Segment Information

6 Months Ended

Jun. 30, 2020

SEGMENT INFORMATION

We primarily operate in one reportable business segment, which is NW Natural's local gas distribution business and is referred to as the NGD segment. NW Natural and NW Holdings also have investments and business activities not specifically related to the NGD, which are aggregated and reported as other and described below for each entity.

Natural Gas Distribution

NW Natural's local gas distribution segment is a regulated utility principally engaged in the purchase, sale, and delivery of natural gas and related services to customers in Oregon and southwest Washington. In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion, and NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp.

NW Natural

NW Natural's activities in Other include Interstate Storage Services and third-party asset management service for NW Natural’s contracted interstate pipeline and storage capacity, appliance retail center operations, and corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations.

Earnings from third party asset management include earnings from the management of upstream interstate pipeline and storage capacity when not needed to serve NGD customers. Under the Oregon sharing mechanism, NW Natural retains 80% of the pre-tax income from these services when the costs of the capacity were not included in NGD rates, or 10% of the pre-tax income when the costs have been included in these rates. The remaining 20% and 90%, respectively, are recorded in a deferred regulatory account for prospective NGD customer billing credits.

NW Holdings

NW Holdings' activities in Other include all remaining activities not associated with NW Natural, specifically: NWN Water, which consolidates the water and wastewater utility operations and is pursuing other investments in the water sector through itself and wholly-owned subsidiaries; NWN Gas Storage, a wholly-owned subsidiary of NWN Energy; NWN Energy's equity investment in TWH, which is pursuing development of a cross-Cascades transmission pipeline project (TWP); and other pipeline assets in NNG Financial. For more information on TWP, see Note 13. Other also includes corporate revenues and expenses that cannot be allocated to other operations, including certain business development activities.

Segment Information Summary

Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segment and other of continuing operations. See Note 17 for information regarding discontinued operations for NW Holdings and NW Natural.



	Three Months Ended June 30,
In thousands	NGD			Other (NW Natural)		NW Natural			Other (NW Holdings)			NW Holdings
2020
Operating revenues	$	126,992		$	4,165	$	131,157		$	3,814		$	134,971
Depreciation and amortization	24,738			248		24,986			850			25,836
Income (loss) from operations	6,434			2,465		8,899			43			8,942
Net income (loss) from continuing operations	(6,347		)	1,635		(4,712		)	(420		)	(5,132		)
Capital expenditures	61,472			521		61,993			2,843			64,836
2019
Operating revenues	$	117,984		$	4,258	$	122,242		$	1,201		$	123,443
Depreciation and amortization	21,992			251		22,243			144			22,387
Income (loss) from operations	14,657			2,583		17,240			(1,142		)	16,098
Net income (loss) from continuing operations	1,212			1,842		3,054			(1,003		)	2,051
Capital expenditures	41,912			105		42,017			366			42,383



	Six Months Ended June 30,
In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)			NW Holdings
2020
Operating revenues	$	405,479	$	8,207	$	413,686	$	6,436		$	420,122
Depreciation and amortization	48,684		492		49,176		1,335			50,511
Income (loss) from operations	81,692		4,228		85,920		(532		)	85,388
Net income (loss) from continuing operations	41,596		2,871		44,467		(1,323		)	43,144
Capital expenditures	117,629		598		118,227		4,055			122,282
Total assets at June 30, 2020⁽¹⁾	3,470,306		10,398		3,480,704		144,251			3,624,955
2019
Operating revenues	$	397,025	$	10,063	$	407,088	$	1,703		$	408,791
Depreciation and amortization	43,241		506		43,747		212			43,959
Income (loss) from operations	87,555		6,329		93,884		(1,741		)	92,143
Net income (loss) from continuing operations	42,418		4,531		46,949		(1,480		)	45,469
Capital expenditures	90,518		157		90,675		472			91,147
Total assets at June 30, 2019⁽¹⁾	3,089,944		48,749		3,138,693		85,437			3,224,130
Total assets at December 31, 2019⁽¹⁾	3,273,835		47,652		3,321,487		91,833			3,413,320


⁽¹⁾	Total assets for NW Holdings exclude assets related to discontinued operations of $16.4 million, $14.0 million, and $15.1 million as of June 30, 2020, June 30, 2019, and December 31, 2019, respectively.

Natural Gas Distribution Margin

NGD margin is a financial measure used by the Chief Operating Decision Maker (CODM), consisting of NGD operating revenues, reduced by the associated cost of gas, environmental remediation expense, and revenue taxes. The cost of gas purchased for NGD customers is generally a pass-through cost in the amount of revenues billed to regulated NGD customers. Environmental remediation expense represents collections received from customers through the environmental recovery

mechanism in Oregon as well as adjustments for the environmental earnings test when applicable. This is offset by environmental remediation expense presented in operating expenses. Revenue taxes are collected from NGD customers and remitted to taxing authorities. The collections from customers are offset by the expense recognition of the obligation to the taxing authority. By subtracting cost of gas, environmental remediation expense, and revenue taxes from NGD operating revenues, NGD margin provides a key metric used by the CODM in assessing the performance of the NGD segment.

The following table presents additional segment information concerning NGD margin:



	Three Months Ended June 30,					Six Months Ended June 30,
In thousands	2020		2019			2020		2019
NGD margin calculation:
NGD distribution revenues	$	122,071	$	115,792		$	395,632	$	394,775
Other regulated services	4,921		2,192			9,847		2,250
Total NGD operating revenues	126,992		117,984			405,479		397,025
Less: NGD cost of gas	41,265		35,163			149,860		140,676
Environmental remediation	1,622		(2,656		)	5,627		6,291
Revenue taxes	4,454		4,496			16,197		16,422
NGD margin	$	79,651	$	80,981		$	233,795	$	233,636