Title

Presentation

Northwest Natural Holding Company misses on earnings expectations. Reported EPS is $2.33 EPS, expectations were $2.4.

Operator: Hello, everyone. Thank you for joining us, and welcome to Northwest Natural Holding Company’s Q1 2026 Earnings Conference Call. After today’s prepared remarks, we will host a 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. I will now hand the conference over to Nikki Sparley, Director of Investor Relations. Nikki, please go ahead.

Nikki Sparley: Thank you. Good morning, and welcome to our first quarter 2026 earnings call. In addition to the press release, a supplemental presentation is available on our Investor Relations website at irnorthwestnaturalholdings.com, 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. 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. Additionally, our risk factors are provided in our 10-Q and 10-K filings. We will also refer to certain non-GAAP financial measures. For additional disclosures about 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.

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. We expect to file our 10-Q later today. With us today are Justin Palfreyman, President and Chief Executive Officer, and Raymond J. Kaszuba, Senior Vice President and Chief Financial Officer. Justin will provide highlights from the first quarter 2026, a regulatory update, and a look forward. Raymond J. Kaszuba will walk through our financial results and guidance. After Justin and Raymond J. Kaszuba’s prepared remarks, we will host a question and answer session. With that, I will turn the call over to Justin.

Justin Palfreyman: Thanks, Nikki. Good morning, and welcome, everyone. Overall, the first quarter results were strong and in line with our expectations, reflecting another quarter of solid execution, putting us on solid footing for the year. As a result, we reaffirmed our 2026 and long-term guidance. Our gas utility systems performed very well over the heating season. Our team delivered strong operational performance across all our utilities and we produced healthy customer growth. Importantly, the quarter underscored the strength of the Northwest Natural Holding Company platform and the stability of having three distinct regulated utility businesses, making our results more predictable. We are well positioned to drive durable long-term growth while maintaining our core commitment to providing safe, reliable, and affordable service to our customers.

Our focus remains on disciplined execution, steady earnings growth, and attractive overall shareholder returns. Related to that, we made meaningful progress on our regulatory initiatives this year. Let me highlight a few of our recent filings. In March, Northwest Natural filed a multi-party settlement with the Washington Utilities and Transportation Commission resolving all the revenue requirement aspects of our multiyear general rate case. While it remains subject to commission approval, the outcome is constructive for both customers and shareholders. The settlement provides for annual revenue requirement increases over three years, including $20.1 million in the first year beginning 08/01/2026, $7.7 million in the second year, and $8.7 million in the third year.

The settlement includes a capital structure of 50% equity and 50% long-term debt and a return on equity of 9.5%. In Oregon, we remain constructively engaged with staff and parties on multiyear rate case rulemaking. As we have seen in other jurisdictions, we believe multiyear rate cases could provide greater clarity and predictability for both customers and utilities. While we await the outcome of the multiyear framework in Oregon, which could extend into 2027, we filed an alternative rate mechanism to help recover certain safety, IT, and large public works investments. The proposal contemplates a modest 1.5% rate increase beginning 10/31/2026. We have had productive conversations with staff and continue working closely with parties to reach agreement on the docket.

Until the multiyear rulemaking process concludes, we have the ability to recover our investments through additional mechanisms or general rate cases. In addition, we have made progress on regulatory initiatives in our other key businesses. On May 4, 2026, C Energy filed a general rate case with the Texas Railroad Commission. The filing consolidates C Energy and the recently acquired Pines Gas entities, simplifying both our regulatory structure and operations in Texas. We are requesting a $12 million revenue requirement increase over current rates. This increase is based on a 10.75% return on equity, a cost of capital of 8.73%, and a capital structure of 60% equity and 40% long-term debt, which is consistent with other Texas gas utilities. This request includes an increase in average rate base of $176.9 million since the last rate case, for a total rate base of $343.1 million.

In addition to the existing beneficial mechanisms from Texas House Bill 4384 and weather normalization, we are requesting the factors necessary to file for the Gas Reliability Infrastructure Program, or GRIP. This mechanism would further align capital investment with timely cost recovery. Even after the increase, C Energy’s rates are projected to be competitive with peers in the state. Turning to our water and wastewater business, as it scales, we are beginning to see a more consistent regulatory cadence. In 2025, we completed seven rate cases. We currently have four open rate cases in Oregon, Texas, and Arizona. Foothills, our largest water and wastewater utility, has made substantial investments over the several years. That trend continues in 2026 as we invest in water storage and treatment to support growth in the region.

In Q1, we received approval for our second certificate of convenience and necessity expansion, adding to our service territory in Arizona. We are excited to serve these growing communities and are committed to making the necessary investments to provide safe, reliable water and wastewater. We filed a rate case for Foothills last month that includes a request to use formula rates in the future. Formula rates are designed to support annual recovery of O&M and investments without going through a general rate case process. Blue Topaz, our Texas water utility, recently filed its first rate case in approximately 20 years. The filing consolidates several of our Texas entities, recovers capital investments made since our ownership of these assets, and incorporates fair market value rate base adjustments.

As our first quarter actions demonstrate, we are taking a more coordinated approach to our regulatory strategy across the enterprise. Multiyear rate cases in Washington and Oregon, as well as the mechanisms we plan to use at C Energy and Northwest Natural Water, are all designed to reduce regulatory lag and produce a more balanced and linear consolidated earnings profile. These mechanisms also maintain affordability and predictability for customers. Moving to a quick review of our key business segments, starting with C Energy, our Texas gas utility delivered another strong quarter and performed well during the heating season. Results were driven by healthy 16% organic customer growth, and our backlog exceeded 250 thousand future meters at quarter-end, highlighting the long-term growth potential of this business.

Looking ahead, we are continuing to see solid growth in the Texas housing market and expect 15% to 20% annual customer growth through 2030, with C Energy contributing approximately 10% to 15% of consolidated EPS in 2026. Moving to Northwest Natural Water, this business posted healthy overall customer growth of 4.1% in the quarter and organic customer growth of 2.2%. As a reminder, the seasonality of water complements our gas business, with the highest demand in the third quarter and lower demand in the first quarter. Even though results were consistent year over year, we continued to make progress on customer growth and regulatory execution. We also remain active in greenfield opportunities for water and wastewater in Texas. We now have signed agreements with developers that represent a backlog of over 10 thousand connections.

Approximately 25% of these are in communities that have started development. This platform is driven primarily by organic customer growth, and we expect it to achieve 2% to 3% growth through 2030. Water is expected to contribute approximately 10% to 15% of consolidated EPS in 2026. Finally, turning to Northwest Natural Gas, our largest segment, this business continues to play a critical role in ensuring affordable and reliable energy for customers in Oregon and Washington. I am pleased to report that our system performed well this winter, reliably serving our customers during the heating season. We remain incredibly excited about our MX3 storage project that we announced last quarter. As a reminder, MX3 is a $300 million FERC-regulated gas storage expansion that will add 4 to 5 Bcf of capacity and is fully contracted with 25-year agreements.

Since our last call, the project has continued to progress as we expected. Our timeline still contemplates receiving notice to proceed by 2027, with an in-service date in 2029. E3, a highly regarded energy consulting firm, recently updated a study reinforcing earlier conclusions that natural gas remains essential to system reliability in the Pacific Northwest, particularly as the region continues to add significant electric load. The latest study now points to an approximately 14-gigawatt shortfall in generation capacity by 2035. That is why our storage capabilities are so important. They are uniquely positioned, expandable even beyond MX3, and offer a cost-effective solution to our region’s growing energy constraints. MX3 is not contemplated in our current 4% to 6% long-term EPS growth guidance.

However, we do expect the project to have a sustained positive impact on earnings growth and plan to include the project in our guidance when we achieve notice to proceed, which would raise our long-term EPS outlook to 5% to 7%. Overall, we remain confident in our strategy, our execution, and the growth platform that we have built. The businesses are performing well, we are making progress on our regulatory initiatives, and the outlook across our company is strong. We are progressing through 2026 with solid momentum and remain focused on disciplined utility growth and long-term shareholder value. With that, I will turn it over to Raymond J. Kaszuba to walk through the financials.

Raymond J. Kaszuba: Thank you, Justin, and good morning, everyone. Our first quarter performance was strong and in line with our expectations. Adjusted earnings per share was $2.33 compared to $2.28 in the prior-year period. To simplify our financial reporting and clarify the underlying drivers of the business, we have updated our segments to better reflect our current business mix. Northwest Natural Gas Company is now reported as a single segment, consolidating the gas utility and storage operations. This change does not affect our C Energy or Water segment reporting. Adjusted net income was up $5.7 million and EPS increased $0.05 in the quarter, driven by new rates, particularly at Northwest Natural Gas, and customer growth.

This was partially offset by investments in our systems, leading to higher depreciation expense and financing needs. Northwest Natural Gas reported an increase in net income of $2.7 million reflecting new rates in Oregon, with EPS down $0.02 due to equity financing. C Energy’s EPS was up $0.08, driven by a full quarter of operations from C Energy and Pines Gas, and strong organic customer growth of 16%. Northwest Natural Water’s EPS was essentially flat for the quarter, primarily reflecting higher O&M and depreciation expenses. This was largely offset by higher operating revenues driven by continued customer growth and acquisitions. Please keep in mind that the first quarter is Water’s lowest demand quarter. We are investing in the underlying business and, as Justin mentioned, we are executing on our regulatory strategy to recover these investments and earn a return in a timely manner.

Overall, we are pleased with first quarter results, are on track for the year, and reaffirmed our full-year 2026 earnings guidance of $2.95 to $3.15 per share. C Energy and Water combined are still expected to contribute approximately 25% of consolidated EPS this year. Our long-term EPS growth target of 4% to 6% remains intact, and as Justin noted, our expected long-term EPS growth rate is projected to increase to 5% to 7% with the inclusion of MX3 once we receive notice to proceed. We still expect capital expenditures of $500 million to $550 million in 2026. Our funding plan remains disciplined and balanced, supported by strong operating cash flow, approximately $150 million of net long-term debt, and $40 million to $50 million of equity issued through our ATM.

We currently have approximately $590 million of available liquidity. Over the five-year planning horizon, capital expenditures will be funded largely through operating cash flows, along with a balanced mix of long-term debt and equity. Through 2030, we expect to meet our equity needs through our ATM program. 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. In summary, 2026 is off to a solid start, and we have strong momentum heading into the balance of 2026 and beyond. With that, we will open the call to questions.

Operator: 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. 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 Christopher Ellinghaus from Seaport Research Partners. Christopher, please go ahead.

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Christopher Ellinghaus: Hey, good morning, everybody. Justin, I think you quoted 16% organic growth at C Energy. I assume that means there was some acquisition in the quarter because the meters were up considerably more than that. Is there? I am sort of detecting some weakness in the economy that is maybe even accelerating a little bit across some industries, and you kind of see it maybe in your meter number for the quarter. Can you just talk about what you are seeing for economic conditions in Oregon?

Justin Palfreyman: Thanks for the question, Christopher. On the C Energy growth, there are no acquisitions reflected in that because it is comparing Q1 of last year to Q1 of this year, so the 16% reflects organic growth at C Energy.

Raymond J. Kaszuba: Economic conditions in Oregon have been challenged a bit for a few years now, and we have seen a slowdown over that time frame, both in housing starts and other macro indicators in the region. However, the customer growth that we are seeing is largely in line with what we expected for the year, and a lot of the growth opportunities we are seeing in Oregon relate to our gas storage facility expansion opportunities, as well as investing in the safety and reliability of our system here.

Christopher Ellinghaus: Thanks for the segment update. That is helpful. So your guidance for utility net income growth, I presume part of that is a result of the cover of the Fair Act, which is pretty restrictive. Your rate base growth is considerably more than that 1% to 3%, and customer growth is on the lower side. It suggests that you end up with a bit of a bubble at the end of the period in terms of a catch-up, presuming you do not get some kind of great multiyear rate plan that keeps you on track. What are your thoughts about potentially ending up with an end-of-five-year period excess catch-up to make, which is counterintuitive to what the Fair Act was all about?

Raymond J. Kaszuba: Christopher, I think you are picking up on what could be driving that delta from the rate base growth to the net income growth. Part of it is our current view of what the rate case cadence is between now and 2030, and you could be growing rate base but not fully reflecting that growth in earnings until rates are reset. That is going to depend on where things end up with the Fair Act and where we eventually land with our rate case cadence in Oregon. Of course, there is always some regulatory lag that comes into play as well. Between those two dynamics, that is driving the difference, and it is timing in terms of the specific five-year guidance range through 2030. So I think you are picking up on that correctly.

Christopher Ellinghaus: The rate base increase that you quoted for C Energy—if I am not mistaken, the rate base number in the last rate case, and I might be confusing what the request was versus what was approved, but I thought the last rate case was something like $152 million. Do you know what that discrepancy is versus the $176 million you quoted?

Raymond J. Kaszuba: Christopher, we will have to get back to you on that question after the call. I do not know off the top of my head.

Christopher Ellinghaus: Alright. I will stop there. I appreciate it. Thanks for the color.

Raymond J. Kaszuba: Thanks, Christopher.

Operator: Your next question comes from the line of Alexis Kania from BTIG. Alexis, please go ahead.

Alexis Kania: Hi, good morning. I have two quick questions. First, Justin, could you dive a little more into the evolution of the multiyear rate structure in Oregon? When do you think you might have more clarity on that, just as a precursor to finalizing the rate case plan in that jurisdiction? Second, given the growth in C Energy, do you have a sense of any potential opportunities for additional tuck-ins there? Do you feel like you need any, and what does the environment look like?

Justin Palfreyman: Great, thanks for the questions, Alexis. On the Oregon multiyear plan, we have been engaged fairly actively throughout the process. From a timing perspective, we anticipate it could slip into next year before we have clarity around what the multiyear planning framework is. This is new to Oregon, and they are taking a lot of information in from other states that have successfully implemented this, whether that is Washington or California or others, and there are many parties involved and engaged. Our expectation at this point is that we will have some resolution on that next year. In the meantime, we have filed for this alternative rate mechanism in 2026, and we are in the middle of that process, which is moving along as expected.

We also have, under the Fair Act, the ability to file for a general rate case in the interim period before the multiyear plans are established. In general, it is all moving along as expected, and we look forward to driving that to resolution. On your second question in Texas, there are other acquisition opportunities on both the gas and the water side. You have seen us make a number of acquisitions in water there and, with C Energy, we completed a bolt-on with Pines Gas. We continue to look at that, but the organic growth opportunity is so strong that we are very focused on it—investing in our systems. If you look at the C Energy rate case as well as the Blue Topaz rate case, our water utility in Texas, there is a fair amount of growth embedded, as well as mechanisms we believe are going to reduce regulatory lag going forward.

For the C Energy filing, we are filing for the factors that will allow us to file for GRIP in the future, which is a helpful mechanism for reducing lag.

Operator: Your next question comes from the line of Selman Akyol from Stifel. Selman, please go ahead.

Selman Akyol: Just following up on your last comment about putting the pieces in place for filing for GRIP, can you talk about the time frame for that? And staying with C Energy, you previously talked about seeing opportunities for water as you grow in conjunction with C Energy. Are you actually executing on that—installing both water and gas as you go into these new communities?

Justin Palfreyman: The time frame for the rate case itself is approximately six months, so we expect to have the rate case resolved and new rates in effect by later this year, sometime in Q4. Then the way the GRIP process works, in this rate case we get the factors defined in terms of ROE, capital structure, etc. We can then, in future years, file for rate adjustments under the GRIP mechanism for up to five years before we would be required to come in for a new general rate case. You have seen many other gas utilities in Texas execute on that successfully. In C Energy’s previous rate case, a few years ago before our ownership, they did a black box settlement that did not allow them to have those factors needed to file for GRIP, so we are taking a slightly different path to minimize regulatory lag going forward for that business.

On the water opportunity, that is a great question. One of the reasons I highlighted the 10 thousand connections we now have in backlog for water in Texas in my remarks is that, about six months ago, we combined our business development teams in Texas to leverage the C Energy platform, which has strong relationships with developers and homebuilders. For the first time, we are starting to see communities where we could install both gas, water, and potentially wastewater systems. Specifically on the water side, our utility down there is relatively small but has the potential to grow significantly because of how we are approaching this. Of the 10 thousand in backlog, about 25% are already beginning development or construction on the water and wastewater portions of the projects.

It is exciting to see that momentum in a short period of time, and we are highly confident that is the right strategy to pursue. With the overall amount of growth we see in Texas—on the residential side and also on the commercial and industrial side—we are excited about the opportunity.

Selman Akyol: And just the last one for me—thinking about water—are you continuing to see a lot of acquisition opportunities in 2026?

Justin Palfreyman: We continue to look for acquisitions, but we have seen the market slow down a bit, and there is data out there that reflects that. Where we are with our water strategy is a good position because we do not need acquisitions to grow. The organic customer growth of 2% to 3% excludes any potential future acquisitions, and we are not relying on that for growth. We now have opportunities to invest in the platform we have built, and there is a long runway of investments. We are optimizing the platform both operationally and from a regulatory standpoint to minimize the gap between earned and allowed ROEs across our platform, which is why you are seeing multiple rate cases filed each year in water. In addition, we are very focused on organic growth.

I mentioned the greenfield in Texas, and in my prepared remarks, I mentioned the CCN expansion in Arizona. We have other opportunities like that to expand our existing footprint without going out and paying a premium for acquisitions.

Operator: We have reached the end of the Q&A session. I will now turn the call to Justin Palfreyman for closing remarks. Justin, go ahead.

Justin Palfreyman: Thank you, and thanks, everyone, for joining this morning. We appreciate the questions and your interest in Northwest Natural Holding Company. Just to recap, 2026 is off to a promising start, and we are continuing to execute on our growth strategy. We look forward to seeing many of you at AGA later this month. As always, do not hesitate to reach out to Nikki with any further questions. Thank you, everyone.

Operator: This concludes today’s call. Thank you for attending. You may now disconnect.

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