Hello, everyone, and welcome to the NW Natural Holdings Company Q2 2022 Earnings Call. My name is Seb, and I will be the operator for your call today. I will now hand the floor over to Nikki Sparley to begin. Please go ahead.

Thank you, Seb. Good morning, and welcome to our second quarter 2022 earnings call. As a reminder, some things that will be said this morning contain forward-looking statements. They are based on management's assumptions, which may or may not occur. For a complete list of cautionary statements, please refer to the language 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, please contact me directly at (503) 721-2530. News media may contact David Roy at (503) 610-7157. 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. Good morning, and welcome, everybody. We continue to see strong financial results that are in line with our expectations and the guidance that we provided earlier this year. Frank will go through more of the details here in a moment. This morning, I'll walk through some economic indicators for Oregon and Washington and provide an update on our Oregon general rate case. I'll wrap up with some exciting efforts related to hydrogen gas facility and an update on our water and competitive renewables business. Turning to a few comments on the economy. In our service territory, we continue to experience growth despite a dynamic macroeconomic backdrop. Reports from the first quarter of 2022 rank Oregon in the top 10 space for positive change. That outperformance is based on stronger than average growth in real estate and the health care industries as the Oregon economy continues to rebound after COVID. The labor market also remains robust with low unemployment and strong employment gains. In Oregon, unemployment was 3.6% in June 2022. That's nearly as low as pre-pandemic levels of 3.4% in February of 2020. Single-family housing activity remains solid. The median sales price of a home in our area was up 9.4% for the second quarter of 2022 compared to last year. The inventory of homes for sale in the Portland Metro area remains low at 1.4 months of supply. Overall, customer growth is in line with our expectations with adjusted mixed-use multifamily construction that we knew was coming. Single-family adds continue to be strong, driving the addition of nearly 10,200 new customers during the last 12 months, which equates to a growth rate of 1.3%. Our water and wastewater utilities also continue to grow. Strong residential housing construction, primarily in Texas, where our water and wastewater utility posted nearly 11% organic growth. In Idaho, our Falls Water Company posted 4% organic growth, which boosted us to a consolidated 3% customer growth from organic customer growth over the last 12 months. The combination of this organic growth and acquisitions resulted in a 27% increase in our water and wastewater utility connections. Moving to an update on our Oregon general rate case. As you know, 2021 and 2022 have CapEx plans related to safety and reliability, technology system upgrades, and cybersecurity investments. The recovery of those costs was filed in Oregon general rate case in December of last year. The original request included a revenue requirement increase of $73.5 million, based on a 50-50 cash structure, a return on equity of 9.4%, and a cost of capital of about 6.9%. In May 2022, we filed a settlement with the main parties in the case related to the majority of the revenue requirement items. That included a revenue requirement increase of $62.7 million, also on a 50-50 capital structure, an ROE of 9.4%, and an overall cost of capital of 6.8%. It also included a rate base increase of $337 million since the last rate case for a total rate base of $1.77 billion. In June, we reached the second multiparty settlement related to a number of smaller items, including recovery of our COVID deferral. We expect an order from the commission on the full rate case this fall with rates effective November 1. With that, let me turn it over to Frank to cover more of the details of the quarter.

Thank you, David, and good morning, everyone. I will begin by discussing the highlights of the quarter and year-to-date results and conclude with guidance for the year. I'll describe earnings drivers on an after-tax basis using the statutory tax rate of 26.5%. As a reminder, Northwest Natural's earnings are seasonal, with a majority of revenues and earnings generated in the first and fourth quarters during the winter heating months. For the second quarter, we reported net income of $1.7 million, or $0.05 per share, compared to a net loss of $700,000, or $0.02 per share, for the same period in 2021, an increase of $0.07 per share. The improvement over last year was driven by our gas utilities, which posted an increase of $0.05 per share. Higher earnings at the gas utility were primarily related to higher margin and lower pension expense. Utility margin in the Gas Distribution segment increased $2.3 million as a result of customer growth and new rates, which collectively contributed $1.7 million. Utility O&M increased $3 million, reflecting higher contractor costs for safety and reliability projects, professional services, and information technology costs. Other income increased $2.1 million, primarily from lower pension expense, reflecting higher returns and lower interest costs. Net income from our other businesses increased $900,000 for the second quarter of 2022 due to higher asset management revenues and lower business development costs. For the first 6 months of 2022, we reported net income of $58 million, or $1.77 per share, compared to net income of $58.8 million, or $1.92 for the same period in 2021. The $0.15 decrease in earnings per share is largely the result of the issuance of 2.9 million shares of common stock on April 1. The $800,000 decline in net income for the 6-month period reflects an improvement in gas utility net income of $3 million while the results from our other businesses declined $3.8 million, as the prior period benefited from the higher asset management revenues related to the February 2021 cold weather events. Higher earnings at the gas utility were primarily related to customer growth, new rates in Washington, and cold weather in 2022. As a result of these factors, utility margin increased $6.1 million. Utility O&M increased $6.5 million, reflecting higher levels of contractor and professional services and information technology upgrades. Utility depreciation and general taxes increased $800,000 due to higher property plant and equipment as we continue to invest in our system. Other income increased $3.9 million, driven by lower pension costs. For 2022, cash provided by operating activities was $197 million, in line with the prior year. We invested $170 million into the business, most of which was for the gas utility capital expenditures. Related to our financing cash flows, we had 2 successful transactions. On April 1, we completed an equity offering with approximately $140 million of proceeds to support our growing businesses. In July, we executed a private placement bond agreement for the gas utility. We plan to close a $140 million transaction to take the proceeds on September 30. I'm pleased with our ability to access the markets and take this financing risk off the table. Last quarter, Moody's and S&P both reviewed the gas utility and reaffirmed ratings with a stable outlook. That includes Northwest Natural's senior secured long-term debt rating of AA- for S&P and A2 for Moody's. Our objective remains to keep our balance sheet strong with ample liquidity. Moving on to financial guidance. The company reaffirmed 2022 earnings per share guidance for net income in the range of $2.45 to $2.65 per share. Guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms or outcomes, or significant changes in legislation or regulations. We continue to target a long-term earnings per share growth rate of 4% to 6%. With that, I'll turn the call back over to David.

Well, thanks, Frank. We continue to focus on the future making sound investments today that will support sustainable growth for tomorrow. As we shared before, over the last few years, our engineering team has conducted 5% hydrogen blend tests at one of our service centers, our Sherwood operations, and training center with a goal to increase our blending in increments up to 15%, pending system and equipment testing results. We've also been participating in industry-wide partnerships such as Hyready and the low carbon resources initiative to share findings and testing information. In parallel to these efforts, we've continued to work collaboratively with Eugene Water & Electric Board and Bonneville Environmental Foundation on a 1-megawatt Power to Gas facility. This project has been designed to blend 5% clean hydrogen into a dedicated section of our Eugene distribution system, serving about 2,500 customers. But the benefits go well beyond our Eugene customers. This partnership will provide hands-on experience in the generation, distribution, and storage of clean hydrogen across Oregon's increasingly interdependent gas and electric grids. We've already begun preliminary outreach with various stakeholder groups representing the local community, regulatory staff, elected officials, industry groups, and customer advocates. In July, we filed a request to open a docket with the Public Utility Commission of Oregon to recover the cost of the projects under Senate Bill 844. This law is innovative and unique to Oregon, supporting gas utility projects that are designed to reduce greenhouse gas emissions. If approved, this Eugene project could be Oregon's first clean hydrogen production facility, which would demonstrate the applications of this versatile energy source and the important role it will play in decarbonizing both the gas and electric systems. In July, we also announced that Northwest Natural is partnering with Modern Electron on an exciting turquoise hydrogen pilot project to turn methane into clean hydrogen and solid carbon. We'll be testing this groundbreaking technology at our Portland operations facility. The innovative process is designed to produce hydrogen and solid carbon using only natural gas as inputs, without using any electricity, water, or consumable catalysts. It's an incredibly sustainable and flexible way to produce clean hydrogen and, if favorable, has the potential to allow us to produce clean hydrogen whenever needed to decarbonize our system at potentially a very low cost. It also produces valuable byproducts that can be used to make tires and dye, among other things. This project is in partnership with Modern Electron, a Seattle-based sustainable heat and power technology company that has ample support from Microsoft's Founder, Bill Gates. We expect the progress to go live in early 2023. We believe that clean hydrogen, renewable natural gas, energy efficiency, and innovation are critical to achieving our goals in greenhouse gas reductions. We're committed to preparing our systems and employees for any changes in equipment, operations, and training that working with blended gas might require. Moving now to an update on our competitive renewable natural gas business that we launched late last year. As you know, we focus on providing cost-effective solutions to help a variety of sectors decarbonize using existing waste streams and renewable energy resources. Our first project with EDL includes an investment in 2 renewable natural gas facilities and a 20-year RNG supply agreement. Construction is ongoing in both facilities, and we expect them to be placed into service in early 2023. The team is fully engaged, pursuing incremental opportunities, and putting the final touches on the business plan, which we will share in more detail later this year. Turning to our water and wastewater utility businesses, in December 2021, we signed our largest acquisition to date to acquire Far West Water and Wastewater utilities in Yuma, Arizona, a fast-growing region, which currently serves approximately 25,000 customers. In March, we submitted the application for approval of the transaction with the Arizona Commission. In June, the Arizona staff recommended the commission approve the acquisition. The next step is obviously for commission review. We expect the commission's decision in August or even early September, and subject to its approval, they expect to close the transaction soon thereafter. We expect the transaction to be accretive to earnings per share after its first full year of operations. We remain excited about the investment potential for this business and look forward to more announcements soon. So in conclusion, we're off to a good start for the year with continued customer growth at the gas facility and in water and wastewater utilities. Thanks for joining us this morning. With that, we'll open it up for questions.

Our first question comes from Julien Dumoulin-Smith from Bank of America.

It's Kody Clark on for Julien. So first, can you talk through the dynamics and expectations for pension expense into next year? I know there's a lot of moving pieces that could change through the remainder of the year. But if we look at it today, what do you estimate the impact is for 2023? And you would have to go through a rate case for recovery in that, correct?

Kody, it's Frank. Yes. Great question. We've seen about $0.05 per quarter benefit year-over-year from lower pension expense, and we expect that to continue through the year. We set the rates for the year essentially when we set the discount rate at year-end. So that's pretty much the expense for the year, other than just a little bit of fine-tuning. So we think this will continue through the year. It's driven by higher interest rates. So discount rates are higher. Asset performance was very good over the last couple of years. So we've got a better asset funded position. Yes, that goes into rates and that's forecast into our test year for rates. So that will be in our Oregon case. And on November 1, that will be reflected there. We don't see a big change in that right now. It is just kind of reset. As long as interest rates and asset performance remain in the same range, we don't expect big changes going forward. It's been an improvement at both of those aspects.

Right. But I'm thinking about 2023 and discount rates, yes, higher asset performance likely a lot lower, I guess, just the net impact of that. Do you have a view on that into 2023?

Yes. I mean, right now, and again, we'll have to set rates at the end of the year, so it will depend on where assets and discount rates are at the end of this year. But just when we look at it today, we're not seeing a lot of change net-net. You've seen interest rates go up since year-end last year, and you've seen assets come down. But net-net, we're in very much the same position. So if I had to make a guess today, I would say I'm not expecting a lot of change.

Okay. Got it. And second, just wondering if you can talk through the latest trends you're seeing with inflation and the impact on the O&M budget and capital plan looking forward. Also, any mitigating measures or procurement strategies that you're implementing?

Yes. Great. Another great question. From a supply chain standpoint, which is all kind of interrelated, we're not seeing a tremendous disruption there. It's a little bit slower delivery time on meters and some of the pipes and such, but we're not seeing any disruption to our business or our projects. We're being more proactive. We're extending our orders out and building up our inventories, as you might expect. We are seeing inflationary impacts on materials, but materials are actually a fairly small component of our cost structure. We're more labor-based, whether it's internal labor, third-party labor, or other contracted costs. Most of our costs are under multi-year contracts, a lot of them with fixed escalators; that's what we expect and what we build into rates and our forecast. So we're not seeing any tremendous disruptions at this point just from inflation. Over time, we will see more of that as our locate contracts, labor agreements, and all of those reprice over time, but I think it's manageable. Within the year, interest rates are definitely up. We've got some short-term debt at both the utility and the holding company. So we see some headwinds there. We saw that early in the year, and we put in place some cost control measures that have allowed us to get a head start on that and not overreact. We've got a pretty good beat on the year, and we're managing to our costs just based on staffing levels, third-party costs, discretionary expenses, and the sort of things that you would ordinarily manage a workflow and those sorts of things. So we feel like we've got a really good program in place to manage through this year.

Great. And sorry, just one quick follow-up to that: as we're looking at '23, any large renegotiations of contracts that we should be keeping an eye on?

No. Our big contract here is always going to be our union contracts. I think that's got 2 years in it still. We just renegotiated that a couple of years ago. So that's a couple of years out. Every year, we've got contracts like paving or situations that come up, but none of them present a particularly large change. When we do our rate cases, we look forward to major contracts. So I think we're in good shape.

As we have no further questions at this time, I will hand the call back to David Anderson.

Thank you, Seb. We know, it's a busy day out there, everybody, and there are multiple calls going on. So for those of you listening to this later, if you have any questions, please reach out to Nikki, and she will take care of you as she always does. Thank you for joining us today. We look forward to seeing you soon. Thank you, everybody.

This concludes today's conference call. Thank you all very much for joining. You may now disconnect your lines.