Company Overview
Northwest Natural Holding Company (NWN) is a diversified utility holding company with a rich history dating back over 165 years. Headquartered in Portland, Oregon, the company operates through its primary subsidiaries, Northwest Natural Gas Company (NW Natural) and Northwest Natural Water Company (NW Natural Water), providing essential natural gas distribution and water/wastewater services across the Pacific Northwest and Western United States.
Natural Gas Distribution
NW Natural, the company’s core natural gas distribution segment, has a longstanding reputation for safety, environmental stewardship, and customer-centric service. The company’s roots trace back to 1859 when it was founded as the Portland Gas Light Company, initially providing gas lighting to the city of Portland, Oregon. As technology evolved in the early 20th century, the company transitioned to providing natural gas distribution services. Over the decades, NW Natural expanded its natural gas distribution business throughout Oregon and into southwestern Washington, successfully navigating industry changes, regulatory environments, and economic conditions. Today, NW Natural serves over 800,000 meters across Oregon and Washington, consistently maintaining high customer satisfaction levels. The company’s ability to adapt and grow is exemplified by its recent completion of a significant rate case in Oregon, securing a $93.3 million revenue requirement increase and a constructive regulatory outcome that positions the company well for future growth and returns.
Water and Wastewater Operations
Complementing its regulated natural gas operations, NW Natural has strategically expanded into the water and wastewater utility sector through its NW Natural Water subsidiary. This diversification strategy began in the 1990s and 2000s, initially focusing on acquisitions and investments in Oregon before expanding into other western states. Over the past several years, NW Natural Water has executed a targeted acquisition strategy, growing its footprint to now serve over 188,000 people across five states. Recent acquisitions, including the 2024 purchase of Puttman Infrastructure Holdings and Infrastructure Capital Holdings, have bolstered NW Natural Water’s geographic diversification and service capabilities, particularly in the recycled water business.
Renewable Energy Initiatives
Recognizing the importance of environmental sustainability, NW Natural has also established NW Natural Renewables, a non-regulated subsidiary focused on renewable natural gas (RNG) investments. The company’s RNG strategy includes long-term offtake agreements and direct investments in RNG production facilities, providing a pathway for the integration of green energy sources into the company’s gas supply.
Financials and Liquidity
Financially, NW Holdings maintains a strong balance sheet and liquidity position, with $35.1 million in cash and cash equivalents as of September 30, 2024. The company’s consolidated capital structure consists of 46.3% common equity and 53.7% long-term debt, reflecting a prudent approach to financing growth initiatives. In 2024, NW Holdings issued $90.4 million in equity through its at-the-market (ATM) program, further strengthening its financial flexibility.
For the first nine months of 2024, NW Holdings reported net income of $33.9 million, or $0.88 per diluted share, compared to $49.2 million, or $1.37 per diluted share, in the same period of 2023. The year-over-year decrease was primarily driven by regulatory lag and inflationary pressures impacting the natural gas distribution segment, partially offset by growth in the company’s water and wastewater operations. NW Holdings reaffirmed its 2024 GAAP earnings per share guidance range of $1.94 to $2.14 and its adjusted earnings per share guidance range of $2.20 to $2.40, excluding the impact of a $10.1 million after-tax disallowance related to the Oregon rate case.
In the most recent fiscal year (2023), NW Holdings reported revenue of $1.20 billion, net income of $93.87 million, operating cash flow of $279.95 million, and free cash flow of -$47.40 million. For the most recent quarter (Q3 2024), the company reported revenue of $136.93 million, a net loss of $27.17 million, operating cash flow of -$26.38 million, and free cash flow of -$121.71 million. Year-over-year quarterly revenue decreased 3.2%, primarily due to lower gas volumes and revenues. Net income decreased $3.48 million compared to the prior year quarter, driven by higher operating expenses and lower other income.
The company’s liquidity position remains strong, with a debt-to-equity ratio of 1.25 as of September 30, 2024. NW Holdings has $35.05 million in cash and a $200 million sustainability-linked credit agreement, with $59.70 million drawn as of September 30, 2024. NW Natural has a separate $400 million sustainability-linked credit agreement, with no amounts drawn as of the same date. The company’s current ratio stands at 0.83, while its quick ratio is 0.61.
Future Outlook
Looking ahead, NW Holdings remains committed to its long-term earnings growth target of 4% to 6%, underpinned by continued investment in its regulated utility infrastructure, strategic water and wastewater acquisitions, and the development of new renewable energy initiatives. The company’s diversified business model, prudent financial management, and focus on operational excellence position NW Holdings as a resilient utility platform poised to navigate the evolving energy and water landscapes.
Segment Performance
Natural Gas Distribution (NGD) Segment
NW Natural’s core business is its natural gas distribution (NGD) segment, which serves residential, commercial, and industrial customers in Oregon and southwest Washington. This segment accounts for the majority of NW Holdings and NW Natural’s revenues and net income. The NGD segment includes NW Natural’s local gas distribution business, the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion, NWN Gas Reserves, and NW Natural RNG Holding Company. This segment is primarily seasonal in nature, with higher gas usage by residential and commercial customers during the cold winter heating months.
NGD segment highlights for the third quarter of 2024 include: – NGD net income of $30.40 million, up from $24.16 million in the prior year period – Diluted earnings per share from the NGD segment of $0.79, compared to $0.66 in Q3 2023 – Total NGD volumes sold and delivered of 157.76 million therms, down slightly from 158.69 million therms in Q3 2023 – NGD margin of $68.92 million, relatively flat compared to $68.93 million in the prior year quarter
The increase in NGD net income was primarily driven by a $4.60 million decrease in other income, net, a $3.70 million increase in depreciation expense, and a $1.30 million increase in operations and maintenance expenses. These were partially offset by a $2.80 million decrease in income tax expense due to lower pre-tax income.
The slight decrease in NGD volumes was primarily due to lower usage from industrial sales customers in the third quarter of 2024 compared to the prior period. NGD margin remained relatively flat as higher margin from customer growth was offset by lower usage from warmer weather and decreases in the gas cost incentive sharing mechanism.
Other Segment
NW Holdings’ other segment includes NW Natural Water Company (NWN Water), which owns and operates regulated water and wastewater utilities, as well as NW Natural Renewables and its non-regulated renewable natural gas (RNG) activities. This segment also includes corporate revenues and expenses that cannot be allocated to the NGD segment.
Key highlights for the other segment in Q3 2024 include: – Net income of $3.24 million, up from $473,000 in Q3 2023 – Diluted earnings per share from the other segment of $0.08, compared to $0.01 in the prior year period
The increase in net income for the other segment was primarily driven by net income contributions from the recently acquired ICH water utility business and lower business development costs at the NW Holdings level. NWN Water continues to pursue strategic water and wastewater utility acquisitions to grow its regulated operations.
NW Natural Renewables, the unregulated subsidiary focused on RNG activities, made a $26 million payment in September 2024 to partially fund infrastructure for an RNG production facility that began delivering RNG to the company in the third quarter. This RNG supply and additional projects in development are part of NW Natural’s strategy to incorporate renewable gases into its energy portfolio.
Industry Trends and Market Position
The natural gas distribution industry has seen a compound annual growth rate (CAGR) of approximately 4-6% in recent years, driven by customer growth and increased infrastructure investments. NW Natural primarily serves customers in Oregon and southwest Washington, with no significant operations outside of this region. The company’s focus on its core markets and strategic expansion into water and wastewater services positions it well to capitalize on regional growth opportunities.
Overall, NW Holdings and NW Natural continue to execute on their multi-pronged strategy of investing in core utility infrastructure, pursuing regulated and unregulated growth opportunities, and advancing sustainability initiatives to position the company for long-term success in the evolving energy and water utility landscape.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.