Q2 2026 Northwest Natural Holding Co Earnings Call

Speaker #1: 2, 2026 earnings call. After today's prepaid remarks, we will host a Q&A session. If you would like to answer a question, please press star 1 to raise your hand.

Speaker #1: To withdraw your question, press star 1 again. I will now hand the conference over to Nikki Sparley, Director of Investor Relations.

Speaker #2: Thank you. Good morning and welcome to our second quarter 2026 earnings call. In addition to the press release, a supplemental presentation is available on our investor relations website at irnw.naturalholdings.com.

Speaker #1: If you would like to answer a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Nikki Sparley, Director of Investor Relations.

Speaker #2: And following this call, a recording will also be available on our website. As a reminder, some things that will be said this morning contain forward-looking statements.

Speaker #2: They are based on management's assumptions, which may or may not occur. For a complete list of cautionary statements refer to the language at the end of our press release.

Speaker #2: Additionally, our risk factors are provided in our 10Q and 10K filings. We also refer to certain non-GAAP financial measures. For additional disclosures around these non-GAAP measures, including reconciliations to comparable GAAP measures, please see the slides that accompany today's call, which are available on the investor relations page of our website.

Speaker #2: Please note our guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or assumed outcomes or significant changes in local state or federal laws, legislation, or regulations.

Speaker #2: We expect to file our 10Q later today. With us today are Justin Palfreyman, President and Chief Executive Officer, and Ray Kaszuba, Senior Vice President and Chief Financial Officer.

Speaker #2: Justin will provide highlights from the second quarter 2026, a regulatory update, and a look forward. Ray will walk through our financial results and guidance.

Speaker #2: After Justin and Ray's prepared remarks, we will host a Q&A session. With that, I will turn the call over to Justin.

Speaker #3: Thanks, Nikki. Good morning, everyone. The second quarter represented another solid quarter of performance for NORTHWEST NATURAL HOLDINGS, adding to our growing track record of consistent earnings results.

Speaker #3: Earnings per share for both the quarter and year-to-date surpassed our expectations, reflecting disciplined execution across the company. Our teams are demonstrating operational excellence in delivering healthy financial results while continuing to advance key regulatory initiatives and growth projects, that lay the groundwork for continued success for years to come.

Speaker #3: I'm pleased to announce that we now expect 2026 EPS to be in the top half of our guidance range of $2.95 to $3.15 per share.

Speaker #3: This is driven by our strong year-to-date performance and improved visibility into the second half of the year as we have clarity regarding our key regulatory initiatives and continue to manage costs effectively.

Speaker #3: With that, let's review our business segments and key regulatory and project updates. Starting in Texas, C Energy had another outstanding quarter, highlighted by organic customer growth of over 15%.

Speaker #3: We currently have over 260,000 future meters in our backlog, which we expect to fuel growth for many years to come. On the regulatory front, C Energy continues to make progress on its ongoing rate case, as a reminder, we filed with the Texas Railroad Commission on May 4.

Speaker #3: This case reflects the necessary investments we have made to continue serving one of the fastest-growing regions in the country. We continue to constructively work through the rate case, including the factors needed to implement the grip mechanism, and expect new rates to take effect later this year.

Speaker #3: Looking ahead, we remain very optimistic about the growth opportunities in Texas. We continue to expect customer growth of approximately 15 to 20 percent annually through 2030.

Speaker #3: Through disciplined infrastructure investment and strong stakeholder partnerships, we are well-positioned to support growth and create long-term value for customers and shareholders. Turning to NORTHWEST NATURAL GAS: In Oregon, we continue to make steady progress on several important regulatory initiatives.

Speaker #3: First, we filed a multi-party settlement in our alternative rate mechanism docket with the Public Utility Commission of Oregon. The settlement provides for a $13 million revenue requirement compared to the original ask of $15.6 million.

Speaker #3: A commission order is expected later this year, with new rates expected to be effective on October 31, 2026. We are also actively engaged in Oregon's ongoing multi-year rate plan rulemaking process.

Speaker #3: Phase 1 of that docket has been completed, and focuses on the high-level development of key concepts, including 5-year rate plans, a revenue indexing mechanism during the rate plan, and a capital funding mechanism.

Speaker #3: We have consistently advocated for multi-year rate making because we believe it provides the most effective balance between customer affordability and the critical investments needed to maintain a safe system and support growth.

Speaker #3: We are encouraged by the progress being made in this docket. We continue to see pathways to implement the Phase 1 framework in a manner that balances the interests of customers, regulators, and our investors.

Speaker #3: Phase 2 is now underway and is expected to more fully outline the details of the constructs laid out in Phase 1. The overall process is expected to conclude before the end of 2027.

Speaker #3: The current schedule has NORTHWEST NATURAL filing its first multi-year general rate case under the new rules in 2028, with rates becoming effective in 2029.

Speaker #3: In the interim years, we have several options to ensure timely recovery of our investments, including traditional rate cases. Turning to Washington, we received the Commission's order in our multi-year rate case and are pleased with the outcome.

and the critical Investments needed to maintain a safe system and support growth.

We are encouraged by the progress being made in this docket.

Speaker #3: We received over 80 percent of our requested revenue requirement increase, a capital structure of 50 percent equity and 50 percent long-term debt, and a return on equity of 9.5 percent.

We continue to see Pathways to implement the phase 1 framework in a manner that balances the interests of customers regulators and our investors.

Speaker #3: The order also preserved the line extension allowance for prospective customers, recognizing the important role of natural gas in the energy system and in supporting customer affordability.

Phase 2 is now underway and is expected to more fully outline. The details of the constructs laid out in Phase 1. The overall process is expected to conclude before the end of 2027.

Speaker #3: New rates were effective on August 1. Overall, I'm very pleased with the progress we've made on the regulatory front at NORTHWEST NATURAL. We continue to support growth and provide safe, reliable service to our communities.

The current schedule has Northwest Natural filing. Its first multi-year general rate case under the new rules in 2028 with rates becoming effective in 2029. In the interim years, we have several options to ensure timely recovery of our investments, including traditional rate cases.

Speaker #3: Through the first half of 2026, NORTHWEST NATURAL invested more than $165 million in infrastructure, to support customer growth, enhance system reliability, and maintain a modern, resilient natural gas network.

Turning to Washington. We received the commission's order in our multi-year rate case and are pleased with the outcome.

Speaker #3: Moving to an update on NORTHWEST NATURAL WATER: The business continues to grow and mature. Overall customer growth was 3.4 percent for the 12 months ended June 30, 2026.

We received over 80% of our requested Revenue, requirement increase, the capital structure of 50% equity, and 50%, long-term debt, and a return on Equity of 9.5%.

Speaker #3: While the financial results for the first half of 2026 were modestly below plan, the peak volume months of the year still lie ahead. Across the water business, we continue to make solid regulatory and strategic progress to support growth over the long term.

The order also preserved, the line extension allowance for prospective customers, recognizing the important role of natural gas in the energy system, and in supporting customer affordability, new rates were effective on August 1st.

Overall, I'm very pleased with the progress. We've made on the regulatory front at Northwest Natural.

Speaker #3: We currently have 4 active rate case proceedings across Oregon, Texas, and Arizona, all of which are progressing as expected. In Arizona, we continue advancing formula rates for foothills, aiming to align recovery with ongoing infrastructure investment.

We continue to support growth and provide safe, reliable service to our communities. Through the first half of 2026, Northwest Natural invested more than $165 million in infrastructure to support customer growth, enhance system reliability, and maintain a modern, resilient natural gas network.

Speaker #3: We also continue to progress our consolidation efforts in multiple jurisdictions, consistent with our long-term strategy of creating a scaled, efficient water utility platform that benefits both customers and shareholders.

Moving to an update on Northwest Natural water.

The business continues to grow and mature. Overall, customer growth was 3.4% for the 12 months. Ended, June 30th 2026.

Speaker #3: We remain confident in the long-term growth prospects of NORTHWEST NATURAL WATER and the value we're creating. Finally, let me provide a brief update on the MX3 storage expansion project, as we continue to make solid progress there as well.

While the financial results for the first half of 2026 were modestly below plan. The peak volume months of the year, still lie ahead.

Across the water business. We continue to make solid Regulatory and strategic progress to support growth over the long term.

Speaker #3: As a reminder, MX3 is a 300 million dollar FERC-regulated gas storage expansion project that will add 4 to 5 BCF of capacity and is fully contracted with 25-year agreements, 12.5 percent return on equity and 50 percent equity capital structure.

We currently have 4 Active rate case proceedings across Oregon, Texas and Arizona, all of which are progressing as expected.

In Arizona, we continue advancing formula rates for Foothills aiming to align recovery with ongoing infrastructure investment.

Speaker #3: We recently received our conditional use permit in Columbia County. Importantly, the county board of commissioners unanimously approved the permit, reflecting the strength of the project, its economic benefits to the region, and broad support from the community.

We also continue to progress our consolidation efforts in multiple jurisdictions, consistent with our long-term strategy of creating a scaled, efficient water utility platform that benefits both customers and shareholders.

we remain confident in the long-term growth prospects of Northwest Natural water, and the value we're creating

Speaker #3: As expected, an appeal has been filed with the Land Use Board of Appeals. Our timeline already contemplated the potential for additional process and therefore remains unchanged.

Finally, let me provide a brief update on the MX3 storage Expansion Project as we continue to make solid progress there as well.

Speaker #3: We continue to expect notice to proceed by the end of 2027, with the project advancing as planned. MX3 remains an attractive opportunity to enhance regional energy reliability, and upon receiving notice to proceed, supports increasing our long-term earnings growth target to 5 to 7 percent.

As a reminder, MX3 is a $300 million ferc regulated, gas storage Expansion Project that will add 4 to 5 BCF of capacity and is fully contracted with 25 year agreements, 12 and a half percent return on equity and 50% Equity capital structure.

Speaker #3: In conclusion, I am happy to report that all of our businesses are in a strong financial position and poised for future growth. With that, I'll turn the call over to Ray to review our financials.

We recently received our conditional, use permit in Columbia, County importantly, the County Board of Commissioners, unanimously approved, the permit, reflecting the strength of the project, its economic benefits to the region, in Broad support from the community.

Speaker #2: Thank you, Justin. And good morning, everyone. The second quarter reflected strong operational and financial execution across the company, earnings per share was a penny, flat to the prior year period, but above our expectations.

As expected, an appeal has been filed with the land use board of appeals. Our timeline already contemplated the potential for additional process and therefore remains unchanged.

Speaker #2: As a reminder, our gas utility earnings are seasonal, with the majority of revenues and earnings generated in the first and fourth quarters during the winter heating months.

We continue to expect notice to proceed by the end of 2027, with the project advancing as planned.

Speaker #2: Our water utility revenues and earnings are weighted towards the third quarter, when customer demand is highest during the summer months. NORTHWEST NATURAL GAS reported EPS of 9 cents compared to 12 cents in the prior year period.

MX3 remains an attractive opportunity to enhance Regional energy, reliability, and upon receiving notice to proceed supports, increasing our long-term earnings growth targets to 5 to 7.

Speaker #2: Higher margin from rates in Oregon was offset by increased operations and maintenance expense, and continued investment in the system resulting in higher depreciation expense and financing costs.

In conclusion, I am happy to report that all of our businesses are in a strong financial position and poised for future growth. With that, I'll turn the call over to Ray to review our financials.

Thank you, Justin, and good morning, everyone.

Speaker #2: Looking ahead, we expect stronger performance in the back half of the year, as compared to last year, driven in part by the implementation of new rates in Washington and the benefit of the alternative rate mechanism in Oregon beginning October 31.

The second quarter reflected strong operational and financial execution across the company.

Earnings per share was a penny flat to the prior year period, but above our expectations.

Speaker #2: C Energy reported earnings of 5 cents per share compared to 3 cents in the second quarter of 2025. Results were primarily driven by customer growth of over 15 percent and the benefit of deferring depreciation interest and general taxes.

As a reminder, our gas utility earnings are seasonal with the majority of revenues and earnings generated in the first and fourth quarters during the winter heating months.

Order when customer demand is highest during the summer months.

Speaker #2: C Energy also benefited from a full quarter of earnings contribution from Pines, which was acquired on June 2, 2025. NORTHWEST NATURAL WATER's EPS was 5 cents for the second quarter of 2026, compared to 7 cents in the prior period.

Northwest Natural Gas reported EPS of 9 cents compared to 12 cents in the prior year period.

Higher margin from rates. In Oregon was offset by increased operations and maintenance expense.

And continued investment in the system resulting in higher, depreciation expense and financing costs.

Speaker #2: Higher operating revenues from organic growth and acquisition were offset by higher O&M, as we support platform integration and centralization. Importantly, these initiatives are consistent with our long-term strategy to scale our water business and position the platform for numerous opportunities that we expect to translate into sustained, long-term growth.

Looking ahead. We expect stronger performance in the back half of the year as compared to last year, driven in part by the implementation of new rates in Washington and the benefit of the alternative rate mechanism in Oregon beginning, October 31st,

The energy reported earnings of 5 cents per share. Compared to 3 cents in the second quarter of 2025.

Speaker #2: Turning to year-to-date results: EPS was $2.33 for 2026 compared to adjusted EPS of $2.28 in 2025. The year-to-date increase in EPS reflected higher margin from new rates for our gas utility in Oregon, and higher contributions from C Energy.

Results were primarily driven by customer growth of over 15% and the benefit of deferring depreciation interest in general taxes.

The energy also benefited from a full quarter of earnings contribution from Pines, which was acquired on June 2nd 2025.

With this natural Waters EPS was 5 cents for the second quarter of 2026.

Speaker #2: These items are partially offset by higher O&M costs, depreciation and interest expense. Overall, we are very pleased with the strong start to the year and believe EPS for the full year will be in the top half of our guidance range of $2.95 to $3.15 per share.

Compared to 7 cents in the prior period.

Higher operating revenues from What organic growth and acquisition were offset by higher onm. As we support platform, integration and centralization.

Speaker #2: At NORTHWEST NATURAL, New Washington rates have been implemented and parties have filed a settlement for the ARM. We also expect NORTHWEST NATURAL's O&M to be below original plan, reflecting disciplined execution and a continued focus on cost management.

Importantly, these initiatives are consistent with our long-term strategy to scale our water business and position the platform for numerous opportunities that we expect to translate into sustained long-term growth.

Turning to year-to-date results.

EPS was 2.33 cents for 2026, compared to adjusted DPS of 2.28 and 2025,

Speaker #2: At C Energy, we expect the favorable results from the first half of 2026 will continue, and we are making constructive progress with the general rate case.

The year-to-date increase in EPS, reflected higher margin from new rates for our gas utility in Oregon and higher contributions from C energy.

Speaker #2: As it relates to C Energy and water, we still expect these two businesses to contribute approximately 25 percent of our EPS this year. Today, we are also reaffirming our long-term earnings growth target, which remains 4 to 6 percent through 2030.

These items are partially offset by higher onm costs depreciation, and interest expense.

Speaker #2: Following notice to proceed on MX3, we expect our long-term earnings growth framework to increase to 5 to 7 percent, reflecting the substantial earnings and cash flow opportunity associated with that project.

Overall we are very pleased with the strong start to the year and believe EPS. For the full year, will be in the top half of our guidance range of $2.95 to $3.15 per share.

At Northwest Natural new, Washington rates have been implemented and parties have filed the settlement for the arm.

Speaker #2: We continue to expect notice to proceed by the end of 2027, with an in-service date in 2029. Turning to capital allocation: Our 2026 capital expenditure plan remains in the range of approximately 500 to 550 million dollars and continues to support investment opportunities across all three utility platforms.

We also expect Northwest Naturals onm to be below. Original plan, reflecting disciplines execution and the continued focus on cost management.

At Sea energy. We expect the favorable results from the first half of 2026 will continue and we are making constructive progress with the general rate case.

Speaker #2: We expect these investments to be funded through a combination of strong operating cash flow, approximately 150 million of net long-term debt issuance, and roughly 40 to 50 million of equity issued through our ATM program.

As it relates to CNG Energy and Water, we still expect these two businesses to contribute approximately 25% of our EPS this year.

Today, we are also reaffirming our long-term earnings growth Target which remains 4 to 6% through 2030.

Speaker #2: In June, we successfully completed our inaugural 75 million dollar water bond issuance after receiving an investment-grade A-minus rating for our water debt. Further reflecting the platform's maturity and strong financial foundation.

Following notice to proceed on MX3. We expect our long-term earnings growth framework to increase to 5 to 7% reflecting the substantial earnings and cash flow opportunity associated with that project.

We continue to expect notice to proceed by the end of 2027 with an inservice date in 2029.

Speaker #2: Over the five-year planning horizon, capital expenditures for the full company will be funded largely through operating cash flows, along with the balanced mix of long-term debt and equity.

Speaker #2: We have approximately 628 million of available liquidity as of quarter end. We continue to maintain strong liquidity and financial flexibility. We currently expect our equity needs through 2030 to be met through disciplined use of our ATM program.

Turning to Capital, allocation, our 2026 capital expenditure plan remains in the range of approximately, 500 to 550 million and continues to support investment opportunities. Across all 3, utility platforms,

We expect these investments to be funded through a combination of strong operating cash flow.

Speaker #2: Finally, on shareholder returns, as our dividend payout ratio comes in line with our 55 to 65 percent target, we continue to expect to increase our dividend over time consistent with earnings growth and cash flow generation.

Approximately 150 million of net, long-term debt, issuance and roughly 40 to 50 million of equity issued through our ATM program.

Speaker #2: To conclude, we're very encouraged by the momentum we see across the company. The first half of the year was strong, our regulatory strategy continues to advance, and we're confident in our ability to deliver on our objectives in the back half of 2026 and beyond.

In June, we successfully completed our inaugural 75 million, water Bond issuance. After receiving an investment grade, A minus rating for our water debt, further reflecting the platform's maturity and strong financial Foundation.

Speaker #2: With that, we'll open the call to questions.

Over the 5-year planning Horizon, Capital expenditures for the full company will be funded. Largely through operating cash flows along with the balanced mix of long-term, debt and equity.

We have approximately $628 million of available liquidity as of quarter end.

Speaker #3: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand.

We continue to maintain strong, liquidity and financial flexibility.

Speaker #3: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

We currently expect our Equity needs through 2030 to move that through disciplined use of our ATM program.

Speaker #3: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Constantine Lednev with Wells Fargo.

Finally on shareholder returns as our dividend payout. Ratio comes in line with our 55 to 65% Target.

We continue to expect to increase our dividend over time, consistent with earnings growth and cash flow generation.

To conclude. We're very encouraged by the momentum. We see a cross, the company.

Speaker #3: Constantine, your line is open. Please go ahead. A reminder to unmute if you are muted.

The first half of the year was strong. Our regulatory strategy continues to advance and we're confident in our ability to deliver on our objectives in the back, half of 2026 and Beyond.

With that, we'll open the call to questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand.

To withdraw your question, press star 1. Again we ask that you pick up your handset when asking a question to allow for Optimum sound quality.

Muted locally. Please remember to unmute your device.

Please stand by while we compile the Q&A roster.

Speaker #1: So Constantine, we can't hear you on the line here. I understand there have been some technical difficulties. We will make sure that Nikki and the team connect with you after the call and get your questions answered.

Your first question comes from the line of Constantine lead Nev with Wells Fargo.

Constantine, your line is open. Please go ahead.

A reminder to unmute if you are muted.

Speaker #1: I see we have no other questions in the queue, so I want to thank you all for joining us this morning. We appreciate your interest in NORTHWEST NATURAL Holdings.

Speaker #1: We're pleased with our first half of 2026 performance and are targeting the top half of our 2026 EPS guidance range for the year. This reflects the confidence we have in the rest of the year and our ability to execute on our growth strategy.

Speaker #1: As always, please don't hesitate to reach out to Nikki with any further questions. Thank you.

So Constantine, we uh we can't hear you on the line here. I understand there have been some technical difficulties, we will make sure that that Nikki and the team connect with you after the call and and get uh get your questions answered.

I see we have no other questions in the queue so I want to thank you all for joining us this morning. We appreciate your interest in Northwest Natural Holdings. We're pleased with our first half of 2026 performance and are targeting the top half, half of our 2026 EPS guidance range for the year.

This reflects the confidence. We have in the rest of the year and our ability to execute on our growth strategy as always, please don't hesitate to reach out to Nikki with any further questions. Thank you.

This concludes today's call, thank you for attending. You may now disconnect