Good morning or good afternoon all, and welcome to the Northwest Natural Holdings Company Q3 2023 Earnings Call. My name is Adam, and I'll be your operator for today. [Operator Instructions] I will now hand the floor over to Nikki Sparley to begin. So, Nikki, please go ahead when you're ready.

Thank you, Adam. Good morning and welcome to our third quarter 2023 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-Q 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, Chief Executive Officer; and Brody Wilson, CFO, Vice President, Treasurer and Chief Accounting Officer. David and Brody have prepared remarks and then we'll be available along with other members of our executive team to answer your questions. With that, I will turn it over to David.

Well thanks, Nikki and good morning everybody, welcome. I'll start today with highlights from the quarter, and then turn it over to Brody to cover the financials. I'll wrap up the call with a few updates on our decarbonization initiatives and our gas utility and recent news at our water and renewable companies. The company continues to operate very well during the year and posted strong financial results. We reported net income of $1.37 per share for the first nine months of 2023 or a 20% increase compared to $1.14 per share for the same period last year. New rates in Oregon drove results at the natural gas utility along with customer growth and lower pension expense. A few comments on the economies where we serve, we continue to see positive momentum in the local job markets related to our gas utility service territory. Oregon's unemployment rate remained at 3.5% in September 2023, below the national rate of 3.8%. Unemployment rates in our highest growth water service territories range from 2.7% in Idaho to 4.6% in Texas. Both of those are from August 2023, the latest date that we have that information. The county where we operate in Texas experienced a 4.3% population growth in the latest census data Coeur d'Alene Idaho posted nearly 2% growth. These factors translated into good customer growth. Collectively, our gas and water utility customer base grew by 4% or approximately 33,000 meters over the last 12 months ending September 2023. That included more than 5,200 gas customers and approximately 28,000 water customers, mainly driven by six water acquisitions that we closed during the year. Last week we received approval for a rate reduction through our annual purchase gas adjustment in Oregon and Washington, which related to lower natural gas prices. For Oregon customers' rates included reimbursement for two renewable natural gas facilities and three offtake RNG agreements. For this upcoming heating season, the average Oregon residential customer will see a 9% drop in rates, while Washington customers will see a 14% drop. On top of that, Oregon customers can expect to see a bill credit of approximately $30 million in February 2024. Over the last 20 years we've credited Oregon customers' bills with savings totaling almost over $235 million. Despite inflation, nearly $3 billion of investment in the system, customers will be paying 8% less for their natural gas bills this winter than they did 15 years ago. You can't say that about many things these days. It is gratifying to be able to provide these savings and continue to provide affordable energy to our customers. And finally, this morning, I'm pleased to report that in the fourth quarter, the Board approved a dividend increase, making this the 68th consecutive year of annual dividend increases. Northwest Natural Holdings is one of only three companies on the NYSE with his outstanding record. With that, I'll turn it over to Brody to cover the financials. Brody?

Thank you, David and good morning everyone. I will begin by discussing the highlights for the quarter and year-to-date results, and conclude with guidance for the year. I'll describe earnings drivers on an after-tax basis using the statutory tax rate of 26.5%. 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 heating months. For the third quarter, we reported a net loss of $23.7 million or $0.65 per share compared to a net loss of $19.6 million or $0.56 per share for the same period in 2022. At the gas utility, earnings reflected higher operating expenses and interest expense, partially offset by new rates in Oregon and Washington. Utility margin in the gas distribution segment increased $5.3 million mainly from new rates, a gain on gas cost and customer growth. Utility O&M increased $5.5 million, reflecting higher payroll costs, information technology and contract labor costs as well as the amortization of deferrals. The majority of these incremental costs were anticipated and are being recovered through our new rates. Other income increased $3.2 million, primarily from lower pension expense and higher interest income from invested cash. Interest expense increased $3.3 million due to higher debt balances and interest rates. For the first nine months of 2023, we reported net income of $49.2 million or $1.37 per share compared to net income of $38.4 million or $1.14 per share for the same period in 2022. The $0.23 or 20% increase in earnings per share is largely the result of a $0.35 increase for our gas utility related to new rates in both Oregon and Washington. This was offset by a $0.12 per share decline in our other businesses. A few more details on the gas utility…

Thanks Brody. Turning to an update on the gas utility decarbonization activities. As we've said numerous times, we believe climate change requires rapid innovation, but doing so in a way that ensures energy system reliability and frankly true emissions reductions. It's important to remember our starting point, Northwest Natural has one of the tightest systems in the nation, and we use that system to deliver 50% more energy than any other utility in Oregon. In fact, during winter peak demand periods, our systems delivers about twice as much energy as the electric system. The natural gas, our residential commercial customers use accounts for just under 7% of Oregon's greenhouse gas emissions, which are low to begin with. We believe that's an efficient starting point, but we're working to reduce that number even further. We believe combination of decarbonization measures that include energy efficiency, renewable energy, carbon offsets and carbon capture are needed in a low-carbon future. Replacing conventional natural gas over time with renewable natural gas and clean hydrogen is central to achieving that vision. I'm proud that for the third year in a row, renewable natural gas is part of our energy stack and we've begun procuring - begun recovering those costs through our purchase gas adjustment for Oregon customers. Most recently our investment on the Dakota City renewable natural gas facility was approved by the Oregon Commission and included in rates on November 1st. Our team continues to pursue renewable natural gas investments and OpEx for our customers. We're seeing other countries make promising headway here too. One example is Denmark, and principally Denmark is already delivering nearly 40% renewable natural gas in its system. By 2030, it expects 100% of the natural gas system to be sourced entirely from renewable natural gas and other green gas resources,…

[Operator Instructions] And our first question today comes from Julien Dumoulin-Smith from Bank of America. Julien, your line is open. Please go ahead.

Yes, hi good morning team. This is [Tanner] stepping in for Julien. How are you guys doing?

Excellent. Thank you. Happy Friday.

Happy Friday. Can you talk about the acquisition pipeline, or rather kind of the availability of attractively priced opportunities you're seeing in the marketplace on the water side. And what's your sort of run rate appetite perhaps for these types of opportunities?

Yes, in general, I'll turn this over to Justin, and if I need to, I'll come up with some other comments. Justin, I'll turn it over to you.

Yes, thank you. So we continue to have a robust pipeline of acquisition opportunities on the waterfront. I think our run rate, if you look over the last five years, we're executing on somewhere between five and eight acquisitions per year. And they range in size, most of them are relatively small, and then some of them are a bit larger. And we expect that to continue. We still see robust activity there even throughout this market.

Great. Thanks for the color there. And then kind of more of an actuarial question here. Could you provide some color on the other income line with respect to the pension. Obviously, you had a lower pension expense. This quarter either - what is the type of treatment of the expense in rates, it's smoothed out over five years. Could you just kind of provide some color there?

Brody?

Yes, this is Brody. As far as the rate-making goes, we do put in the past year for the rate cases what our expected pension costs will be. And that then gets approved in the rate case. So that would have been effective for us last November. As we look forward in the current year, we are experiencing a bit of a benefit, and that really is quite technical, actuarial calculation issue that relates to how gains and losses get amortized through pension expense. And it so happens that gains and losses being amortized in the current year, there aren't any being amortized because of the fact that the gains and losses didn't fall outside of a corridor that the actuaries calculate. So for us, we're seeing a bit of a benefit there. Historically, we would say that typically there are some gains and losses that would flow through that number. We're not seeing that this year, we're seeing just large portion of - or just our service cost hitting us right now.

All right. Great. Thank you very much. Have a great weekend guys.

Thanks Tanner. Take care.

The next question comes from Selman Akyol from Stifel. Selman, your line is open. Please go ahead.

Thank you. Good morning. Just a couple of quick ones from me. So as we think about the hydrogen opportunity that you guys are pursuing, I guess you've been doing some testing for a while, you obviously referenced a couple of other utilities that have it. And I'm just wondering how long do you think before you introduce it into the system if things keep going the way you anticipate?

Yes, Kim, do you want to take that?

Good morning. Well, we've expanded the work that we're doing on hydrogen. As you may know, we've been doing blend testing at our Sherwood facility for a couple of years now. We started out at a 5% plan, and we've consistently stepped that up, both testing on our own system, but testing on end-use equipment as well. We're at 15% now, and our goal by the end of this year or the first quarter next year is to step that up to 20%. And we're doing that to demonstrate not only sort of the efficacy of the blends, we're not seeing any kind of issues, and we didn't expect to based on the blending we know that's already taking place around the world. But we're also doing it to invite in elected officials and other stakeholders to see the blending in action so that they can sort of touch and feel this new approach and new technology. In addition to that blending at Sherwood though, we - as we've mentioned before, we're pursuing a number of pilot to test out methane pyrolysis equipment so that turquoise hydrogen where you're basically taking natural gas, producing hydrogen and then through methane process that creates a solid carbon output. And that's basically sequesters the carbon. You can then use that output, got solid carbon in the secondary market like asphalt. And so, we're really excited about that technology because we're seeing a number of different companies coming into the market with solutions that range in sizes. The first pilot we're actually installing the equipment next week is with Modern Hydrogen at our central facility. We're really excited about getting that off the ground, but we're also looking at a new technology from a Finnish company called Hycamite. And the reason we're excited about…

We're going to move as quickly as we can, Selman, to be just very frank. And I would be disappointed if it took that long, personally.

Understood. And then also you talked about where you're - I thought you were doing some pilot tests on small industrial scale with EDL. Anything coming out of that?

Just the technologies that I mentioned, we have...

Okay.

Two or three of our industrial folks that were under NDA to test some different kinds of hydrogen application. We did pull up a new team, decarbonization services team that really are going to be specializing in sort of bespoke solutions for our industrial customers because as you know every process and equipment on an industrial customer site is different, they need their sort of own solution set. So we're excited about that team and already working with a handful of customers on some potential pilots.

Got it. All right. Thank you very much.

Thanks, Selman. Have a great weekend.

The next question comes from Chris Ellinghaus from Siebert Williams Shank. Chris, your line is open. Please go ahead.

Hey everybody. Just a question on water. Nevada has some sort of troubled systems there, is that a viable state for you? And you know have you looked at it in the past?

Yes, hi, Chris. This is Justin. We have looked at that state in the past, and certainly it's something that's on our radar. To date, we have not found anything that's been, you know, met our investment criteria, if you will. But that doesn't mean that in the future an opportunity won't emerge.

Okay. David, you talked about Singapore being at 40% for hydrogen, did they have significant embrittlement issues there. And what is the longer-term outlook for how do you mitigate the embrittlement question?

Let Kim take that one.

Sure Hi. You know, I think that there is a lot of work that's been done and being done on embrittlement. And it really - there is a lot of factors that you have to sort of assess, it's the type of the system that's flowing hydrogen for example, on our system, we have a low-pressure system, about 50% of our system is poly. We have no cast iron or bare steels, we have that steel-coated pipe. So when we're looking at the research that's been done on embrittlement, it's important to know that the research we've been seeing is, it's potential when you're flowing hydrogen to go from maybe a 100-year pipe life down to 80-year pipe life. So it's not an issue of any kind of short-term embrittlement that people are concerned with. It's really what is that pipe life length. And again, if potentially you're going from 100 to 80 your pipe length, we don't see that as an issue. I don't know that Singapore system particularly, we could certainly find those characteristics for you. But I think the point is that hydrogen blending has been happening around the world in different systems at different volumes. We know there is several blending projects. One is the U.K., they've been blending 700 home development with 20% hydrogen. There is a Germany project that's just started with a 30% blend. There is another U.K. project where they're going to take a low-pressure system like ours and just begin blending a 100% to test those issues around pipe and fittings and make sure that they're learning, sort of, what is that higher-end blend, and how quickly could we potentially retrofit if we needed to certain parts of a low-pressure system to get to those larger blend levels.

Okay, thanks. And could you give us a little more detail about the two RNG projects with the conditioning issues. Can you give us some sense of what that's all about?

Yes, Hi, this is Justin. Happy to talk a little more about that. So, as David mentioned in his prepared remarks, construction is complete at the two facilities. What the EDL team and their contractors are working on right now is really a component of the conditioning equipment is the CO2 removal process and the technology related to that. Trying to get that to a point where it can support the specified volumes for the facilities. And right now, they're having a little bit of a challenge getting that up to the full volumetric levels. And so they're working through some of the technical aspects there to determine exactly what the fix should be. But we expect that, that will be resolved in the coming weeks.

I think the key for us is that the field is - yes, the field is producing the gross amount of gas, it's just the amount that they can actually put on the system is not where it needs to be right now.

Got you. All right, thank you.

This will conclude today's Q&A session. So I'll hand the call back to David Anderson for some concluding remarks.

Adam, thank you very much. Appreciate everybody joining us on this Friday. If you have any follow-up questions, I think you know, Nikki, very well, also for media, if you would like to talk to David Roy, he'd be happy to talk with you. Everybody have a great weekend. Thank you.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your line.