Good morning, and thank you all for attending the NW Natural Holding Company Third Quarter 2024 Earnings Call. My name is Rica and I will be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Nikki Sparley, Head of Investor Relations at NW Natural Holdings. Thank you. You may proceed, Nikki.

Thank you. Good morning, and welcome to our Third Quarter 2024 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 our cautionary statements, refer to the language at the end of our press release. We expect to file our 10-Q later today. Following this call, a recording will be available on our website. 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, Chief Executive Officer; and Ray Kaszuba, Senior Vice President and CFO. David and Ray 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, everyone. The company continues to perform very well, including having a strong third quarter. In 2024, we've been focused on executing our capital investment plan, regulatory dockets, and growth opportunities with great success. I'm happy to report the completion of our Oregon gas utility rate case and the conclusion of three water and wastewater utility rate cases. Today, I'll cover an update on the economy and the rate cases. Ray will provide an update on our financials, and then I'll close the call with an update on our growth opportunities. Turning to a few comments on the economy. Related to our gas utility service territory, Oregon's unemployment rate remains low at 4%, lower than the national average of 4.1% in September. Single-family housing permits were up 13.1% in the Portland metro area on a rolling 12-month basis. Permits are a good indicator of potential future customer growth. For September, unemployment rates in our water service territories were as low as 2.8%. Six of the nine counties our water utilities serve posted double-digit growth for single-family building permits for the 12 months ended September 2024 compared to the same period in 2023. Collectively, our gas and water utility customer base grew 1.9% over the last 12 months and topped $875,000 at September 30, 2024. Moving to an update on our gas and water rate cases, our utilities have continued to make necessary investments in safety, reliability, and technology. For our water and wastewater utilities, we continue to find these systems need substantial investments to meet current and increasing quality standards and support customer growth. For these reasons, after careful consideration of the effect on customer bills, we decided to file rate cases for our gas utility in Oregon and several of our water and wastewater utilities. I'm happy to report we've worked collaboratively with stakeholders in these cases and received constructive orders in nearly all cases, putting us on track for solid results going forward. That includes orders in three of our five water and wastewater rate cases. A particular note is the order approving the all-party settlements for our largest utilities in Arizona, with new rates effective November 1, 2024. Concerning the Oregon gas utility rate case in October, the commission issued an order approving the all-party settlements we've discussed before. Under the order, Northwest Natural's revenue requirement increased by $93.3 million, which consisted of $83.7 million related to investments in the system and expenses, and $9.6 million for increased depreciation. The order also included a 50-50 capital structure, a return on equity of 9.4%, and a cost of capital of approximately 7.1%. Rate base increased by $334 million to $2.1 billion in total. We're disappointed in the commission's decision to require Northwest Natural to forgo recovery of $13.7 million of rate base related to line extension allowances previously approved in past rate cases. This will result in a $10.1 million after-tax noncash disallowance, which will be recognized in our fourth quarter results. During the quarter, we filed for our annual purchase gas adjustments in both Oregon and Washington, which updates rates for the projected gas costs for the coming year. The result is good news: a 9.4% decline for Washington customers; in Oregon, the rate case combined with the decline in gas costs resulted in the average Oregon residential customer bill increasing a modest 4.7%. New rates went into effect on November 1. Overall, I'm pleased that residential customers across our service territory are paying less today for their natural gas service than they did 20 years ago. With that, let me turn it over to Ray.

Thank you, David, and good morning, everyone. I'll begin by discussing overall earnings drivers for 2024, highlights for the third quarter, year-to-date results, financing needs, and conclude with guidance. As a reminder, Northwest Natural's earnings are seasonal, with the majority of revenues and earnings generated in the first and fourth quarters during the winter and heating months. Our segment reporting includes our natural gas distribution segment, with activities from Northwest Natural Water, Northwest Natural Renewables, interstate storage, and third-party asset management revenues combined outside of our primary segment and referred to as 'other.' Before I walk through detailed third quarter results, I wanted to emphasize a couple of financial themes for 2024. As you may remember, 2024 is an investment year for us that is setting the stage for future growth. Our initial earnings guidance for 2024 reflected a combination of lag related to our capital investments and inflationary pressures that we are experiencing simultaneously. To resolve the regulatory lag, we filed an Oregon gas utility rate case. As David mentioned, the recent order for that case and new rates position us well to achieve our long-term earnings guidance. Now moving to third quarter results, which were stronger than we projected. Relative to last year, we reported a net loss of $27.2 million or $0.71 per share for the third quarter of 2024, compared to $23.7 million or $0.65 per share for the same period in 2023. Lower earnings at our gas utility drove consolidated results, primarily due to regulatory lag on investments and inflation pressures. Utility margin remained consistent with the prior year. Gas utility O&M increased by $1.3 million, reflecting higher payroll and benefits costs from additional staffing in key areas and pay increases for union employees under the new contract that began on June 1 of this year. Utility depreciation and general taxes increased by $3.6 million. Other income and expenses net declined by $4.6 million, mainly driven by lower interest income from a reduction of invested cash and higher pension costs. Our other businesses' net income increased by $2.8 million due to higher gas storage revenues and higher water and wastewater utilities' net income compared to the same period in 2023. For the first nine months of 2024, we reported net income of $33.9 million or $0.88 per share compared to net income of $49.2 million or $1.37 per share for the same period in 2023, with lower earnings at our gas utility driving consolidated results and similar themes noted for the quarter, regulatory lag on investments, and inflationary pressures. A few more details on gas utility results: utility margin remained stable from last year with an increase of $900,000. Gas utility O&M decreased by $2.5 million, reflecting lower employee benefit and contractor expenses related to cost savings measures. Partially offsetting this were higher payroll and information technology costs. Utility depreciation and general taxes increased by $8.1 million due to higher property, plant, and equipment investment. Other income and expense net declined by $12.6 million, mainly from higher pension costs but also due to lower interest income and equity allowance for funds used during construction. Our other businesses had stable results year over year. We've remained disciplined in our approach to deploying capital and are focused on maintaining our strong credit ratings and a solid balance sheet. For 2024, cash provided by operating activities was $220 million. We invested $326 million into the business, with the majority of the investments for safety and reliability projects in our regulated gas and water businesses. These were planned and included in our rate case request. I'm happy to report that we've completed our financing needs for 2024. Related to equity, we issued $90.4 million in 2024 through the ATM program to support the business, and we're done issuing through the ATM for the year. We see modest equity and debt financing needs in 2025, with equity issuances at a lower level next year compared to 2024. For long-term debt issuances, we expect to issue $60 million at the holding company and $75 million at the gas company in the coming 12 months. Part of the issuance at the gas company will cover a $30 million maturity in 2025. The company reaffirmed 2024 GAAP earnings per share guidance in the range of $1.94 to $2.14 and adjusted earnings per share guidance in the range of $2.20 to $2.40 on a non-GAAP basis, excluding the regulatory disallowance from the Oregon general rate case. Guidance assumes continued customer growth, average weather conditions, and stability in prevailing regulatory policies, mechanisms, or outcomes, as well as significant changes in laws, legislation, or regulations. We continue to target a long-term earnings per share growth rate of 4% to 6%. With that, I'll turn it over to David.

Thanks, Ray. Now a quick update on our growth opportunities. First, at Northwest Natural Water, we've closed the Puttman Infrastructure and ICH acquisition, adding customers in Idaho, Oregon, and California. Importantly, this acquisition provides a pipeline of growth, entering into the recycled water business and bringing Tom Puttman to our team as President of Northwest Natural Water. Moving to an update on Northwest Natural Renewables and our two landfill RNG facilities with EDL; both facilities are online and reached substantial completion in the third quarter. Under our agreement with EDL, we closed on the first project in September and expect to close on the second project by the end of the year. That sets us up well for 2025 and a full year of revenues and cash flows. I want to emphasize that our renewable strategy and these investments are not based on RIN or LCFS credits. The volumes from RNG facilities are contracted under long-term, primarily fixed-price offtake agreements that we have contracted with investment-grade counterparties. We've had a strong year of execution and are well positioned to continue delivering on our financial and strategic objectives. I am proud of the accomplishments across all three of our growing businesses. To summarize, we've reached constructive completion of the Oregon general rate case. This was critical. The gas utility is on track to earn a strong return on its invested capital. Secondly, the water and wastewater utilities have a robust growth trajectory with both organic and acquisition opportunities. Importantly for water, we've worked with the regulators to recover crucial safety investments and provide a strong foundation for earnings. Finally, I'm excited that Northwest Natural Renewables' first project is up and running, generating revenues and cash flows. We've accomplished a lot in a short amount of time. I want to thank the team for all they've done here. They have worked hard to execute on the initiatives for 2024. Thanks for joining us this morning. With that, I'll open it up for questions. Operator?

We have the first question on the phone line from Chris Ellinghaus with Siebert Williams Shank.

David, thanks for adding the DNA part. I actually was digging through the case trying to find that number, and that was helpful. Can you sort of elaborate on the final order, not only the disallowance but give us any color you could provide there? In trying to interpret the margin from the case, obviously, you can exclude the DNA component. But are there any other major deductions from the revenue increase that are non-margin enhancing?

No, Chris. The good news is we settled the majority of the rate case early on, and that's what the commission approved both settlements, which ended up being that $93 million revenue requirement that I mentioned. The only two items we didn't settle were some government affairs expenses that the commission was looking at and that line extension allowance that I mentioned in my prepared remarks. But other than that, everything came in place that was in line with the settlements, which included an increase in depreciation and amortization expense, which, as you know, is a cash flow impact, not necessarily an earnings impact. Is that responsive, Chris? Is that where you're going?

Yes. And you brought up the government affairs part. I actually was kind of happy with that given what the parties' positions were. I could certainly see them take a more hardline tack on that. So what was your impression of the three quarters recovery part of that?

Well, obviously, we feel that we should have had all of it recovered. We track that time very carefully, whether it's insurance of the holding company or the other subsidiaries. But in the end, Chris, you take what you can get here.

Right. And as far as the disallowance goes, I sort of got where they were coming from in some ways. But given that it was historically a recoverable rate base item, does that tell us anything about where the commission is at today? And how do you adjust going forward?

Yes, it's a good question, Chris. And I will tell you that we were very disappointed in that portion of the order, especially looking back, as you've referred to. Going forward, we're just going to have to make sure that we're putting processes in place that are very, very careful in terms of what costs come about. When we look at a line extension, and just so you know, when you look at a single-family household in a new build situation, we tend to spend around $2,000 per household. The allowance now is going to be $1,440. So we just need to make sure that we absolutely are very tight to that $1,440 number so that we don't have this issue popping up. But I will reemphasize, Chris, I'm very disappointed in the commission, number one, taking that stance, but also looking back as they did. And we'll take that into account with things that we do going forward.

Okay. Also related to the rate case, there was the multiyear rate discussion. The commission's order was sort of very nebulous or unclear regarding their position there. Have you got any clarifying thoughts on what your thoughts are? And is there any way to interpret what they really said?

Another good question, Chris. We had laid out in the filing that we would like to discuss going forward, have a multiyear rate case, as we've been very successful in Washington State in that regard, and it's proven beneficial not only to the company but to the commission as well. We are still trying to interpret the order, Chris, to be very honest with you, and we'll talk to the commission on exactly what they would like going forward. It appears that they want to kind of study it further when you read the order, and we'll just have to work through those processes as we continue to work with them to try to get to what we hope is ultimately multiyear rate cases being approved going forward.

Okay. So you would agree that it was very unclear what they really want?

I would like more clarity. Correct.

The quarter was really strong in the other segment. Can you give us any color on what components were really good there? And was there any RNG contribution at all?

Yes. Let me turn it over to Ray. Yes. Yes, you're right in pointing out the other was stronger than last year; a majority of that is related to our storage operations as well as some favorability in water as well.

And we now have Selman Akyol with Stifel.

You'd characterize this as being an investment year, and so I'm really just sort of trying to think about next year and how you would think about that going forward in relationship to this year? Should we expect elevated CapEx again next year? Or should that maybe roll over?

Yes. So let me start and I'll turn it over to Ray to kind of tackle the CapEx. This year, as you recall when we released guidance earlier this year, it was a little unique in terms of the level of regulatory lag that we were experiencing, not only from the capital infusion, a lot of it IT-related, which have shorter depreciation lives but also the impacts of inflation. But on a CapEx basis, we're still having very strong opportunities in, frankly, all of our segments. Maybe I'll turn it over to Ray to kind of talk a little bit more about that going forward.

Yes. As you know, our historic practice is to provide guidance for the year in our February call. So you can expect more details there. I think you heard in our prepared remarks today, a key piece of that, though, is that we reaffirmed our 4% to 6% long-term EPS growth rate. However, from a CapEx standpoint, I think you can expect something pretty close to 2024 or maybe a little bit lower for 2025, but we'll provide more details on our next earnings call.

Got you. And then can you just discuss the outlook for continued acquisitions on the water front?

Yes. We're still seeing quite a few opportunities. We're now in six states. Almost all of our activities have been focused on the private side of the equation. Maybe I'll just turn it over to Justin to give a little bit more color on what you're seeing now there.

Yes, happy to answer that question. I mean we continue to have a fairly robust pipeline of opportunities. Selman, it's a lot of smaller tuck-in acquisitions around our existing service territories. And as you know, those service territories have been expanding. With that expansion, it opens up more opportunities for us, so we'll continue to see a fairly steady run rate of smaller acquisitions on the water side.

Thank you. I would like to now hand it back to David for any final remarks.

Well, thanks everybody for joining us today. As always, if you want to dive into the details or have additional questions, please reach out to Nikki. With that, have a great day.

Thank you all for joining the NW Natural Holdings Company Third Quarter 2024 Earnings Call. I now confirm that today's call has now concluded. You may now disconnect from the call, and please enjoy the rest of your day.