Northwest Natural Holding Company

Hello and welcome to today's Northwest Natural Holding Company fourth quarter 2022 earnings call. My name is Bailey and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would like to pass the conference over to our host, Nikki Sparley, Director of Investor Relations. Nikki, please go ahead.

Thank you, Bailey. Good morning and welcome to our fourth 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, refer to the language at the end of our press release. We expect to file our 10-K 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 VerKarpsmeyer, 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.

Well, thank you, Nikki, and good morning and welcome everybody. 2022 was a transformative year on many fronts. We grew our gas and water utilities. We began operation of our first renewable natural gas facility. under the Landmark Oregon Senate Bill 98 legislation, which is now produced in R&G on behalf of our gas utility customers. We closed our largest water and wastewater acquisition to date, and construction began on the first of the facilities that we're investing in through our competitive renewable natural gas business. We also increased dividends for the 67th year and were recognized by Ethisphere as one of the 2022's world's most ethical companies. For 2022, We reported net income of $86.3 million or $2.54 per share. That's an increase of $7.6 million or around 10% compared to net income of $78.7 million or $2.56 per share in 2021. Higher revenues in Oregon drove results at the natural gas utility along with solid customer growth. This morning, I'll walk through some economic indicators and notable trends coming out of the winter heating season. Frank will go through the financial results, and then I'll wrap up with an update on our decarbonization initiatives at our gas utility and a business update for water and the competitive renewable natural gas business. Turning to a few comments on the economy, in our gas utility service territory, we continue to see GDP growth at a good clip, while the housing market has moderated from its highs in 2021. In Oregon, employment grew at a strong annualized rate of 4% in the fourth quarter, Unemployment was 4.5% in December 22, up from a low of 3.5% in July of last year. As expected, single-family housing activity cooled as interest rates rose last year. Home sales, new listings, and average prices were all down. Permit activity is expected to moderate further in 2023. Overall, the gas utility customer growth in 2022 reflected these issues. Yet despite these factors, we added nearly 8,600 new customers during the last 12 months or for a growth rate of 1.1%. Our water and wastewater utilities continue to operate in areas that have solid economic footing. Unemployment rates in our highest growth water service territories range from 2% in Idaho to 3.5% in Texas. Population growth is above average in nearly all the counties our water assets are located in. Our properties are especially well situated in Houston, Texas, Bend, Oregon, and our Idaho locations. As a result, we experienced growth across our water utilities in several pockets of outperformance. Texas remains an extraordinary market with our water and wastewater utilities there posting 8% organic growth. The housing market in Idaho is strong with our falls water utility providing 4% growth. And on a consolidated basis, our water and wastewater utilities grew 3.8% over the last 12 months. In addition to this organic growth, our recent acquisition of the far west assets in Arizona increased our water customer base by nearly 70% to a total of 62,500 connections. On a consolidated basis, our collective gas and water utility customer base grew 4.6% last year. Now, a few comments on the gas utility. On November 1st, new rates for gas utility customers went into effect for the current heating season. That included the impacts of the general rate case we concluded in Oregon last year and the second year of the multi-year Washington case. We know that this is a difficult time with inflation weighing on households, and that's why we worked closely with the Commission's staff and stakeholders to support customers. What resulted was a multi-pronged strategy that included a special tariff for low-income customers and a rate mitigation tariff for all residential customers that smooths the rate impact over the year so a greater portion of that increase is felt in the summer months when bills are lower. These two new programs are on top of a suite of existing offerings designed to help the most vulnerable in our communities. Despite these increases, our customers are paying less today for their total natural gas service bill than they did 15 years ago. Our focus on supporting energy efficiency and on prudent expense management along with smart investments in gas storage assets helped moderate volatility in gas prices for customers last year. And now more than ever, we know our focus on affordability and reliability is key to meeting the needs of our community. This winter, once again, showed the value of our system and the importance of peak planning. On December 22nd last year, we hit a record send out and I'm pleased to report our employees rose to the occasion and our system performed very well. Our storage facilities and overall hedge position worked to mitigate the amount of gas purchased on the spot market and help to minimize the impact to customer bills. This was incredibly important as prices spiked in our region throughout December due to extended cold weather and infrastructure constraints in the desert Southwest. We were able to manage through the event with ample liquidity, and our balance sheet remains strong. Meeting the moment in December was a result of disciplined investments in the system over many, many decades. This consistent investment is why today we operate one of the tightest and most modern systems in the country. It's also why our energy system is an energy powerhouse for the communities we serve. As everyone on this call knows, we are all in on decarbonization and believe both the electric and gas systems should continue to evolve here. In this discussion, some believe we should be electrifying all gas load. We do not think that is the right answer for our region or our country. As you look at our system, it's very important to understand how difficult that task is with little to no true benefit in carbon reduction. Let me give you an example. Turning back to December 22nd, it was a record send-out day with 8 million therms delivered to our customers. That is a tremendous amount of energy delivered safely and reliably day in, day out. Between 8 and 9 a.m., Northwest Natural of that day, Northwest Natural delivered approximately 41 million cubic feet of gas, of which 23 million served our residential customers. We commissioned a consulting firm to help us estimate what it would take for our local electric system to serve that same customer load for just one hour. And what we found is that if all our residential customers' appliances were replaced with electric ones, It would require more than 3.4 gigawatts of new electric capacity to provide the same energy our system did for that one hour. By the way, that is about the same peak load the electric system hit that same day. To put this amount of energy into perspective, it's equivalent to 3,150 megawatts, or simply stated, seven 450 megawatt plants that will all be fueled by natural gas. Cost would be likely around $4 billion, assuming you could get things sited and permitted. But by state policy, new gas power plants are very likely challenged to build in the Northwest, so we also wanted to explore what it would take with only electric renewables. And to rely on a combination of wind, solar, and battery storage would require approximately 14 gigawatts of new capacity at a cost of approximately $20 billion. And that's using National Renewable Energy Lab and Berkeley National Labs capital cost data. Based on NREL estimates, it would also require about 700 square miles of land to build all that new infrastructure. And importantly, these estimates don't include the incremental electric transmission and distribution system costs or the cost to change out and use appliances. Whatever required to electrify just our residential gas use is staggering, even if you could feasibly do it and spread the impact over the next three decades. It's why we believe the most viable and effective climate strategy is to leverage our system already in place in new, innovative ways. As we work hard to balance affordability, reliability, and environmental stewardship at the center of our businesses is our customers. That's why I'm thrilled that Northwest Natural ranks second in the West among large natural gas utilities and scored among the top 10 utilities in the nation in the J.D. Powers Residential Customer Satisfaction Study. This continues a nearly 20-year legacy of outstanding results for us. I'm proud of all of our employees who make this exceptional service happen every day, year after year. They continue to set us apart in the way they care for customers, and I'm incredibly proud of this legacy. With that, let me turn it over to Frank to cover some of the financial information for the quarter and the year. Frank?