Hello and welcome to today's NW Natural Holdings Company Q4 2023 Earnings Call. My name is Bailey, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. [Operator Instructions] I would now like to pass the conference over to our host today, Nikki Sparley, Director of Investor Relations. Please go ahead.

Thank you, Bailey. Good morning, and welcome to our Fourth 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 will be available along with other members of our executive team to answer your questions. With that, I will turn it over to David.

Thanks Nikki, and good morning and welcome everybody. I'll start today by walking through 2024 guidance and priorities and then I'll turn to a few comments about 2023 before I hand it over to Brody to cover the financials in more detail. And finally, I'll wrap up the call with an update on our strategic priorities. Turning to 2024, as you know, earnings growth is not always linear, and in certain years the focus will be on investments and initiatives that set the stage for future growth, and quite frankly, 2024 is such a year for us. While we continue to maintain strong credit ratings, a solid balance sheet, and long-term earnings growth outlook of 4% to 6%, our earnings guidance for 2024 reflects a combination of lag, related to our capital investments and inflationary pressures that we are experiencing simultaneously. I'll describe these two factors in more detail. First, our gas utility has continued to make necessary investments in safety, reliability and technology at record levels. The regulatory lag, recovery lag associated with these investments is exacerbated in 2024 due to the increased level of investment and the shorter lived nature or, if you will, higher depreciation expense associated with our cybersecurity and technology assets. Frankly, this is relatively new to us at these levels, due to this level of technology investment, and we had -- that we had to make to replace aging systems so quickly. Second, like many other companies, our gas utility is contending with inflationary pressure on operating expenses, primarily due to the renewal of several multi-year O&M contracts, higher personnel cost, the amortization of cloud computing technology investments, and higher pension expenses. These are all reasons, frankly, why we decided to file a rate case in Oregon late last year. Our other operations are…

Thank you, David and good morning everyone. I'll begin by discussing the highlights for the fourth quarter and full year 2023 results and conclude with guidance for 2024. As a reminder, Northwest Natural's earnings are seasonal with a majority of revenues and earnings generated in the first and fourth quarters during the winter heating months. Also, our segment reporting includes Natural Gas Distribution or NGD segment and other which includes our interstate storage services and asset management services, Northwest Natural Water, Northwest Natural Renewables, and Holding company expenses. Beginning with fourth quarter results, we reported net income of $44.6 million, or a $1.21 per share, compared to net income of $47.9 million, or a $1.36 per share for the same period in 2022. On a quarter basis, our gas utility net income declined $600,000, mainly from increases in operating costs, including depreciation. Other posted a decline of $2.7 million in the fourth quarter of 2023 compared to last year's results. That decline was primarily due to higher interest expense. Now, a few more details on the gas distribution segment's quarterly results. Margin increased $6.5 million, mainly from new rates, a gain on gas cost sharing and customer growth. Utility O&M increased $9.2 million, reflecting higher payroll costs from additional employees that were part of the previous rate case, information and technology costs, including cloud amortization, as well as increased contract labor costs and the amortization of deferrals. Utility depreciation and general taxes increased $1.5 million due to higher property, plant, and equipment. Other income increased $4.8 million, primarily from lower pension expense, and higher equity AFUDC interest. Interest expense at the gas utility increased $1.6 million due to higher debt balances. Turning now to full year results. For 2023, we reported net income of $93.9 million, or $2.59 per share,…

Thanks Brody, and we'll turn now to our strategic pillars and an update on our growth initiatives. Core to our strategy is to drive profitable growth for our investors across our gas, water, and renewable energy business in support of our company's long-term earnings growth target that Brody just discussed. Turning to our gas utility, as Brody outlined, we anticipate continued investments in our gas utility system and storage facilities for safety and reliability over the next five years, and we're finding needed investments on all fronts, including modernizing core infrastructure like meters, upgrading technology, maintaining our valuable storage facilities and a keen focus on safety and reliability spend. I'm encouraged by the opportunities and rate base growth of 5% to 7% over the next five years. With this level of investment, we're balancing the best approach for customers and the company. That's why in our most recent rate filing in Oregon, we propose multi-year rate cases be considered in the future. This strategy has been successful in Washington State, helping to smooth increases, allowing customers to understand future rates, and providing the company more certainty. We look forward to engaging with the Oregon commission, staff and interveners on this topic. Now an update on the gas utility decarbonization efforts. We believe climate change requires rapid innovation and action. We also need to approach the energy transition in a way that ensures the energy system's reliability and affordability. Just last month, we were reminded once again of the importance of peak planning and the critical life safety and energy reliability benefits that a natural gas system provides. Starting January 13th, a winter storm brought frigid temperatures, severe wind and snow to the Pacific Northwest and resulted in a record breaking weekend for our gas system. We hit a new peak…

Thank you. [Operator Instructions] Our first question today comes from the line of Selman Akyol from Stifel. Please go ahead. Your line is now open.

Good morning, Selman.

Thank you. Good morning. Let's just start off in terms of the rate case that you filed up, how's it being received? And can you talk about anything that's contentious or you think you're going to get all that you're asking for?

Yeah. Thank you, Selman. We are in the early stages. We filed at the end of December, and so we're obviously in the middle of February here. We're -- and in fact, some negotiations will be coming up soon. But there's really been nothing that's been filed from the other side or anything that gives us any indication on where we're at. So it's just very early days, and so, it's a little early to opine on whether we'll -- what level we think we're going to be at, whether it's going well or not. This was well telegraphed, the commission and the staff, we've been working with them on a regular basis to know what our situation is with lag, just like we do with all of our rate cases. So this did not come to us as a surprise to anybody that follows us closely in Salem.

Got it. And then it sounds like the two facilities, EDL looks like it's being pushed to the right. I guess I'm curious how much was in your planning for that for in '24? I think it sounds like it's going to be more incremental and pushed out to '25?

Brody, you want to take that one?

Yeah, sure. Thank you for the question. We did have some earnings in '23 that we expected, and then we've moderated that for '24. We do expect that the facilities will come online kind of late '24 and provide some level of earnings. But we don't view that to be material, and then we expect full year earnings starting at '25. And we've not given any specific guidance on numbers at this stage.

Got it. But when I think about '24 and I think about the reduction in guidance, can you -- I don't know, give some indication of how much was due to that being pushed to the right?

Yeah, I mean, I think that again, if the part year versus full year, you could probably think about there being about a dime of movement out into the outer years there associated with that.

Again, Selman most of the decrease '24 -- '23 to '24 is due to the lag in the gas utility. That's the big driver of that.

Totally, totally understand that, and I'm appreciative on that. Okay, let me just leave it there for now. Thank you.

Thanks, Selman.

Thank you. [Operator Instructions]

Well, Bailey, it's Friday, it looks like it's pretty quiet out there. I don't think we have any other questions that we see. So I really do appreciate everybody on the line that listened to where we're at. As always, if you have any questions, please follow up with Nikki Sparley, and her -- she'll be able to walk you through anything that you might have questions on. And, of course, we look forward to seeing you all soon. With that take care, have a great weekend, everybody.

This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.