Good morning, and welcome to the NW Natural Third Quarter 2020 Earnings Conference Call. Please note this event is being recorded.

Thank you, Emily. Good morning, and welcome to our third quarter 2020 earnings call. As a reminder, some of the things that will be said this morning contain forward-looking statements. They are based on management's assumptions, which may or may not occur. In addition, some of our comments today reference non-GAAP adjusted measures. For a complete reconciliation of these measures and other cautionary statements, please refer to the language and reconciliation at the end of our press release. We expect to file our 10-Q later today. As mentioned, this teleconference is being recorded and will be available on our website following the call. Please note these calls are designed for the financial community. If you are an investor and have additional questions after the call, you may contact me directly at (503) 721-2530. News media may contact Melissa Moore at (503) 220-2436. Speaking this morning are David Anderson, President and Chief Executive Officer; and Frank Burkhartsmeyer, Senior Vice President and Chief Financial Officer. David and Frank have prepared remarks and then will be available, along with other members of our executive team, to answer your questions. With that, I will turn it over to David.

Thanks, Nikki, and good morning and welcome. I hope that this call finds you safe and well. Like all of you, we continue to navigate these unusual times. In addition to COVID in September, Oregon dealt with wildfires. Our gas system was resilient and minimally impacted, but as with any event, we took proactive steps to ensure the safety of our customers and coordinated closely with fire commanders. I personally want to thank all of our employees for their hard work here and, of course, the first responders for all of their efforts during those unusual times. Moving to a few economic updates, it is important to remember where we stood in February before the pandemic started. At that time, we had a fundamentally sound, sustainable growing economy with record low unemployment, both nationally and in our service territories. As discussed in previous earnings calls, COVID impacts affected the Northwest like the rest of the country, but we've seen some economic improvement in recent months. For example, Oregon's unemployment rate was 8% in September, essentially matching the national rate. That's down from a 14.9% high in April. Job growth in Oregon bounced back to positive territory in the second quarter of this year and has sustained an upward climb through September. In the Portland metro region, year-to-date closed home sales were up 3.1% from 2019 with stronger year-over-year price growth of about 10%. New single-family permits issued this year are close to where we were in 2019. That's much better than what was generally expected this spring. As a result, we have connected over 13,800 meters during the last 12 months ended September 30 and that's 300 more meters than we added this time last year. Our overall customer growth rate is 1.9% for the 12 months ended September and reflects a lower level of customer disconnecting from our system during the pandemic. As we resume normal disconnection practices, we will likely see this growth rate decrease a little bit. Despite the positive trends, we know these are difficult times for some customers. That's why we voluntarily suspended normal collection processes and disconnections in March. Since the pandemic began, we've been working with the commissions, staff, and stakeholders in all of our states to determine the best way to return to more normal operating practices. The last couple of months' commissions in all of our states have finalized their timelines that allow utilities to resume normal operations. Additionally, the Oregon, Texas and Idaho commissions have approved deferral applications. On the regulatory front, an order was issued in our Oregon general rate case in October approving our previously disclosed all-party settlement. The order includes the $45.1 million increase in our revenue requirement based on a 50-50 cap structure, a return of equity of 9.4% and the cost of capital of just under 7%. In addition, the order reflects an average rate base of $1.44 billion or an increase of $242 million compared to the last rate case. New rates took effect on November 1 and were largely offset by reduced gas costs from our PGA filing. In Oregon, the combined effect of the rate case and annual purchase gas adjustment resulted in a $2 increase to a residential customer's monthly bill. Overall, gas bills continue to remain low. Northwest Natural customers are paying about 40% less today for their bills than they did 15 years ago. In addition, in June, we passed back a record $17 million in storage bill credits to Oregon gas customers. I'm proud to report that continuing our legacy of service, customers ranked Northwest Natural second in the West among large utilities in the 2020 J.D. Power Residential Customer Satisfaction Study. These results are a testament to our customer-centric culture and it's especially gratifying to see customers recognize our employees and company during this challenging year. And finally, this morning, I'm pleased to report that in the fourth quarter, the Board approved a dividend increase, making this the 65th consecutive year of annual dividend increases. Our annual dividend amount is now $1.92 per share. We're proud to be one of the only 3 companies on the New York Stock Exchange with this long record. With that, let me turn it over to Frank to get a little bit more detail on the financials. Frank?

Thank you, David, and good morning, everyone. I will begin by discussing the financial impacts of COVID-19 and the highlights of the third quarter and year-to-date results and conclude with guidance for 2020. As David noted, the Oregon Commission recently approved a COVID-19 term sheet that outlines the types of revenues and costs that may be recovered. These include PPE, bad debt expense, financing costs associated with additional liquidity and certain lost revenues. Direct expense reduction, such as lower travel and meals, and entertainment are to be netted against the deferral. Prudency review and recovery of the deferral accounts will be determined at a future proceeding. While our business model is resilient, we are experiencing some financial impacts related to the pandemic. Through September 30, we have incurred an estimated $7 million of incremental cost and lower revenue. In the third quarter, we recognized a $3.1 million regulatory asset for Oregon costs incurred to date. Utilities are also allowed to recover late fee revenue that has not been charged to customers since the suspension of normal collection processes. However, this revenue will be recognized in the future period when we begin to recover the foregone fees through rates. At the end of September, this revenue totaled approximately $1 million. In summary, of the $7 million of total financial impact as of September 30, we expect to recover $4.4 million through rates under these orders, with $3.1 million deferred in the third quarter. In addition to these deferrals, in order to further mitigate the financial effects of the pandemic, we initiated temporary cost-savings measures, which provided approximately $2 million of savings for the third quarter and year-to-date. Switching now to our detailed financial results. I'll describe earnings drivers on an after-tax basis using the statutory tax rate of 26.5%. The return of excess deferred income taxes to our Oregon customers resulted in an effective tax rate of 22.3%. Also note that year-to-date earnings per share comparisons were impacted by the issuance of 1.4 million shares in June 2019 as we raised equity to fund investment in our gas utility. As a reminder, Northwest Natural's earnings are seasonal with a majority of revenues generated in the first and fourth quarters during the winter heating season. For the quarter, we reported a net loss from continuing operations of $18.7 million or $0.61 per share, compared to a net loss of $18.5 million or $0.61 per share for the same period in 2019. The gas utility posted a decline of $0.08 per share related to higher depreciation and general tax expense, partially offset by the recognition of the regulatory deferral asset for COVID-19, which I discussed earlier. This decline in the gas utility was offset by an increased contribution from our water business as we acquired assets in Washington and Texas and lower expenses at the holding company. In the gas distribution segment, utility margin declined $300,000 as the benefit of customer growth and higher rates in Washington was slightly more than offset by a decrease in revenues from late charges and reconnection fees and slightly lower usage from the industrial and large commercial customers that are not decoupled. Utility O&M increased $700,000 in the quarter as we incurred higher compensation and non-payroll expenses, partially offset by the cost-saving measures and deferral of expenses related to COVID-19. Depreciation expense and general taxes increased $2.4 million related to ongoing investment in our system. Finally, interest expense for the quarter decreased $1.2 million as we deferred interest incurred to increased cash balances in March. For the first 9 months of 2020, we reported net income from continuing operations of $24.5 million or $0.80 per share compared to net income of $27 million or $0.91 per share for the same period last year. Last year's results included a regulatory disallowance of $0.22 per share related to an Oregon Commission order. Excluding that disallowance, on an adjusted non-GAAP basis, earnings per share from continuing operations was $1.13 per share for 2019. The $0.33 per share decline is largely due to year-over-year growth in expenses and the effects of COVID. In the gas distribution segment, utility margin declined $100,000. Higher customer rates in Washington, customer growth, and revenues from the North Mist expansion project contributed an additional $10.4 million. This was offset by lower entitlement and curtailment fees related to pipeline constraints in 2019 and warmer weather in the first quarter of 2020 compared to the prior year, which collectively reduced margin by $4.8 million. Utility margin also declined $1.1 million due to lower revenue from late and reconnection fees as we suspended normal collection processes. The remaining $5.2 million decline in utility margin is a result of the March 2019 Oregon order related to tax reform and pension expense. With the exception of the first quarter pension disallowance, this order has no impact on net income, as offsetting adjustments were recognized through expenses and income taxes, as I'll describe. Utility O&M and other expenses declined $6.4 million during the first 9 months of 2020. This decrease is associated with the Oregon order, which resulted in $14 million of additional expense in the first quarter of last year as previously discussed. This was offset by a $6.4 million increase in underlying O&M related to higher compensation costs, contractor and professional services, as well as moving costs for our new headquarters and operation center. This was partially offset by cost-saving measures as I described earlier. Over the last several years, we have invested in our gas system at historically high levels and we've placed the North Mist gas storage facility into service. As a result, depreciation expense and general taxes increased $7.3 million. Finally, utility segment tax expense in 2019 included a $5.9 million benefit related to the implementation of the March order, with no significant resulting effect on net income. Net income from our other businesses increased $900,000 from higher earnings from our water and wastewater utilities and lower expenses at our holding company, partially offset by lower asset management revenues. A few notes on cash flow. For the first 9 months of 2020, the company generated $149 million in operating cash flow. We invested $227 million into the business, with $193 million of primarily gas utility capital expenditures and $38 million for water acquisitions. We continue to expect capital expenditures this year to be in the range of $240 million to $280 million. Our balance sheet remains strong with ample liquidity. Now regarding the ongoing financial effects of COVID-19. In summary, our third quarter results are in line with our expectations and we have clarity regarding the recovery of costs in Oregon and late fee revenues. Going into the heating season, 96% of our commercial and industrial customers are current with their bills. Nonetheless, we know that some categories of commercial customers have been negatively impacted and we continue to closely monitor usage levels and commercial customer losses. We will also continue to pursue the cost-saving measures underway to mitigate these circumstances. Today, we reaffirmed guidance for continuing operations in the range of $2.25 to $2.45 per share and guided toward the lower end of the range due to the potential implications from COVID-19. Guidance also assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms or outcomes or significant laws, legislation or regulation. Finally, this guidance excludes any gain related to the sale of Gill Ranch and associated operating results. With that, I'll turn the call back over to David for his concluding remarks.

Thanks, Frank. While the year has held many challenges, we persevered and accomplished many important things in terms of customer service, safety, and mitigating the pandemic effects. At the same time, we're also advancing key long-term objectives that include aggressively pursuing a renewable future and a carbon-neutral vision for our gas utility by 2050. Today, with no cast iron or bare steel, we have one of the tightest systems in the country. We use that tight system to deliver more energy in Oregon than any other utility each year. In fact, the existing gas system has provided nearly twice as much energy on a peak heating day as the electric system, and yet the use of natural gas in our customers' homes and businesses accounts for just 6% of Oregon's greenhouse gas emissions annually. That's a very efficient delivery of a lot of energy, but we know we can do better, which is why we established a voluntary carbon savings goal of 30% by 2035 for emissions from our own operations and our sales customers' usage. Two years in, I'm pleased to report we're on track to meet or exceed this goal. In 2019, we achieved 21% of the savings needed to meet this goal. That's equivalent to removing over 60,000 cars from the road. So far savings have come from three main areas. First, energy efficiency is the fastest and cheapest way to reduce emissions and a long-standing priority for Northwest Natural. Back in 2002, we were one of the first gas utilities in the country to obtain a decoupling mechanism, which supports the energy efficiency move. Second, our carbon offset program also plays a vital role and was a strong contributor to the savings. In 2007, Northwest Natural was the first stand-alone gas facility in the country to offer customers a voluntary program that allows them to offset some or all of their carbon emissions from natural gas use. And finally, we have also harvested carbon savings from implementing emission screening tools for our gas purchases. We believe we are the first gas utility to use EPA data to calculate the relative emissions intensity of gas producer operations, and we use that information to prioritize purchases from the most responsible producers. Now several years into our carbon goal, we see more ambitious savings are possible. We understand more about RNG and hydrogen today and now have policy support with the groundbreaking Senate Bill 98 in Oregon. We also have the advantage of seasonal storage with one of the only storage facilities in the Pacific Northwest. Conventional natural gas storage is very valuable in our area, and it can be used for renewable molecules in the future. In fact, at 20 billion cubic feet, our Mist underground storage facility is equivalent to about 6 million megawatt hours of electricity storage. That's about a $2 trillion battery at today's prices and many times larger than the biggest lithium battery in the world. What we and the industry need, however, now is continued policy support to help get these renewable solutions to scale. And we're certainly not alone in our thinking about the future role of the gas system and how to leverage all of its advantages in new ways. We're having these discussions with peers here in the United States and there is a much bigger focus on RNG and hydrogen coming out of Europe and Canada as well. I'm excited about the recent steps Northwest Natural has already taken. We have several viable contracts we're pursuing as a result of the RFP we issued in July for renewable natural gas. In October, we signed an MoU to explore development of a renewable hydrogen facility. The collaborative includes an electric utility in our region and the Bonneville Environmental Foundation. Another long-term objective is growing our water and wastewater utility businesses. Although our acquisition pace is slow due to the pandemic, we continue to see good growth and investments in our existing platform. We continue making contacts in the industry and are working hard to expand our footprint. I remain excited about the investment potential for this business. None of this work is easy, and there are no shortcuts. But each year, we set goals, we make strides and we move closer to achieving our vision. So again, thanks for joining us this morning. With that, Emily, we'll open it up for questions.

Our first question comes from Richard Ciciarelli at Bank of America.

This is actually Harry on for Richard. So starting off, you talked about higher earnings from your water utilities in 3Q contributing to the quarter. Your other segment increased $0.08 year-over-year. Can you provide some more details around the earnings composition of that other segment? And as it pertains to your water utilities, over the longer term, do you think we could see the water utility potentially growing faster than the gas, obviously, business?

Thanks, Harry. It's Frank here. We don't currently separate the water utility segment as a standalone entity, and some optimization and holding company costs are included in that area. However, the primary factor for the quarter-over-quarter change was the acquisition of additional assets in Washington and Texas that we announced earlier. We haven't disclosed any further acquisitions since then, so the year-to-date figures reflect that accurately. The third quarter typically sees higher water usage, making the year-to-date number representative of the business's performance. There has been some year-over-year softening in certain optimization areas as well. Additionally, business development costs tend to fluctuate based on activity levels, which can lead to some volatility in that section.

Harry, the only thing I'll add to that is one of the things that the thesis on our water is proving out is that once we've acquired these assets, we are finding, number one, a lot of them do have a good solid growth underlying; and number two, is we are seeing additional investment opportunity and we've kind of laid that in our IR deck. So the rate base growth is proving to be beneficial. So to your point about earnings growth going forward, we're seeing it being a very nice match to our underlying gas utility that continues to have good investment opportunity overall. So the thesis is playing out as we had hoped along that front.

Got it. That's nice to hear. I guess turning back to your gas utility thing about a month or so into 4Q, how are things trending into the peak winter heating season in the face of COVID here of being a critical quarter for you guys, obviously, to execute guidance? So any update on trends heading into winter heating season will be helpful.

Yes, we are certainly experiencing the effects of COVID across the country. Some businesses and customers are facing challenges, but we are managing through various agreements to return to normal over time, mostly within the first quarter. We are monitoring the situation closely, especially as we enter the winter heating season, which is significant for us. The good news is that our plans are in place, which will contribute positively to our results, although weather will still have some impact despite being normalized in most areas. While COVID has affected some customers, we need to be vigilant moving forward. It will also be crucial to see how things develop at the national level, especially whether a stimulus program emerges from Congress like the previous one that benefited both businesses and individuals. Overall, we have noticed that while some customers are struggling, the housing market remains relatively robust. I hope this addresses your question, as we feel well-prepared for what lies ahead.

Got it. That makes sense. I mean if I could sneak in one more. You touched on the RNG, RFP that you issued, just any update there and how discussions are trending? And does this relate to the renewable hydrogen project you talked about in the press release this morning?

Let me have Kim address that. Kim Heiting, one of our Senior VPs, will discuss the hydrogen. Justin Palfreyman is also on the line, and I’ll ask him to provide an update on the RNG RFP. Kim?

Yes. So we recently announced our Eugene project with Eugene Water and Electric Board and Bonneville Environmental Foundation, as David mentioned. This is really an exciting demonstration project. We're hoping it can be up to a 10-megawatt project. The plan is to use excess renewables from the U.S. portfolio, and our portion of the project would be to use waste CO2 from some local industrials to methanoate that renewable hydrogen and then flow it into our system. We're viewing this as an important part of our evolution around hydrogen. We're still seeking partners, but we have a site selected. We've put together a technical team. They're starting on their plan for the project. In parallel to that, we have a team out at our training center doing some pure hydrogen blending work, blending up to 5% into sort of an isolated system that we've created. We're really pleased with the testing so far. Going into this year, we're going to be testing the 5% blend on some end-user equipment at that facility.

Yes. Thank you, Harry. We received a strong response to our request for proposals back in September, and it's a bit early to specify our next steps as we are still reviewing the responses and negotiating agreements. However, we do anticipate that this will lead to contracts for renewable natural gas. At the same time, we are also looking into investment opportunities through SB98 to invest directly in renewable natural gas projects. Over time, we expect to build a portfolio that includes renewable gas purchase agreements along with direct investments in renewable natural gas. Regarding your question about whether the hydrogen project is separate from our RNG request for proposals, it is indeed. They are two distinct projects, linked only by their potential to significantly contribute to our carbon savings goal, but they are managed separately within the company.

Well, it looks like there's no more questions in the queue, Emily. So we'll go ahead and shut it down here. I know everybody is really busy and watching election results and getting ready for other conferences. I really want to thank you for joining us today. If you do have follow-up questions, please reach out to Nikki as she indicated. She will be happy to go into additional details to help you understand the quarter and the year-to-date. So with that, Emily, we will close the call down. Everybody, please be safe, and again thank you for your time today.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.