is first contacted. Ifhe
is not available, Denise Kynoch, "Office Manager" is contacted. In the event the owner
becomes incapable of carrying out his responsibilities, Dawn Gneiting would step in to handle
the water system's operation. Contracting with a certified Idaho Wator operator would also be
required.
Operations plans include a daily check ofthe well house with written record keeping of water
pressure, pressure tank air levels, flow rate and flow totalization. The sand separator is flushed
daily to minimize sand in the distribution system.
Rates
Currently, the MVWC rate structure is regulated by IPUC. The IPUC has recently conducted
several audits ofthe company's books and is in the process of completing an audit to support
a either a rate increase or billing surcharge to help fund water service meters and installation
of the meters.
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CHAPTER 3
Existing System
The existing MVWC water system includes two wells and approximately 11,000 feet of six
inch diameter class 200 PVC water main. 2,300 feet of four inch diameter, class 200 PVC is
also included on the system. A map of the system and its features is shown in Appendix B.
The current service area for the MVIVC includes 109 acres located in the Moming View Acres
Divisions l, 2, 3, and 4. Division No. 1 of Country Grove Estates Mobile Home Subdivision
is also included on the system. There are currently 106 connections to single family residences.
Residences include site constructed homes (stick built), mobile trailer homes, and manufactured
homes on permanent foundations.
Lot sizes range from one quarter of an acre to just over one acre in area. The smaller lots are
typically occupied by either mobile trailer houses or manufactured homes. Stick built single
family residences generally occupy the larger lots.
Future growth within the existing service area boundary will include water service connections
to 25 lots in the stick built divisions, as well as an additional 22 lrailer lots in Division 4 of
Moming View Acres. This will make a total of 149 individual connections to the system.
It is estimated that the system will be fully developed within the next three years.
Supply
Well I - The main well for the MVWC water system is 12 inch diameter well approximately
120'deep. The well is located on "well lot" at the northwest corner ofDivision No. 3. Thewell
lot comprises 1.64 acres. The well log for this well shows it was completed in July i996 and
is cased to a depth of 1 I 8 feet. This well has not been pump tested and the actual well capacity
is unknown. Currently a 30 horsepower submersible pump is installed in the well.
Well 2 - The backup well is a six inch diameter well that is 120 feet deep. According to the
well log, this well has a surface seal l8 feet deep and was constructed in June 1986. No pump
test data is available and a 10 horsepower submersible pump services the well.
Both wells feed into a central pump house via separate pitless adapters and buried six inch
diameter pipes. The pump building accommodates two 900 gallon, air over water, pressure
tanks which then feed into the distribution system. Both well pumps are single speed pumps
and are equipped with soft start motor controllers to prevent water hammer and extend the life
of the pumps.
Water quantities are monitored using a totalizer/flow meter located in the pump house. The
meter reads the instantaneous flow through the meter as well as providing the total quantity
passing the meter (totalizer). No individual well meters are installed and it is not possible to
determine individual well production, only total water production can be recorded. The water
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quality ofthese two wells currently meets drinking water regulations. Chapter 7 includes dialog
of compliance with drinking water regulations.
Two 900 gallon galvanized water tanks are installed in the pump house. The two tanks are
maintained between half and two-thirds full of water with pressurized air occupying the top
portion of the tanks. The tanks are about ten years old and are in good shape with no rust or
leaks showing. The estimated useful life of the tanks is at least another ten years.
A third well is located on within the platted subdivision on Lot 5 in Division 3 of Morning View
Acres. This well currently does not meet State Rules for Public Drinking Water Systems and
is not connected to the distribution system. In orderto use Well 3 in the system, the Company
would need to conduct a 24-hour pump test on the well to verify long-term sustainable yield,
compliance with water quality standards, and provide a satisfactory well seal thus meeting the
current well construction standards. After completing the required tests and obtaining DEQ
approval, the next step would be to construct a new well house using current construction
standards.
Treatment
The only treatment currently in operation for the company's water supply is to separate sand
from the well production water. The sand separator consists ofa centrifugal tlpe separator with
raw water being fed into the unit, centrifugal action then separates the heavier sand particles
which fall to the bottom of the unit and treated water is retumed to the top ofthe unit and put
into the distribution system. The unit operates manually and the only maintenance required is
to purge the solids from the bottom chamber of the unit on a periodic basis. A determination
of how often this is required can be made by flushing the solids into a bucket and then
measuring the amount of sand produced per unit of water. It is likely the unit will operate at
peak efficiency with only weekly or bi-weekly purging. No other treatment or treatment
equipment is provided or necessary.
For emergency circumstances manual dosing ofthe individual wells would be required to treat
a bacteriological outbreak, should one occur. The Company may want to purchase an
emergency chlorination system to provide emergency disinfection capabilities.
Pressure Zone
The entire system is served by a single pressure zone. System pressures throughout the
development are established by the pressure switch setting at the pump house building on the
well lot. Most recently, the pressure settings have been adjusted to operate between 43 and 67
psi. This pressure is measured at the pump building and customer pressures at the point of use
will vary due to friction losses and the variation in demand especially during peak demand
hours. The pressure settings at the pump building could be adjusted to provide only a ten pound
differential. This would increase the lowest pressures without compromising fittings and other
equipment due to increased high end pressures. Monitoring of the well pumps to ensure the
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minimum run time is still met would be required. Generally during the irrigation, water
demands will easily provide for adequate pump run time.
Based on the information obtained frompressure monitoring, the system usually operates above
the minimum pressure of 40 psi except during the irrigation season. It appears that the system
undergoes abrupt pressure changes each day as irrigation systems begin operation. The
previously held notion of individual booster pumps coming online and degrading the pressure
to surrounding areas has been dispelled as only one booster pump could be found and the
operation thereof has been extremely limited according to the homeowner.
Aspen Engineering conducted a survey of customers suspected of having individual booster
pumps and found only one that is currently installed. It is still our recommendation that all
individual booster pumps be eliminated from the system. If acceptable pressure ranges cannot
be maintained, it is recommended that a variable frequency drive (VFD) be installed in the
pump house for each of the submersible well pumps. The VFD can be set to maintain 60 psi
and so long as the pumps can keep up with demand, operating pressures will remain constant
within 3-4 psi.
Standby Power
Currently there is no standby power or emergency power generation equipment ate the MVWC
system. In the event of an area wide power failure, no water production is realized and the
system pressures will drop to zero as users draw a limited amount (less than 500 gallons) of
water supplied by the two pressure tanks.
It was estimated by MVWC personnel that power outages account for system shutdown 3-4
times per year. Typically outages occur during strong weather events such as high winds or
heavy thunder showers. Loss of power lbr more than a couple of minutes during the irrigation
season results in a depressurization ofthe system.
Storrge
The only storage in MVWC's water system provided in the two air over water pressure tanks
at the pump building and has no practical/useable quantity
Telemetry System
There is no telemetry system installed at the MVWC water system. The two wells are operated
by an automatic pressure switch located in the pump house and both wells respond
simultaneously.
Distribution System
Water distribution for the Morning View system includes approximately 1 1,000 feet of six inch
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pipe and 2,300 feet of4" pipe. All ofthe pipe consists ofclass 200 polyvinyl chloride (PVC).
A map ofthe existing water distribution system is presented in Appendix B. Recently, three
flushing hydrants at the dead end mains were installed . There are no fire hydrants on the
system.
Service connections are exclusively one inch and are typically polyethylene. There are twelve
control valves within the distribution system, four of which are four inch valves controlling
flow to the two four inch diameter loops - one at the east end ofthe system and the other from
the two cul-de-sacs on 3950 East. The maximum number of residents on one continuous,
isolatable loop is at 178 North where there are 32 trailers on one loop. Generally there are
adequate valves to isolate ten to twelve homes without intemrpting water service to others.
Periodic flushing of the dead-ends should be completed. A written plan identifying when each
location is/was flushed and the results of the flushing (i.e. water conditions, turbidity, etc)
should be included in the operations. Dead end mains should be flushed at least twice per year.
Cross-connection contamination ofthe distribution system is controlled by the use ofbackflow
prevention devices, generally consisting of a double-check valve. Check devices are required
to be inspected and tested after the initial installation with written verification given to the
either the owner/operator or the office manager. Periodic testing ofthe valves is not currently
part of the operation plan and should be implemented. The cost oftesting each device should
be charged to the home-owner. Records showing the location ofthe device, along with the test
date and results should be kept on a master plan at the office. The proposed cross connection
control plan has been submitted to DEQ.
Moming View Water Company
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CHAPTER 4
Water Requirements
This chapter is to summarizes the current water system demands and projects future water use
for 3 and 20-year planning horizons. This includes a description of historical water use and
forecasting estimates developed to project future water use.
Definition of Terms
Demand
Demand refers to the total system demand, which is that quantity of water obtained from the
water supply source during a given time period required to meet the needs of domestic use, lawn
irrigation, system losses, and miscellaneous applications. Demands are normally discussed and
quantified in terms of flow rates, such as gallons per minute (gpm) or gallons per day (gpd).
Flow rates can be described in any terms involving a given volume of water delivered during
a specihc time. Flow rates pertinent for the analysis and design of water systems are as follows:
Averaee Day Demand (ADD): the total volume of water delivered to the system in a year,
divided by 365 days.
Maximum Month Demand (MMD): the average rate of water delivered to the system during the
month of greatest demand during the year.
Maximum Day Demand (MDD): the rate of water delivered to the system during the day of
highest demand during the year.
Peak Hour Demand (PHD): the rate of water delivered to the system during the hour ofhighest
demand during the year.
These demands are typically presented in units ofmgd. The following conversion factors may
be used to express rate of demand in other terms:
1 mgd: 694 gpm = 1.55 cubic feet per second (cfs)
1 gp* = 60 gallons per hour (gph): 1,440 gpd
1 cfs:450 gpm = 0.648 mgd
Volumetric conversions are:
1 cubic foot (c0 = 7.481 gallons (gal)
I gallon:0.134 cubic feet (cf)
The concept of per capita demand provides a convenient method of comparing water use by
different water systems or areas served by the system. The per capita demand is obtained by
dividing the total system demand by the total population served. Differences in climate, type
of development, and water use trends influence the per capita demand for different water
systems.
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Consumption
Consumption refers to the actual volume of water used by customers measured at their
connections to the water distribution system. Consumption is typically measured in gallons.
The MVWC water service connections are currently not metered. Customers pay a flat rate
according to the size of the lot being serviced. One acres lots are charged $49.48/month, one-
half acre lot fees are $40.94 and smaller lots are $32.41. Each of the listed fees include a
monthly fee of$5.00 to establish a contingency fund for emergency repairs. The owners should
consider adding customer meters to promote conservation and help leverage the available water
supply to meet current demands. The addition of meters would also allow the Company to
quantify unaccounted-for-water in the system, discussed later in this chapter. Metering in some
cases is a requirement to obtain difforent sources of funding to finance improvements, including
state and federal grants.
Peaking Factors
The relationships between the ADD and other demand parameters, such as the MDD, MMD,
and PHD, are expressed as peaking factors. Typical peaking factors include the ratios of MDD
to ADD, MMD to ADD, and PHD to ADD.
Water Production
Available historical water production data is presented in Appendix E. The available historical
data includes limited readings for both Well 1 and 2 during the period.
TABLE 4-1 Average Day Demand - ADD for Morning View Water Company
Year ADD (gallons)
2006 171,306
2007 162,394
2008 t78,562
Average 170,754
Based on historical averages from Table 4-1 and using recent hourly well production data
recorded on July 25, 2006, an MDD (PF ,or)peaking factor of 2.5 will be used in this study.
A value of 3.0 will be used as the PHD peaking factor (PF'HD).
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Per Connection Demand
The population serviced by MVWC is approximately 225 people via approximately 100 active
individual connections. Morning View Water Company's historical average daily demand
(ADD) for the years 2006 through 2007 was 167,000 gallons.
As an un-metered community, MVWC's ADD consumptive values are very high (2.9 to 3.4
times) in comparison with metered communities. MVWC should consider conservation
measures such as customer meters as well as a tiered rate structure. The ADD water use for the
current year (2008) is estimated at 165,000 gallons, with an MDD of412,500 gallons and a peak
hour demand (PHD) of495,000 gallons. Water demand projections for the end ofthe 3-year
study period (201 1) when full build out is realized are 217,800 gallons for ADD, 544,500
gallons for MDD, and 653,400 for PHD. Comparing Morning View's ADD with the metered
communities of Rexburg, Caldwell and Meridian shows the per connection water demand is
quite high. In the referenced communities the average per connection ADD is 580 gallons
compared with 1,668 gallons for MVWC.
Per capita ADD consumption for these communities ranges from 170 to 200 gpdpc. Assuming
225 people per connection as in Morning View, this equates to 742 gpd per connection. The
state ADD as reported by USGS for public water systems in Idaho for the year 2000 was 260
gpdpc or using 2,9 people per connection, 754 gpd per connection, Morning View's average
demand rate is 1668 gpd per connection.
Morning View's customer base is exclusively residential. Given the rather insignificant demand
curIently exerted by other uses, future water demand is estimated in this report solely on the
residential growth projected for the area.
"Unaccounted-For" Water
"Unaccounted-for" water is the difference between the volume of water produced and the
volume of water sold to customers. Because the system is currently not metered, a comparison
ofproduction and water sales cannot be made. Unaccounted-for-water in a metered community
is typically the result of system leakage or unmetered customers.
Demand Projections
Population Projections
Land uses surrounding the MVWC system is generally residential, single family homes. The
area immediately south of the platted subdivision has been platted and developed as single
family homes with individual wells. Immediately nodh is undeveloped land that has a potential
to be connected to the system if economic conditions are favorable. Economic variables include
Moming Vicw Watcr Company
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rate structure! cost of devolopment, and prevailing land prices.
Under the current system layout, it has been estimated that an additional sixteen stick built
homes will be added to the system as the remainder of tle lots are sold and built on in Divisions
one through three of Morning View Acres. Also, sixteen more trailer sites are in Morning View
Acres, Division No 4. This will increase the total number of connections to 132 for the entire
system. No other growth has been estimated.
Future Weter I)emands
Currently, the MVWC system accommodates 225 people via 100 connections. Ultimately it is
conceived that the state average of 2.9 people per connection will be served via the same 100
connections plus the addition l6lots in Divisions 1-3 and 16 more lots in Division 4 making
a total of 132 connections and 383 people. It is anticipated that the 32 additional lots will be
built out by the end of the year in 2011 - three years from now. Producing the following
results:
. Current Estimated
ADD: 165,000 gpd
MDD = 412,500 gpd
PHD:495,000 gpd
. 3- Year Planning Horizon
ADD in 201 1 : 21 7,800 gpd
MDD in 2011 : 544,500 gpd
PHD in 201I = 653,400 gpd
. 20- Year Planning Horizon
ADD in 2026 = 280,867 gpd
MDD in 2026 :702,166 gpd
PHD in 2026: 842,600 gpd
While these projected water demands provide a basis for planning purposes and are used rn
other portions of this report, they must be considered estimates. If growth from outside
development is allowed, then significant increases from the predicted annual rates will occur
and demands will be much higher than predicted. Unit demand patterns may also change and
these patterns would influence water needs for the community. Therefore, the projected
demands should be compared each year to actual demands. The timing for recommended
improvements can then be adjusted as needed.
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CHAPTER 5
Water Supply and Storage
Topics covered in this chapter include water rights, and anticipated water supply and storage
needs for the 3-year and 20-year planning horizons.
Water Rights
Table 5-l contains water rights information for the MVWC. Refer to Appendix C for a copy
of the current water rights information. A water right permit is the authorization necessary
from the Idaho Department of Water Resources (IDWR) to begin construction of withdrawal
facilities and begin using water. A license is only issued once water has been used and
documentation of use is submitted and approved by the IDWR. A water rights permit does not
guafantee water for the appropriator. A decreed right is a water right thathas been adjudicated
6y the court. Under the prior-appropriation doctrine, the water right authorizes diversions ol
water only to the extent tlat water is available.
TABLE 5-I
Morning View Water Company - Water Rights
Source Pumping
Rate
(epm)
Priority
Date
Right
No.
Stage Water
Right
cfs (gpm)
Both
Wells
650 r0n0lt995 2s-7593 License 0.79 (3s5)
Water Supply and Storage Requirements
Currently the only storage provided in the MVWC system is in the two 900 gallo,n-pressure
tanks loiated in the pump house. This provides for a total storage capacity of900 to 1200
gallons. However, this water is not immediately accessible to the distribution system because
it requires pressurized air to push the tanks contents into the system. This cou-ld be done
manually but an automatic air delivery system would make this water available during
outages or emergencies, thus increasing the available water before complete depletion is
realized.
Water Supply Criteria
The following is a list of key criteria outlined in the Idaho Rules for Public Drinking Water
Systems used to determine the timing and development of new water supply wells, storage,
and emergency power generation capability for the MVWC water system.. Th; witer system must have a sufficient number of water supply wells with backup
power to satisfy ADD or emergency storage equal to one day's AD!.. ihe water system must have enough firm pumping capacity to satisfo MDD'. Firm pumping capacity combined with additional storage must be sufficient to supply
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Peak Hour Demand.. Total system capacity including supply and storage must be sufficient to meet MDD
while maintaining a 40 psi residual throughout the system.
In this report, firm pumping capacity is defined as the production capacity of the water
supply wells in the system with the largest well out of service.
This chapter explores these criteria using the water demand projections listed in above, to
determine the capital improvements needed for the water system during the 3-year and 20-
year plan horizons.
Criterion 1: Emergency Power Required to Satisfy ADD
The first criterion involving ADD is used as a means of determining the emergency power
requirements for the MVWC water system during the 3-year and 20-year planning horizons.
A comparison ofthe available supply capacity of Well 1 (720,000 gpd), which is not equipped
with backup power, suggests that the MVWC water system currently does not have sufficient
backup power to supply ADD requirements now or for the projected 20 year horizon.
Criterion I Summary: Anticipated Emergency Power Requirements
Emergency backup power is currently needed.
Criterion 2: Firm Well Production Capacity Required to Satisfy MDD
The second criterion involving MDD during the 20-year planning period is used to
determine well supply requirements for the Moming View water system.
Current firm pumping capacity totals approximately 200 gpm or 288,000 gpd. MDD
requirements for current,3 year, and 20 year arc 412,500,544,500, and 702,166 rospectively.
Existing supply will not satisfy these MDD requirements. In order to meet this criteria, the
Company will need an additional 90 gpm to meet current demands, 180 gpm to meet 3-year
demands, and 287 gpm to meet the 20-year demands.
Criterion 2 Summary: Anticipated Firm Capacity Requirements to Satisfy MDD
The Company will need to obtain additional water rights and construct a new well immediately
with a capacity of nearly 100 gpm similar to Well 1 . Or, Well 3 will need to be upgraded
immediately with a capacity of 100 gpm to meet the current demand.
Criterion 3 Well Capacity and Storage Must to Satisfy PHI)
The following is a list of assumptions that are used to calculate required well capacity and
storage volume required under these criteria:
. The PHD must be supplied for up to 8 hours.. Firm well capacity is not less than MDD.
Using this set of assumptions in conjunction with the MDD and PHD values cited earlier,
the storage needed to satisfy equalization, also referred to as peaking requirements:
0.17 MG oftotal storage required (Current).
0.22 MG of total storage required by 201 I
0.28 MC oftotal storage required by 2026
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Moming View Water Company
Final Facility Plan
CHAPTER 6
Distribution
This chapter describes the capacity of MVWC's water distribution system. The distribution
system was evaluated under existing and future conditions.
Regulations
The ldaho DEQ has regulatory authority over public water systems in Idaho. In general,
DEQ's rules govern the quality of water distributed, but not the manner in which it is
distributed. However, the rules do contain basic construction standards and some of these
apply to distribution systems.
Signifrcant rules for the distribution system analysis are summarized as follows:
. Distribution piping and the supply system shall be designed and installed so that the
pressure measured shall not be reduced below 40 pounds per square inch (psi) during
maximum hourly demand conditions.
. Distribution piping and the supply system shall be designed and installed so that the
pressure measured shall not be reduced below 20 pounds per square inch (psi) during
maximum hourly demand conditions (including fire flow).
Wherever possible, dead ends shall be minimized by looping. Where dead ends are
installed, blow-offs ofadequate size shall be provided for flushing.
Wherever possible, booster pumps shall take suction from reservoirs to avoid the
potential for negative pressures on the suction line, which could result when the
pump suction is directly connected to a distribution main. Pumps that take suction
from distribution mains shall be provided with a low-pressure cutoff switch on the
suction side set at no less than 5 psi.
Peak Hour Demand Under Normal Operating Conditions
The PHD condition represents the average demand rate during the highest hour of water use
for the entire year. This is an extreme condition, but one that the system must be able to
supply. Since PHD has been estimated according to projected growth, the actual occurrence
in the system may be higher. It is also true that demands greater than MDD and approaching
the peak hour value will occur several times during a year.
The estimated 2008 PHD for the system is 495, 000 gpd. PHD can be provided in the
system with adequate pressures (Adequate means that pressures are maintained above 40
psi). Pressures under the current PHD can be maintained above 40 psi. As water demand
increases under peak conditions, pipeline velocity can begin to be a problem; however,
Moming Vi€w Water Company
Fiml Facility Plan Page 19
EXHIBIT 4
PALFREYMAN. DI
FALLS WATER CO., INC.
Page 20 of 55
no pipes in the system exhibited velocities significantly greater than 4 fps. In summary,
no deficiencies were identified under current PHD.
Maximum Day Demand Under Normal Operating Conditions
The MDD condition represents the average demand rate over the highest day of water use
during the entire year. The water system must be designed to equal or exceed the MDD on a
firm capacity basis. When MDD is modeled under normal operating conditions, the distribution
system can provide water at adequate pressures.
The estimated MDD for 2008 is 412,500 gpd. No pipeline velocities greater than 4 fps were
identified and system pressures should remain above 40 psi.
Current System Evaluation
Current system demands have historically produced low pressures as shown by the pressure
survey and the numerous customer complaints. Based on the information given by the
operator and observation at the pump building the system appears to be capable ofproducing
the required flow at adequate pressures except during the irrigation season. It is
recommended to monitor pressures any location experiencing low pressure again during the
2009 irrigation season particularly after the installation ofthe water
mgters.
Moming View Water Company
Final Facility Plan Page 20
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 2'l of 55
CHAPTER 7
Water Quality and Regulations
This chapter includes relevant water quality regulation information for MVWC's reference,
with an accompanying description ofhow pertinent regulations affects the administration and
operation ofthe system. Surface water regulations are not discussed, as it is not anticipated
that Morning View will be utilizing surface water to meet current or future demands. As
discussed in previous chapters, the water system relies solely on groundwater as its source of
water. Generally, the quality ofthe groundwater is good, meeting current Federal- and State-
established regulatory limits for inorganic chemicals (lOCs), synthetic organic compounds
(SOCs), volatile organic chemical (VOCs), lead and copper, co I iform, arsenic, and fluoride.
Sand in the water has been the primary water quality complaint and the only consent order
action item. Chapter 2 of this report identifies both DEQ's requirements and MVWC's
compliance with the consent order. With the installation ofthe current sand separator, the
sand problem appears to be taken care of. Continued monitoring as well as quantification of
sand in the production water should be completed. Quantifying the amount of sand produced
and determining the capacity ofthe sand separator will likely reduce the amount ofoperator
maintenance required and provide tangible data for evaluation by the Company and
regulators.
Moming View Water Company
Final Facility Plan Page 2l
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 22 of 55
CHAPTER 8
Capital Improvement Program
Recommended improvements from previous chapters are shown below and sumrnarized in
this chapter, along with estimales of costs. Improvements are grouped chronologically
according to 3-year, and 20-year planning horizons.
Cost Estimating
Cost estimates for proposed improvements presented are Order-of-Magnitude cost estimates.
The American Association of Cost Engineers (AACE) defines Order-of-Magnitude cost
estimates as estimates made without detailed engineering data. These estimates may be
developed using cost curves, scale-up or scale-down factors, or an approximate ratio. AACE
defines the accuracy for this level of estimate as plus 50 percent to minus 30 percent.
The cost estimates presented below have been prepared for guidance in project evaluation and
implementation from the information available at the time of the estimate. The final costs of
the project will depend on actual labor and material costs, competitive market conditions,
final project costs, implementation schedule and other variable factors. As a result, the final
proj ect costs will vary from the estimate presented herein. Because ofthis, project feasibility
and funding needs must be carefully reviewed prior to making specific financial decisions to
help ensure proper project evaluation and adequate funding.
Water Meters
Purchase and installation of individual meters for each residence is based on a 3/4" meter,
meter base and meter box. Administrative, engineering, contingency, and legal fees are
expected to be an additional 25%. The anticipated cost of the installed meters for the MVWC
is $2,000 each x 100 customers: $200,000.
Variable Frequency Drives
The cost to purchase and install VFDs for both ofthe two wells is based on three phase power
and lOhp and 30 hp pumps for the wells. Estimated cost for the VFD's is $10,000.
Backup Power Generator
Natural gas or diesel generated power to run the submersible pumps and controllers at the
pump building will require an 80 to 100 KW generator. Anticipated cost for purchase and
installation ofthe generator including concrete pad and weather enclosure is $40,000.
Drill Water Supply Well
The cost to drill a new well assumes l2-inch diameter open hole production wel l 200 feet
Moming View Water Company
Final Facility Plan Page 22
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 23 of 55
deep. The estimate includes costs for a pilot hole and final production well, and assumes the
Company owns the well lot. A 30 percent allowance for contingency, engineering,
administration, and legal cost is included in the estimate. The estimated cost to drill a new
water supply well is $ I 50,000.
Moming View Water Company
Final Facility Plan Page 23
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 24 of 55
Appendix A
Consent Order Documents
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 25 of 55
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EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 26 of 55
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illorniog Vlew Water Co., lnc' Gommunl$ Water
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kDtaS \riarr WrE Co.. IrE, Cmont$ SpccrncTtr.f'lrodE ldt !S{l prmc.
knlog Vbr Tarr Co., Ir CaDurniry gy.tcrD
Ft6q, br.ptretr& rd! rc*larthl aud Ilcf,Iycoac6ma
IyFlcrl Fdu.doD at Xoftltrg Vlcr Wst6 Ca, luc lrryf.e.t* l73,txn grlor 9a &|t
l{Grirgvbr WaEE Co,, IDr C@rrity W.t!r
Wao EG. rtr rqnfc5t3 fD lb uEa Ed ldGirralgFffid. dtno C@gDlsl.
Tb l.Edttlric?frrla 6., IDc c@rrdv ryrlleh aryAtal Dy tro !r[. loErGd @ tb! .ita Wc[l .rr
rclrtivtfy rbaltor (fzllls A!4 h grE\ rw D0. rl&hth .trflc t!|r.dr ({e6o &Gq aftstst tsy r hlgb,
rutalilc retcr tqU. E{ EHd cmdidm3
l{o TlE Eab o,,tl.iFtd*t nquirrd,
fb f{),Om Erlfd oacrtt! ffiidnipc mrtrruh rhm:ouc mad cvirlcoe d &r/!r!'ro. -'r.r EFta.ilr ba! rl.{otl, ua cprfmd. A ftplrcarcatrgrt*r&dernd.
SI'ffi pc.Irrr. r?cr. rlDstc& quitc low: .1O65 orC-Itfa o.V bc ,GLEA ro thc nacttodr aadifur c-,t/c
opcrlrbr lrde ardo to tdrodt rbc tlu* ir bclog.ddrr-cil
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO,, INC.
Page 30 of 55
Marrlb ?. Axl8
Febnrary 29,2lX)B
DEQ
9{DH Stylic
IdrhoFdb, ID 83402
As rliscr.sscd il today's ucctiag with Roc[cltc Mesoa aod titrg Eigc(, I as rtqucstilg ,
tirlc ertaasion to fulr& compeliag rvlth the rquircocaa of thc Mooing Viow Coucnr
Order ltcors:
9d I ro r.o*iog xtth Ryu Lohrs. PE. o contact ofl hlr cogiming
scwico3 to drafl ed conplctc a frciltty plarlirg study pcr itl|a 9d.
2.
3,
I mdc rnd 6cnl peymcllt sft450 for the rc(rsrcd pcoalty lo fu canrent odcr
on Fobtuary 2P. 200t to ttc DEQ rmr ofrce.
I sct tho rrdl gup oornols El43 pBi .rd 67 pd. ttrpEtliwly. I rE t kfug
ptcssrre rtadiugi ln ttc syrtou to asscs lhc ri!tsr s)rnm improvcman
uudc lau nuocr to EaL! iurr FrE rtrrc E{dsffitr lrl bitug d. Tt6
rtpdy rcollts MU bc incorporatod into tbc frcflity phnaing rsrdy by my
cogis.Er, ByBr LofrB.
{Fiw Eo$iag vdvos wclo iartdled m ee dcdd Gode lsd I will f*e pio0re
srd rcrd thfir to DE1Q for docurneudoo
5.As Booa a3 thc suotl, elts, I will coatacl Rochcllc to qogc a rad&r,
$rrvey.
6 I drafrad a smple pl5ll bttt forgot l,o bring it so I sill 6rot it ro DEQ Da,t
wECk-
Plcese extmd oy doldlhrr to Aprll 15. 20OE ro I crn cot[plctr thc t!qoh@{Ers.
Thaat you -
{-Zq4 -d-Y*.;
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 31 of 55
MORNING VIEW OG,IDATIO PUEUC UTTLITIES
PO BOX 598
RIGBY, ID E34{24598
Octots 21.2007
lfuttlto&Er
t7r N 395{r E
Rtby, tD Bl4.!
D.E M!. XltE Ar&tt8,
Ttogrpos of tEs ruioa L to iofqa yw tlc lvffig \rc. Fdlh ttHaS $rktltrld h Utrd
'ditTrFovd by oG Dr+rtEit of Envirrfqril.l qd'U. No&G ofviouoo tlll hfltal Srg.tm!.r lZ
am7,
IDc vtoldlc dud tty tb pBQ t't rt folrottis
I - TDAPA 5urlnjtlol Inb Prso
[, A{, FuUh fitr. rrrcr c.3tucd a dfnifrroly dm.d rilr ruly l. lf}85.
rlrtt oabrb r ntuiun tst offtrq (.$) !d &onllod b, dlttrdo rrdlDr
duttE e.athqtU dold c.lrBjir hlrdlg ftt Sott ored tlc rc.vlcE
coldrn qrhlta pqqq lbltoa lorh oaueods Ft nis.
2- |DAPA tt.ot.o8 552.0l{S.v Odto n ds b htlbmhS Wc Sy!ffi)b. PrrrE,!
v. WDal p*r'tE dlbh tb rrr.6 lt! bota b bva ilb h€lo* tsrory (m) FtIt w.E 3r!r!a dEtFe'rldo Falo lolioc rd .|letntcr ll! {6l.ra.
3 - IDAfA J&01.0U54.o1. a Qrbho Xnt br Prblh Drhlhg Yrer S:@)01. Lloatdopssfqdtd
e. Orur of dI cmlsiry rd o tu:iro moc-r-nily lGliE drilfi$ urclr
slgao3 rmr olF rtc al&!.r rEvirfm oruGe aHifdq t,@ rlE q i0.it diqladE-tdtc{ityGdbr.[tufhIiE lrrE Edrlbc ts+reibtc AreE otr p4l6lylL.td o@r.
To H ycrl bpq *trrc *qE trr !t Fill lirE! vloEbar.
Pofus t - rd 2- Wa.r prEa!! bss b,o lt5brGd Yc ctnct od lsotd t,G[ radiq8 E lc,l iH crEry
ob &y. Our gruntrl ,r.diEr lll b.hftlr a5 .!d 70 Fi lrta ur pllr8rn 6lb to {5 Fi tic Ct dPc,tb a., HrgE tto F, hr! A h 70.
H!. Manip \rrcr w!r. bltllio.d r liccad op:uor d rc.o gcr or llc.G *hrrd.
L{ornie Vlor b rstiag shb DeQ u rtbvo fttl curyli* silf rh Ufto tulcr e,r Ailb Dftldag
w{ar sjldlorudvra qtiEl! tolq trltmGr!iD&aqoil
Wc would llh! b 6nr,eu rh '! tr.v! b,E lLtg rart tqlar eooffi olx e. fu! of lo* pnxm,
0d drc tt"rl3 rE ell r&tin laral tnga
StEElty
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MC,RNING VIEg CO.rD tlO FI'ETJC UTIJTIE}
EXHIBIT 4
PAL.FREYMAN, DI
FALLS WATER CO., INC,
Pase 32 ol 55
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Appendix B
Maps
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
Paoe 34 of 5,5
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Appendix C
Water Rights
EXHIBIT 4
PALFREYMAN, DI
FATLS WATER CO., INC,
Pag€ 37 of 56
06/25/0008P€gD 1
WATEERGHTTUMEER: Ei.?M
roAt'ro D€P^FIUEI{T oFvvaIEB RE$ot RCES
Wd, FEtnlt FlDo.'| rtrset
OnnarTUIB
Armrnt OfiE
TvE Fllr g.c
oaN osE ql
I!4lt4ClIuEE
lloFt{NcvlEi, WAIEB CO lrro
{82 'rrH Sr
lDAxo F us, lD rB4or
(?o8El5.so@
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BarE:
Sl8lrll:
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Sorlnla
GSOUND WATEF
B€nallrirl Uso
mMESrlC
IHF]GAIIOH
Ilaniofi ol Polr rl d Oir,sa,on
GBOTITID WATEB
JEFFE89QN cot nly
O*lU D WAT€fi
JEFPEFSOI', C{uriy
IRf,lGATX'N
Tdh.drw
F Em Ts ffYsloh Rd!
ror a 12fi1t o.ssooFs
4 rr io ltDr oIS cfs
rotd Dlisrdorr 0,7So CSg
$Elr4 Erl4
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Ydtsl Al'r!: 23
DoMESTI6 EarE eB lhElclTtofl
Condi8on€ d
^!oto!rl:t, 26t Prdi€a coarsiuctim ttall mlluE rcE $Atrlln dE yrli ttun Ihe dEE of Pemn EruEnce 3ff|€hdlpro.d dlll0Efl{y b en#d€i l,{B n can b shovrn to ths 6r l6bc{on d [I! Dhrclor ol m
Dslsnmry ol WatEr Er6ourE6r fill drlr)la tE.€ dtlb to cirflrmEtan@i o*'l tvtlch FEnnlt ioldor lEd
no @nml,
2, DtS IhF lcs ol nllei Edsr tits .igJlt €fl.l flsl Slve dtr lo Btr sbllIl agd.st tha hddE oI B 8s{r sabr
rrgl Datrd 4oo llE aheodE d lqtdu[!, aDrndD(rrEdt, GdtEfia Pcseiclor. rElv{., €Ct tlu!
e€lDppelr ailomel !, bEhli so€lqttEry PrEretsEe-J- 0.t9 ThB [rr!6l(lr dr*rE irri6diEdon al !16 .lghl b itcoll,orda tiE uEs itb . hBl dHdcl rEqurE ,
nl3rlnfio}i artrnonE on gr ollEi rcdon nrodsd !p DroEcl pfhr tudlcs ymal rrd sfDr-idwdgr rtglrB
EXHIBIT 4
PALFREYMAN, OI
FALLS WATER CO,, INC,
Page 38 of 55
I'EIET lugut KEporl
Cloea
IDAIIO DEPARTMENT OF WATE& RESOTJRCES
Wucr Psnnil RcTort
a4lnn007
WATm RIGHT NO,25-?593
ftiority Drte 10/10/1995
Status: Aetiw
Locadco of Poio(s) o[ Div:riorr:
Placc(s) ofuse:
Plsce of Use Logal Dcsoripdor IRRIGAfiON .IEPFBRSON ConDry
lbd bcr
bttpJ/www.idwr.idaho.gov/appdExtseecb/RigbtR.poilr.nsp?IlasirNuubcr<2,5&Sequerrcc.,. AtlT/)(nl
OrtrlrnOC NrnctdAddrq
MORNINGVIEW WATER CO INC
{5'J TZTB ST
IDAHO FALLS. ID tl4OI
Sottlct
CROT.IND WATER.
lllrnrdmr Rrir Volnref,lor
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OJ3 CTS
0-79 CFSI
DOMESTIC
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Banotrclr! U*
IRRIGATION
?ROI.JNDWA
WA
IBFTERSON Cou$y
IEFFBRIION County
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 39 of 55
Weer lugbt Xrspon rotsv.r,.r
N 9E l4
Phcc of Use Leg:l DElcriPtiotDOMESTrc uc a IRftIOATION
Total Acrcs: 23
Condirions of App,mral:
Datcc:
Prcof fhE Dsts:07nul9E$
koof lv{rde Drns l0/10/l 995
Appruvod Darc 07 l1 5ll99l
Momtoritun Eryiaion Datc:
Bnlarpoout U* ftiori9 Dao:
Enlargeorcot Stautc Priority DaEi
Applicarion R.er:civcd [lao: 0Jl14/1991
Proca Dadlina llre
Numba of hohsts: 0
Field Exoar Drtc: 7 t79 I 1998
DBtc Sent to State Oft 4/3020@
Darc Reoeivod al Sr6tE Off: 5l6a0ff2
Ficld Eram Rcoart:
Other I rdonuati on:
State or FodErel:
hupJ/www,id',tridaho.eov/ama/ExtscarEh/Righ*,GpodAJrsp?B$iNsmbel+t&SEquqrce... 4lnnw
I
comtructioa shdl aEETDG rlirhi'. oc yer fioo thc datc o,f pcrrni issumoe aod sh8ll
dUiSeoW o coraplaiou uolar it cao bc {botlm D thc stirfictioo of the Director of the
of Sater Rerour,cer tld dclqys *ur dtr o tiranrosrm ovtr qAicb penuit holder
no oonrrol.
usc of $.rtcr uodEr this right shll aot givc rirG to ffy olaio sssins thc holder of c s€iior
right borod trrD 6a thorics of for&i$It, lbddooEoot, advene possessioq waivo.
tabh anoppd. E$o,mel b, llEt!! ot ctlsbElr]l prE&rancc.
Dirocror raalls jrrridloinn of thc dEh to incoEotEt! thc usc into a cracr d'rxdct requirr
ow augnroradm m ottrcr acdm nocdcd to p6ot?ct prior nrrfroc wat€r lod grorrndwEtcr
0ow munodpur c olta dcvice rr specifad by tho Dqrtmut shall bc itrsallcd by thc
boldcr to prcvirh for tha inculhio of Ecanrhg cqulptrrcDt ard thc d.tcflnination of tbe
of div6sio[ by thc Deperucor
rar otdiversloo of cracr for irrig.tioD und6 rhir rigbr rod dl oter ryatel rights oo thc saoe
r&rrll Eor errcGd 0.02 cubb fcct pc sond ftr acb *rre of laud,
i:cuane of this righ docs qot gEtsaru/ riglt of-*ry or camcut across &c lard of aqolhcr.
chts
c urc h for 4t houcs,
eithth.t6,ldcr qhtll of Seaion 42-235. tdaho Codc.
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO,, INC.
Pag€ 40 of 55
lYatG, ltlg[t ltcPon
ormtrNaoe Coucclot:
Wrrcr Dioia Number:
G€oedc Mar Rdc per Aqe:
Crcoeric tr{or Yolume pcr Acro:
Swao Fdls Trust or Norfucr:
Suai FaUs Dismisscd.
DLE Ac't Numbcr:
Cary Art Nunbcn
Mtigation Plaa Fahe
Occ
hup:/Ammr.idur.irbho.Bovh0PE/Ex6€mi/Ri8hfupffiAr.arp?tsrrint'ltmboraJ&Scqucrrcc.-- 4lt?nao7
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 41 of 55
STATE OF IDAHO
DEPARTUENT OF WATER RESOURCES
6/ctstliFEltd
ldEnt No Lf - hrn
l,l$lo
APPLICATION FOR PERMIT
To rpproprlrtr lh. p{tltc lvrtars of t}rc State of Hrho
l. Nsme Prwr,efil-frirA8L-
MEllhrg addres
2. Saur6€ of Y'rat8r ?upgly tlt^,-Jrl>L wtr'l€fi b E tibutr]l Dt
-3. loodon Dl potro ol dr/crdon ts TdvIdJp 4.U *rW ,7?F Scc. c?l h lhe r li,
^4) 1t1,,/4. Gort ,8,irl',
ad&'[onEl poirds ol dlrEdon il atry:
4- wat€r will be uesd lo. lhs fol fr{rtposas:
Amou ,/l lld lor purps6 GotreEhci&itE)(6u ac,!'sdcrpu)Arnount- bf
(ct or.crD,UItrf|tlalAmorrt- lbl
t tsof 6dB+rF attmt t.}
Arrorm _ br(ELc.qdL.a Fr8trl r)
Amourrt
-
lof,
(cGo.acrt-l.dFarrllrrrr)
Amour$
-
lot
(d. or.G{}ftd i{. rnD)
5. Tobl qusnfty to be tlpropt'hbd b (r)
6. P|opqsed flrEding lvorlG:
/80 andior (U)
a typB dzs'of do*6 t sed tr dvort rraB ttDrn ll|B lourca
b.ol dam lH acfvE rEs'Ytrir capacly- Bat+.rolt lfrl
reremir caFacry
-
asrE-het
c. PrDposad wdl frmsE, ts _ tnchas: FrEpG66 daplh uf usll L
d. b giound wtlE, lvih a lampcraute ol g|BEtrr ri8n Es'F b.ilg
€. lf yr€ll b rlready &illad, tlhdt?
-i
Or&ltE Em
Well ry6 drlllad fur ($roll own€r) i Or{&rg Pdm'il hb
7. Tfio Gqulrcd for arnCaf'on ot u,orlE.rxl spplc{doo oI w$Er b Ffopced baleidal uee b .< ysEr, (iri,*rrun t Wr,|l
8 Osscdpuor oI prEpGsd uEaE ofi7&Eiron otir. 9o lo lbqt 9l:
a. HfdluEowcr, Shoti ldal lBBl sl hsEd and gopmad cap€dty h kW.
b. slochdarErino; lEl numMr sod ldnd of ll\rEaocl(
c. MuiflGlpali shonr rlame of munkJF€lty-
d- DornEstiE: Ehsiv nqmber of houssltok s
FrrD6afom b (bohffBhctlfre)
trrlposEG fiom b_ Oc& drle6 h.Jurfuo)
trrrpcE from b (botl ddar irclu*a)
BrrFosEfrEm E (botr dElff lnclu6i3)
purpoc6lrom _t _ (bol}l d.l6s lnclulive,
s.EFdfiu,)f"
leo(
e Other; decriba fully
Exl{rBir:4 , '|), '
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 42 oI 55
Appendix D
Well Logs
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 43 of 55
Jf-,$t) ''*""ffi+ffimflEo
r.otrunl(l FET1r u*€ft E-_Aoll-M_
Orrr lo!fi iF
a. ol r{tR
Otr
!, Loo tlol{ oF wll! bY bed d..a{Fom
Sbrrt ilr bdbnt[l lrr lai i.lbrr drL
o WD o ry:rn
tlrrE TrrD,bilrl| &5D _
VYE flllfra q arErEia
OFhlh lxt Elra,lt E
-
tZ" UIllolG LOO; ltEDlrll|r s rbr&mil) b,
L hb ftltrrhq.,rtrF-rtILI9o ,F
tc)tt,Ilr'a -JF},Xtia,A Ai '*r/EI-,rDAA
"1,t2,C"
,J >A c,r.),7 l&t E ? rlt/F ,
t7 ir6 ,D x
Fr\ F..-r E.!
lrr! n ^ ---
,t.rt
t--.'8
O.rra-orEbrd
C
rr.. Ll rtrr' l} r a.r, tr
Bcr -19- Gr I o w.. !jE.3 D )PD- 7tt -Al7fllt
-W
s..ni-&_J-F-'FiE-7E7}Jrr: noD:
I, UE:--Im Bm' zgr,,flffi,,,a"
5. TYPE OF WOBI( drd .l 5. r0ly El.F.t!r. *J
I )i tYdl al l}dr tr ,t,l.rrrl tr Or--
!. DIILL IEN€Olarfrraxr lrcdD o tidh'o
7. aEAltlo
w*, drrrr.E td, iY tl ra t . IEh(r|-
rvtr crls rioa ral -acl erf or
8. Crgolc,rJlEfh
f,o EIoo
Ao3El
El:lE'
trtrtr c+te&--btrn c fd!5.-
9. PEhfOrA'rEtl8rlEAE'r8! F.rtornu. L
tr S!.r,Etrarl
ro srr?lc wArEn L6rEL 0F taTEtura ,Etf,ft:33 q E, g,! rd Ali.Ln glutr b.
D.O$ 0oi.fEr,trrr., O-crloa HDonc
r.lnlrd 6rrEi_ aa-Yrao. oi
CIo
J1
tr DBUEFT cEtrr{anorarnt oarrry t,! - rSrtrart rI o*ut tro* rr Errdlo do rrLlr!.rrts rrEr-
lt.J a
o
EI
o
Flttn
ao ,,--Z:A-{..1t-
E r ltr (bra C}-Lr
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 44 of 55
Ofid Urs Ot0yrli#by-Twp- Fg.-S.c
-_11. _v1 _\11
-= 'I:EAI
--
EE
----IIII IIIIIIIII
Era
- LcAIuD-,b €i/ft-tY, IE
2.1tdw,II II
trir-;r4r
II
IIrIII I
IIIII
rfiry.Eo trt{TE Eoary ?D rr,ArlA tEtouFccg
fdrr *ttttra sraTE oF loaHooEfAm tm or rAftF ieFuicEx
WE]T DRILLEE'S REPORT
-rbr.larbtrrjlsrr lol:L D.ri tahrt-r.rl.aJ*fi.+ahr*- ra.lt
Urtlv'MlliOFt^Uto-?9!E
L rfllgr "r.Enorgrlidrd*; iltrt O t:r Oor_
ltttl- DlGrt...,fE ld-
-ll-
lBt
-
l.{r-
-
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-
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$rr!drd: El tlrv* E ta',rr...j!!Dr*r.rd$krdr,rallroqr Ord titaaj O}ll-x-
tr h-.a tr-irr.r
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tdtryrIr d) brbi rd ]d&.tu hd o Y- !6 err. tE
--
Ar*Ira-llrtr_rd,6iEld!': D VJ. Oe? tr atr
cF,Oart
. ftt rtt? o ta
E h{ic El*o& oor,
t.r fi*of mia
tr*.d OD-d oiEtirq Afrr&r.( lbrk rErDll rEdof,t-rdr -ltqat rlrtrHr,lB hrfrhi lit
t. urrSldE r.ot Fl?:Lqr
-r ts
a rmoaD le
It6 : E ri5!.r E, tt O ra&l
I! lrroi.l O &-* O l\i. Olr- - hFlr
D orr-rd,'E
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ftld,r El A) OOd. E,fil, O Otrlnl-* O irrrry
':4'lttut,,ta:-a,
i\i,
r-.rE--
L .^,*T.a.H
ltrhr OftrIl
lot r-l
O!
tlr
all a r*ra-aa ir
u/6
:o
rt g,irurE stiflatdrE
lr*r .t ?tal
I I
/llL)t
3
lJlI IDDMOTAL IIIII I' trIAUW - EITA'g tar:
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC.
Pag6 45 of 55
c zll.,
ng
Sr^fl oF lo^Ho
DE?ARIIIE{T OF IIAIEi NESOUNCE
WEtt DRIU.ER'S REPORT
bH --r- *a;rt HitfrollrF, FPrarrtbillt Dt drrt#. r-Etd-d ,Jlll
t. El Ei
&r-
o.rl fm tto,
LITfinlGFII
E lr.rdl OBa- OBraEll!6l bt -.-Jal*lJ
-atlolmrE
{tl olrd O lr*r OTB ct ra'#lo lot o i-olFt r, r.fd&n
t IGI|.oo oiltl.Eo
l*l?rrrfrl
x.a, rt
-
sfrlb
t io,_htrt._
O.ltr
E,/alr.H: E irrrrun
t lEtl frt tf,tEi
Eftdt*|. p lrl O Onarr OOdr. _
noltt O** tr Ott
oo Ott
tE -!E a-- \ltl- ta r,idt. I h ria-t-Eirrhalt_ tu- _ .ra- _ tsr_Lr-:*--
*-dti.tt.t-l-? lva DEb.*rcld OIL ,*,ft,irrdf lYr Ol.rrb Ftti.dl O F@rr OI* , f..d&.aFlG..b 1- trrl_t_-ut.
_i-htf, F,r.r. -3 I j.tp al?, tfr,{*
-h-ai-lrrtE
il.r-rlrlr, O Yr. tbhd-r3t-Tnn i-_l!a{. latE _Er ,,Oh.n_3.rrr. irfici taE _f-b,dffa al Yr Il ral O i.!aarr- _Au,]'G UD _.-r---@ OGdhadi Flinri{n,a-aF-+rrrd: lrftrrr. tr ar,..b{E
tr Oi.Dnr - EiihC dtq.-t tr rlE 6IrA O ErrrfrE
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r 5G.3lL, Y.
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wn-&-tE:2!LL.lrll.rt
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EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 46 of 55
Appendix E
Water Production Data
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 47 of 55
Moning Vier Wrter Cb, Iac.
Atr ldabo PIJC Rqgulatad Compaoy
3996 E.200 Nortlr
P-O- Box 598
Rigby,laam BA42
Officc: ZI&745{r029 Fax: 20t-745-fi)41
DatE Start
Reading
End
REadiB
Total #of
scrvices
Gals. Per
Household
January tzJsUOs 24521?;000 89
February IRI/06 247tsffi 2644000 90 291?8
March 3/l/06 2500t7000 ?161000 9l ?374"1
April 4D)O6 252361000 2344000 94 24936
Mav 5t3tro6 2610I4000 r5s3000 95 9t0t4
Jrme 6l3UO6 270303000 9289000 95 y7779
frrly 7f)!lo5 z836o4mo I r33or0oo
I
97 ll7! ?4
Aueust 8nvo6 296210000 12606000 99 12n33
September ,l,ow06 303056000 68rt6000 99 69t5t2
October 10/3tro6 304775000 1719000 99 r 7364
November I t/30/06 30612000 r347000 98 ti745
December tnn?307fi9In0 1617000 98 r6500
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 48 of 55
Ezzz
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Flb lO OS O3:O?F I'lol.n GnEitln3 ?o8- "r6-OO.t I P-3
SECI'ION II l4rater l*vel Inloruutloa (Optionrl detr lfrvalltbtc)
Depah ro wetcr. Record thr ds!e, if the pur4r wts g6 0r Dft,otil oudr nslrb) pt mp{ u&rE un
Srrtic r#{E [.vct (purp ol( watcI1"vcl stab fi. Dat
Drncmic Watcr lrucl (pump or):
-n
Datt-
Secrion tlt Rrte orrlow iiit rotumt aivdia (BEQLiIRED DATAI
Mcrcr infomulion;l"*t-ModEl
Do.s oe mE er roirlizcr rrEsslrE in &lE! r@ (sird! DE) wll ir ths rn$lttplic r'1-
Do(\ (l,c ut ltr 6!jule! iidrcllot rtrov(ffio, cfs? (.Lr,lt onct lryilr h (hr. multiplr.r'-
l oc mctcJr viitlrour mte of flow indisrrorr, Gt .t hc{t o rrd 3Dc prEa { for t ctct infosmrrlon rnd $!c m6asracmEnr
rn:(hods-
Rr6.lltrg ot tI! .ralor l,otalher, flow rrla rrd dls{.tarB! preaout thould bG rskEo snd rEcrordEd oncs elrh
rm,rth on or DGAr lhe nme drh. Please provlde tbr artod lDrrllrar reedlng rod dol tbe tot l volume
slnce het rerdhl8,
F6b
Mtrrh T
..:, '
Do roralizcr snd flow rcbdings above ioclude mctcr multipUers?
-Ycs-NoTotal Acre-fcot
-
OB Tolsl GaIloEs
(rhcrc art 325.850 E,elloas Pcr acr.lbot)
Calcrrlations or Comlnonts rlf flow trEEr was irEl8llEd, cslibntc4 or rcplaccd duriag &is rrporlJng yerr,
Pler.sr ngte dra tltrtc.l
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
Page 50 of 55
?
Datc
{date of rsdinf}orclt, Totaliaer
Ur'Dt?.BI,,dL!is.
Ectr nrtc
(circla: c[s or grml
Dlschargc
Pressufe
Janwry ( + r i u-a5c,ohlrt)s'Jt - trs-'5p-'tL
,7ot fz bb?y10 - 4 t\)ta-lA
'J-l l\l'}v oot),h- 4oJ st.l- t,{
April ( E:r )1'l4r.6iOOD 1'1o- 4q)5i)- b5
Mry { zr) }J'lt I t.t t00 ' 31b-400
lune ( zo )3fi<! L't'lgWlo 3/O - ttou
luly ( 1l )90 t1',.l1Dl)0 -l7s- +oo c-c-- '5
A I &5 o-OD 1D-'t
,ra - Y '-r,-'
Oclob'er 7:O q
NovembGr (J 6)'13 o G tb0a)59 - 'rao 9i-75
Decembcr ( 5l)437 | frZom 6o 4 O.r
Appendix F
Water Company Documents
EXHIBIT 4
PALFREYMAN, OI
FALLS WATER CO., INC.
Page 5'1 of 55
I r) -lpG Do u3
FlErlj:li.rl IoMoroiry llrer V9eisr C.o, be.
Aa ldrho PUC Xcgulaled Coopouy
3995E 2ffiNorth
P.O. Box 596
lt442
t,
DEGIDI\FJ{,: .
o
Office: ?0&7t15{029 Fax: 20&745404t
Fcbruary 25, 2008
Rmhalle Masou
Dspstmeot of EuvLonE€otal Qualiry
90{tN. Skyline Dr.
Suite B
Idaho Fall+ Idaho 83402
f}ea Rocbellq
Thir later ls to inform )ou rtrFr lhe Roclcy Mountain had a porrer rrulagt on Sn'nlay
Febnrary 24, 2008. This ortage doct d over 1700 people io Jeflemon Couaty. Wc *ere
ooe oflhs sitca thd lost ponr. It tookjus ovcr oua horr for thc poum cornpauy to
co,uplGtE r4airs md rcsore porrr-
As sooa as tbe power was reaorod, Noho Gacitbg w$r io ltr rftll housa and flushed
and reser tbc sysem
Optrator
cc/file
fDntd Zl5l0f
f
SCANNETI
.*r,r,rIEB 2 6 zl[t
PALFREYMAN, DI
FALLS WATER CO,, INC,
PaOe 52 of 55
MornilgVirm WrECo, [lc.
en ldahoPI.IC Rcgulaait CosPoY
3996 8" 200Ndlh
P.O. Bor 598
RECEIVED
APR I1 ilOE
DEQ.IDAHO FALLS
Ristry, Lbho E3,142
Otrco: 2O&7490(E9 Facc 208-745-00{l
April 10,200S
Doparorot of Eavimuaotal Qtulity
900 Nore Sk lin€ Dr.
Suiu B
ldrho Falts, Idaho 83402
Rochdle Masoo,
A3 you hsye ruquc#4 tte pcmrc oa tbc w"n'- Erffi hts bo scterp to cplo ard 50
pourds low aur175 p@de hiSt- Itrorvlrr, hthc Pd this hs blou'n out som of ttc
ivu ry*cos iu the oaau&rnrrod hoc ldditior. tdmof ftcsc arc pluobcd tvitb 3A-
diamtcr PEf fipe and tbe frltnioo loss is rally hi8!t ed tbe Fipe is of cartrcmcly low
quatity" nemrrse of tis potdi.l .h88E sE irc dqtilg ey liabrlity o orr patt fsr
watrr rtamagE litt"h tbe trailers.
Should you hnve my g{oblee rrith thiq pleaso muEct lrt d ?'l 5-0029
Rceards,
Manager
Momiog Viow Watar Co., ho.cclfile
SCANNEII
- -APRIi?0mEXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO,, INC,
Page 53 of 55
f,omi WewHomae
Fron: ilomlm Vtar llomrd <trF tti[visu,tErEso{*€d.rEO Ik mrffffffif-"c*tn'hos.'!P RESET,ED&U.e DEO llalxl.E
ATrE notr: Ro.*ralc tlsryr JUL 2 4 zm?
REGARO},Io: iror*uvltwu,bE.co., lnc. DE&IDAHO FALLS
Julf 23. 2ID7
Pl€sso be adhnc{, tlat et ot Jul, 20, 200? 3:!lo p.ltl', wcll 2 wE tully frrrc0orEl.
The ts oudng sr3 done b aerqlirh lt*r:
1, Tha oad orjrt}l d(rd rffi. hat hrrt rErilot €d lion 0E rrnl.rGhg.
2. Th6 guorp ard [E nEr hsve beo ]!plced.
S- Ir tysfe,fl has uaan cqr*lto o. lr€r Fare..laclrlceliyrtsrn.
4. ThB l€rk3 h.rE b#ft rtpriEd ,x, thc E[ h-6 bc€n dllxinEFd,
Ylb lefieve w€ elB ln oDmFli.nca ritt l,la DEQ fiEdats. daE Jul, 0. 20tr/. and hdd6 f|3 omG ,r.nr aflo|l!(,..Mry
SCANNED
tt-zq w
o
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC,
PagB 54 of 55
7D3nOO7
Morning Viaw Water Comp€ny
Finai Facility Phn
Arklcndum
May 20, 2009
I1r tbllowing ircms should bc cotuldertd aloflg with dre original rrport sobnlittcd lo DEQ
April | 3. 2009 ard rcfetcme tbc ireus lisled in tbe Atoroe,.! GmBrrl's letlEr daled April 29.
200q addressed to Mt. Roben Harriq-
Itcro I - Therc arc currEntly 106 sofi$sctions to lhe s)t.lsn accoding lo tht Moming Vicw Wntcf,
Cnmpany-
Iterns 3&4 - Currnt pump scltings are 50 psi and 70 psi and have been scr since May 8, 2009
accordiog to the Morning Vic* Wrts Comyuny. T}rc Qompany has not gatbaod atry pdlsur€
datn fs of this dato.
Ilern 5 . Eecause the slrtarn does not include firc pmteaiol the mioimom altowable presurc is
40 psi, The slatanenl on prgc I8 rlrould lx unended ftom 20 psi to {0 ,}si.
Itern 6 - Bastid on th€ histoEisal $ElEr ussgE dala, thc systcrn is c*pablc ofurettiog the PI'ID of
34tl gpm. Ite lruc pcat hoot demand of the system may bc gmrtcr llun ttre assuned peaking
factor of thrre providcd.
Moming Visrv Walcr Company
Frciliqv Plar
Augrrl 6, ?00E
Addr,rvJurn
EXHIBIT 4
PALFREYMAN, DI
FALLS WATER CO., INC.
Page 55 of 55