Northwest Natural Gas Company Stock

Hello, everyone. Thank you for joining us, and welcome to the Northwest Natural Holding Company Q2 2026 Earnings Call.

[Operator Instructions] I will now hand the conference over to Nikki Sparley, Director of Investor Relations.

Thank you. Good morning, and welcome to our second quarter 2026 earnings call. In addition to the press release, a supplemental presentation is available on our Investor Relations website at ir.nwnaturalholdings.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 also refer to certain non-GAAP financial measures. For additional disclosures around 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 Ray Kaszuba, Senior Vice President and Chief Financial Officer. Justin will provide highlights from the second quarter 2026, a regulatory update and a look forward. Ray will walk through our financial results and guidance. After Justin and Ray's prepared remarks, we will host a question-and-answer session.

With that, I will turn the call over to Justin.

Thanks, Nikki. Good morning, everyone. The second quarter represented another solid quarter of performance for Northwest Natural Holdings, adding to our growing track record of consistent earnings results. Earnings per share for both the quarter and year-to-date surpassed our expectations, reflecting disciplined execution across the company. Our teams are demonstrating operational excellence and delivering healthy financial results while continuing to advance key regulatory initiatives and growth projects that lay the groundwork for continued success for years to come.

I'm pleased to announce that we now expect 2026 EPS to be in the top half of our guidance range of $2.95 to $3.15 per share. This is driven by our strong year-to-date performance and improved visibility into the second half of the year as we have clarity regarding our key regulatory initiatives and continue to manage costs effectively.

With that, let's review our business segments and key regulatory and project updates. Starting in Texas. SiEnergy had another outstanding quarter, highlighted by organic customer growth of over 15%. We currently have over 260,000 future meters in our backlog, which we expect to fuel growth for many years to come.

On the regulatory front, SiEnergy continues to make progress on its ongoing rate case. As a reminder, we filed with the Texas Railroad Commission on May 4. This case reflects the necessary investments we have made to continue serving one of the fastest-growing regions in the country. We continue to constructively work through the rate case, including the factors needed to implement the GRIP mechanism and expect new rates to take effect later this year.

Looking ahead, we remain very optimistic about the growth opportunities in Texas. We continue to expect customer growth of approximately 15% to 20% annually through 2030. Through disciplined infrastructure investment and strong stakeholder partnerships, we are well positioned to support growth and create long-term value for customers and shareholders.

Turning to Northwest Natural Gas. In Oregon, we continue to make steady progress on several important regulatory initiatives. First, we filed a multiparty settlement in our alternative rate mechanism docket with the Public Utility Commission of Oregon. The settlement provides for a $13 million revenue requirement compared to the original ask of $15.6 million. A commission order is expected later this year with new rates expected to be effective on October 31, 2026.

We are also actively engaged in Oregon's ongoing multiyear rate plan rule-making process. Phase 1 of that docket has been completed and focuses on the high-level development of key concepts, including 5-year rate plans, a revenue indexing mechanism during the rate plan and a capital funding mechanism. We have consistently advocated for multiyear ratemaking because we believe it provides the most effective balance between customer affordability and the critical investments needed to maintain a safe system and support growth.

We are encouraged by the critical investments needed to maintain a safe system and support growth. We are encouraged by the progress being made in this docket. We continue to see pathways to implement the Phase 1 framework in a manner that balances the interest of customers, regulators, and our investors. Phase 2 is now underway and is expected to more fully outline the details of the constructs laid out in Phase 1. The overall process is expected to conclude before the end of 2027.

The current schedule has Northwest Natural filing its first multiyear general rate case under the new rules in 2028, with rates becoming effective in 2029. In the interim years, we have several options to ensure timely recovery of our investments, including traditional rate cases.

Turning to Washington. We received the commission's order in our multiyear rate case and are pleased with the outcome. We received over 80% of our requested revenue requirement increase, a capital structure of 50% equity and 50% long-term debt, and a return on equity of 9.5%. The order also preserves the line extension allowance for prospective customers, recognizing the important role of natural gas in the energy system and in supporting customer affordability. New rates were effective on August 1. Overall, I'm very pleased with the progress we've made on the regulatory front at Northwest Natural.

We continue to support growth and provide safe, reliable service to our communities. Through the first half of 2026, Northwest Natural invested more than $165 million in infrastructure to support customer growth, enhance system reliability, and maintain a modern, resilient natural gas network.

Moving to an update on Northwest Natural Water. The business continues to grow and mature. Overall customer growth was 3.4% for the 12 months ended June 30, 2026. While the financial results for the first half of 2026 were modestly below plan, the peak volume months of the year still lie ahead. Across the Water business, we continue to make solid regulatory and strategic progress to support growth over the long term. We currently have 4 active rate case proceedings across Oregon, Texas, and Arizona, all of which are progressing as expected.

In Arizona, we continue advancing formula rates for Foothills, aiming to align recovery with ongoing infrastructure investment. We also continue to progress our consolidation efforts in multiple jurisdictions, consistent with our long-term strategy of creating a scaled, efficient water utility platform that benefits both customers and shareholders. We remain confident in the long-term growth prospects of Northwest Natural Water and the value we're creating.

Finally, let me provide a brief update on the MX3 storage expansion project as we continue to make solid progress there as well. As a reminder, MX3 is a $300 million FERC-regulated gas storage expansion project that will add 4 to 5 Bcf of capacity and is fully contracted with 25-year agreements, 12.5% return on equity and 50% equity capital structure. We recently received our conditional use permit in Columbia County.

Importantly, the County Board of Commissioners unanimously approved the permit, reflecting the strength of the project, its economic benefits to the region, and broad support from the community. As expected, an appeal has been filed with the Land Use Board of Appeals. Our time line already contemplated the potential for additional process and therefore, remains unchanged. We continue to expect Notice to Proceed by the end of 2027, with the project advancing as planned. MX3 remains an attractive opportunity to enhance regional energy reliability and, upon receiving Notice to Proceed, supports increasing our long-term earnings growth target to 5% to 7%.

In conclusion, I am happy to report that all of our businesses are in a strong financial position and poised for future growth.

With that, I'll turn the call over to Ray to review our financials.

Thank you, Justin, and good morning, everyone. The second quarter reflected strong operational and financial execution across the company. Earnings per share was $0.01, flat to the prior year period, but above our expectations.

As a reminder, our gas utility earnings are seasonal, with the majority of revenues and earnings generated in the first and fourth quarters during the winter heating months. Our water utility revenues and earnings are weighted towards the third quarter, when customer demand is highest during the summer months.

Northwest Natural Gas reported EPS of $0.09 compared to $0.12 in the prior year period. Higher margin from rates in Oregon was offset by increased operations and maintenance expense and continued investment in the system, resulting in higher depreciation expense and financing costs.

Looking ahead, we expect stronger performance in the back half of the year as compared to last year, driven in part by the implementation of new rates in Washington and the benefit of the alternative rate mechanism in Oregon beginning October 31.

SiEnergy reported earnings of $0.05 per share compared to $0.03 in the second quarter of 2025. Results were primarily driven by customer growth of over 15% and the benefit of deferring depreciation, interest, and general taxes. SiEnergy also benefited from a full quarter of earnings contribution from Pines, which was acquired on June 2, 2025.

Northwest Natural Water's EPS was $0.05 for the second quarter of 2026 compared to $0.07 in the prior period. Higher operating revenues from organic growth and acquisition were offset by higher O&M as we support platform integration and centralization. Importantly, these initiatives are consistent with our long-term strategy to scale our Water business and position the platform for numerous opportunities that we expect to translate into sustained long-term growth.

Turning to year-to-date results. EPS was $2.33 for 2026 compared to adjusted EPS of $2.28 in 2025. The year-to-date increase in EPS reflected higher margin from new rates for our gas utility in Oregon and higher contributions from SiEnergy. These items are partially offset by higher O&M costs, depreciation, and interest expense. Overall, we are very pleased with the strong start to the year and believe EPS for the full year will be in the top half of our guidance range of $2.95 to $3.15 per share.

At Northwest Natural, new Washington rates have been implemented and parties have filed a settlement for the ARM. We also expect Northwest Natural's O&M to be below original plan, reflecting disciplined execution and a continued focus on cost management. At SiEnergy, we expect the favorable results from the first half of 2026 will continue, and we are making constructive progress with the general rate case. As it relates to SiEnergy and Water, we still expect these 2 businesses to contribute approximately 25% of our EPS this year.

Today, we are also reaffirming our long-term earnings growth target, which remains 4% to 6% through 2030. Following Notice to Proceed on MX3, we expect our long-term earnings growth framework to increase to 5% to 7%, reflecting the substantial earnings and cash flow opportunity associated with that project. We continue to expect Notice to Proceed by the end of 2027, with an in-service date in 2029.

Turning to capital allocation. Our 2026 capital expenditure plan remains in the range of approximately $500 million to $550 million and continues to support investment opportunities across all 3 utility platforms. We expect these investments to be funded through a combination of strong operating cash flow, approximately $150 million of net long-term debt issuance, and roughly $40 million to $50 million of equity issued through our ATM program.

In June, we successfully completed our inaugural $75 million Water bond issuance after receiving an investment-grade A- rating for our Water debt, further reflecting the platform's maturity and strong financial foundation. Over the 5-year planning horizon, capital expenditures for the full company will be funded largely through operating cash flows, along with a balanced mix of long-term debt and equity.

We have approximately $628 million of available liquidity as of quarter end. We continue to maintain strong liquidity and financial flexibility. We currently expect our equity needs through 2030 to be met through disciplined use of 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.

To conclude, we're very encouraged by the momentum we see across the company. The first half of the year was strong. Our regulatory strategy continues to advance, and we're confident in our ability to deliver on our objectives in the back half of 2026 and beyond.

With that, we'll open the call to questions.

[Operator Instructions] Your first question comes from the line of Constantine Lednev with Wells Fargo.

So, Constantine, we can't hear you on the line here. I understand there have been some technical difficulties. We will make sure that Nikki and the team connect with you after the call and get your questions answered.

I see we have no other questions in the queue. So I want to thank you all for joining us this morning. We appreciate your interest in Northwest Natural Holdings.

We're pleased with our first half of 2026 performance and are targeting the top half of our 2026 EPS guidance range for the year. This reflects the confidence we have in the rest of the year and our ability to execute on our growth strategy. As always, please don't hesitate to reach out to Nikki with any further questions. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to Northwest Natural Holding Company's Q1 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Nikki Sparley, Director of Investor Relations. Nikki, please go ahead.

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 ir.northwestnaturalholdings.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 Ray Kaszuba, Senior Vice President and Chief Financial Officer. Justin will provide highlights from the first quarter 2026, a regulatory update and a look forward. Ray will walk through our financial results and guidance. After Justin and Ray's prepared remarks, we will host a question-and-answer session. With that, I will turn the call over to Justin.

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 and putting us on solid footing for the year. As a result, we also 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 Holdings platform and the stability of having 3 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 multiparty 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 3 years, including $20.1 million in the first year beginning August 1, 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 rule-making. As we've 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 October 31, 2026, we've had productive conversations with staff and continue working closely with parties to reach agreement on the docket. Until the multiyear rule making process concludes, we have the ability to recover on 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, C Energy filed a general rate case with the Texas Railroad Commission. The filing consolidates C Energy in 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 43.84 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 7 rate cases. We currently have 4 open rate cases in Oregon, Texas and Arizona. Foothills, our largest water and wastewater utility has made substantial investments over the past 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 proactive and 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 Sea 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 250,000 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 and 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 10,000 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'm 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 time line still contemplates receiving notice to proceed by the end of 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's 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've 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'll turn it over to Ray to walk through the financials.

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 in Northwest Natural and customer growth. This was partially offset by investments in our systems, leading to higher depreciation expense and financing needs. Northwest Natural 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 Waters 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 online 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 & 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 5-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 a strong momentum heading into the balance of 2026 and beyond. With that, we'll open the call to questions.

[Operator Instructions] Your first question comes from the line of Chris Ellinghaus from Siebert Williams.

Justin, I think you quoted 16% organic growth at -- what -- I assume that means there was some acquisition in the quarter because the meters were up considerably more than that?

Thanks for the question, Chris. The -- you're referring to C Energy, I assume.

Yes. .

Yes. On the C Energy growth, there are no real acquisitions reflected in that because it's comparing Q1 of last year to Q1 of this year. So the 16% reflects the energy. .

Okay. Is there -- so I'm sort of detecting some weakness in the Oregon economy that's 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 sort of talk about what you're seeing for economic conditions in Oregon?

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

Okay. And by the way, thanks for the segment update, that's helpful. So your guidance for utility net income growth. I presume part of that is a result of the Cub or the Fair Act, which is pretty restrictive. How do you -- your rate base growth considerably more than that 1% to 3% and customer growth is on the lower side. So it sort of 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 don't get some kind of great multiyear rate plan that sort of keep you on track.

So what are your thoughts about potentially ending up with sort of an end of 5-year period sort of excess catch-up to make that sort of counterintuitive to what the Fair Act is all about. What are your thoughts there?

Yes, Chris, I think you are picking up on what could be driving that delta from the rate base growth to net income growth. Part of it is our current view of what the rate case cadence is between now and now in 2030, and you could be growing rate base, but net income hasn't quite caught up to it yet. So all that's going to depend on where things end up with the Fair Act and where we eventually end up with our rate case cadence and in Oregon.

Of course, there's always a little bit of lag that we have, regulatory lag that we have as well that would come into play. But between those 2 dynamics that's driving that difference. And it is timing in terms of the specific 5-year guidance range through 2030. So I think you're picking up on that correctly.

Okay. I'll just ask you 2 more because I've got a million questions. But one, the rate base increase that you guys quoted for C, if I'm not mistaken, the rate base number in the last rate case, and I might just 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 [ 170, ] whatever that you quoted? .

Chris, we'll have to get back to that question for you, and we'll revert after the call. Going off the top of my head. .

Your next question comes from the line of Alexis Kania from BTIG.

I've got 2 quick questions for you. I think the first 1 is just Justin, if you could kind of maybe dive a little bit more in detail just on kind of the evolution of this kind of the framing of kind of the multiyear rate structure in Oregon, maybe when do you think you might have a little bit more clarity on that just as a precursor to kind of finalizing, I guess, what the rate case plan might be at in that jurisdiction?

And then the second question is just from the perspective of obviously, lots of growth in C Energy and the like, and that's good to see. Just also wondering if -- do you have a sense of any potential opportunities for additional tuck-ins there? Do you feel like you need any there? Just kind of curious maybe what the environment down there looks like?

Great. Thanks for the question, Alex. On the Oregon multiyear plan, we have obviously been engaged there for 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 obviously new to Oregon and they're taking a lot of information in from other states that have successfully implemented this, whether that's Washington or California or others. And there's a lot of parties involved and engaged in that process.

So our expectation at this point is that we see some resolution on that next year. In the meantime, just a reminder, we have filed for this alternative rate mechanism here in 2026, and we are in the middle of that process, which is moving along as expected. And we also have -- if you're familiar with the Fair Act, we do have the ability to file for a general rate case in that interim period as well before the multiyear plans are established. So, in general, I'd say it's 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. And you've seen us make a fair number of acquisitions in water there. And then obviously, SiEnergy, we did this bolt-on with clients gas. So we continue to look at that. But I will say the organic growth opportunity is so strong that we are very focused on that, investing in our systems. If you look at the SiEnergy rate case as well as the Blue Topas rate case, which is our water utility in Texas, you'll see there's a fair amount of growth embedded in that as well as mechanisms that we believe are going to drive or reduce regulatory lag going forward. So for the SiEnergy filing, we're actually filing for the factors that will allow us to file for GRIP in the future, which is a nice mechanism for reducing lag.

Your next question comes from Selman Akyol from Stifel.

Just following up on that last comment you made about putting the pieces in place for filing for group. Can you just talk about what the time frame is for that?

So the time frame for the rate case itself is approximately 6 months. And so we expect that we'll have the rate case resolved in new rates in effect by later this year, sometime in and then the way the GRIP process works, Selman is -- in this rate case, we get the factors to find in terms of ROE cap structure, et cetera. we can then in future years, file for rate adjustments under the GRIP mechanism. And we can do that for up to 5 years before we would be required to come in for a new general rate case. .

You've seen that many other gas utilities in Texas have executed on that and has been fairly successful in SiEnergy 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 that you would need to file for GRIP. And so we're taking a slightly different tact and want to make sure that we do everything we can to minimize the regulatory lag going forward for that business.

Got it. And then just thinking about -- or just staying with SiEnergy, you previously talked about sort of seeing opportunities for water there as you can grow in conjunction with the SiEnergy. I'm wondering, are you actually executing on that and then seeing where you're actually installing both water and gas as you go into these new communities?

Yes. That's a great question. One of the reasons that I highlighted the 10,000 connections we now have in backlog for water in Texas in my remarks. About 6 months ago, we combined our business development forces down in Texas, really to leverage the SiEnergy platform who have a really strong relationship with developers and homebuilders. So for the first time, we are starting to see communities where we could install both gas water and potentially wastewater systems. And specifically on the water side, our utility down there is relatively small, but has the potential to grow significantly because of how we're approaching this. And of the 10,000 in backlog, about 25% of those are already beginning development or construction on the water and waste water portion of the project. So -- it's exciting to see that momentum in the short period of time, and we're highly confident that it's the right strategy to pursue and just with the overall amount of growth that we see down in Texas on the residential side but also on the commercial and industrial side, we're excited about the opportunity.

Got it. And then just the last 1 for me, just thinking about water. Are you guys continuing to see a lot of acquisition opportunities in 2026?

Yes. We continue to look for acquisitions, but we've seen the market slow down a bit, and I think there's some data out there that reflects that, where we are at with our water strategy is we're in a really good position because we don't need acquisitions to grow. So the organic growth of 2% to 3% on customer growth is -- excludes any potential future acquisitions, and we are not relying on that for growth. We now have opportunities to invest in the platform that we've built, and there's a long runway of investments there. And really optimizing the platform, both operationally and from a regulatory standpoint to try to minimize that gap between earned and allowed ROEs across our platform, which is why you're seeing multiple rate cases being filed each year in the water space.

And then in addition, we're very focused on organic growth. So I mentioned the greenfield in Texas. And on my prepared remarks, I mentioned the CCN expansion in Arizona. We have other opportunities like that to really just expand our existing footprint without going out and paying a premium for acquisitions.

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

Thank you, Lucas, and thanks, everyone, for joining this morning. We appreciate the questions and your interest in Northwest Natural Holdings. 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. And as always, don't hesitate to reach out to Nikki with any further questions. Thanks, everyone.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and welcome to the Northwest Natural Holding Company Q4 2025 Earnings Call. My name is Harry, and I'll be your operator. [Operator Instructions] I will now hand over to Nikki Sparley, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to our fourth quarter and full year 2025 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 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-K later today. With us today are Justin Palfreyman, President and Chief Executive Officer; and Ray Kaszuba, Senior Vice President and Chief Financial Officer.

Justin will provide highlights from 2025 and a look forward, and Ray will walk through our financial results and guidance. After Justin and Ray's prepared remarks, we will host a question-and-answer session. With that, I will turn the call over to Justin.

Thanks, Nikki. Good morning, and welcome, everyone. We are excited to share our results for the year and our expectations for the future. Northwest Natural Holdings began a new chapter in 2025. We delivered record adjusted earnings per share at the top of our guidance range, deployed a record amount of capital to support our customers and reported our strongest organic customer growth in nearly 2 decades.

Those results aren't an accident. They were driven by deliberate strategic decisions we have made as a company reflect our management team's focus on execution and foreshadow the strength of our platform going forward. Over the last few years, we have taken steps to diversify into the water utility business expand into multiple jurisdictions and add Texas gas utilities to further enhance our long-term growth prospects.

What began as a single utility in the Pacific Northwest has evolved into 3 thriving businesses serving customers across 6 states. Our 2025 performance is a result of these strategic decisions. We've set the stage for growth while fulfilling our mission of delivering safe, reliable and affordable service to our growing customer base. And we're still in the early chapters of our success story.

As you know, we are in an age of tremendous energy demand. Natural gas plays a critical role in meeting that need, and we're uniquely positioned to address it. That's why we are excited to announce our new MX3 storage expansion project in the Pacific Northwest, a project that will enhance regional reliability and capacity and one that has the potential to drive our long-term earnings growth target to 5% to 7% once we receive notice to proceed.

As our story progresses, we remain focused on disciplined execution and delivering consistent, growing earnings and returns for our shareholders. The momentum we've built positions us for even greater success in the future. Moving to our Northwest Natural gas utility, which now more than ever, plays a critical role in energy affordability and reliability across Oregon and Washington.

As we noted on our last call, we successfully settled our Oregon rate case in 2025 with new rates effective October 31. In Washington, I'm pleased to report that we've been working collaboratively and productively with parties and have reached settlement in principle, resolving the revenue requirement in the case. We expect to file the multiparty settlement in the coming month.

Both cases set Northwest Natural up to recover significant safety and reliability investments in 2026 with a focus on maintaining customer affordability. In fact, on average, Northwest Natural residential customers are paying about the same today for their natural gas service as they did 20 years ago.

We are also diligently working on dockets with the Oregon Public Utility Commission to complete rule-making for multiyear rate cases. We believe moving to multiyear rate cases will ultimately provide greater clarity and certainty for both customers and utilities. While the rule-making process is taking shape, we filed an alternative rate mechanism to recover certain capital investments made in the interim period.

The proposal results in a modest 1.5% increase to customer rates with an effective date of October 31, 2026. Stepping back, we feel very good about our positioning over the next several years. Historically, our earnings trajectory relied on a single large organ rate case every few years, which created uneven growth and limited predictability for customers and shareholders.

The transition to multiyear rate cases in both Oregon and Washington, combined with the growing earnings profile of our Sea Energy and Water businesses should create a more balanced and linear consolidated earnings profile year-to-year while maintaining rate affordability and predictability.

As I mentioned, we are excited to announce that Northwest Natural intends to expand its gas storage facility at Mist. This project, which we call MX3, and is the third major gas storage expansion we've undertaken at Mist since its initial construction in 1989. MX3 will add 4 to 5 Bcf of storage capacity and serve customers across the region.

Northwest Natural's gas system is more essential to the region than ever, especially given the heightened focus on reliability and affordability. And our system delivers about 45% more energy than any other organ utility, gas or electric over the course of a year. Today, the region's energy system is struggling to reliably meet demand during peak events in the Pacific Northwest Electric Grid faces a potential 9 gigawatt capacity shortfall by 2030.

That's 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 challenges. Our customers for the MX3 storage expansion see this clearly.

They consist of large investment-grade regional utilities and midstream providers. Once we receive notice to proceed, these customers have agreed to 25-year contracts underscoring the demand for long-term affordable energy solutions. We are in the development phase of the project with signed customer agreements, the Energy Facility Siting Council permit secured FERC approval received and engineering, procurement and construction or EPC providers identified.

These new storage services will be regulated by FERC and are expected to provide stable returns with customer agreements that specify a fixed 12.5% return on equity and a 50% equity layer. Our Northwest Natural team has deep experience with the geography of the Mist storage field and its depleted gas reservoirs.

We expect to work with major EPC contractors who know our operations well. We are working to obtain the remaining permits and early stage engineering and design work is already authorized and underway. The project is estimated to cost approximately $300 million and we expect the facility to be in service by the end of 2029.

I am very excited about this project and the value it provides to the region. MX3 is not included in our long-term guidance today, which we are reaffirming at 4% to 6%. However, we do expect the project to have a meaningful 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 from 4% to 6% to 5% to 7%.

Another important growth engine for Northwest Natural Holdings is Sea Energy, our Texas Gas Utility. We closed the SIEnergy acquisition in January 2025. And in June, we supplemented our Texas expansion with the acquisition of Pines. Both utilities have been successfully integrated into our business. Texas is 1 of the most exciting growth drivers in our portfolio.

SIEnergy provided 18% organic customer growth in 2025 and contribute 11% of our consolidated adjusted earnings per share. At the same time, SIEnergy posted a sizable increase to its customer backlog nearing 250,000 future meters.

That's more than a 30% increase in customer backlog in a year, a testament to C Energy's strong relationships with developers and the expected growth in the Texas housing market for years to come. I'm very pleased with SIEnergy's performance in our first year of ownership. We expect our LDC in Texas to continue to scale rapidly and produce 15% to 20% customer growth each year through 2030.

For 2026, we expect SIEnergy to generate between 10% to 15% of our consolidated earnings per share. We are strongly considering filing a general rate case for SIEnergy sometime this year. We will carefully weigh several factors, including customer affordability in our decision.

SIEnergy has been supported by exceptionally strong customer growth, and today, their rates are among the lowest of our Texas LDC peers. In 2025, our water and wastewater utility platform achieved a scale that allowed us to drive business efficiencies through standardized processes and centralization and is well positioned for continued growth.

The Water segment outperformed our expectations, contributing $0.35 per share or 12% of our consolidated adjusted earnings per share in 2025. Last year, we completed 7 rate cases for our water and wastewater utilities and expect to process another 5 in 2026. We continue to follow a steady regulatory cadence to recover key safety and infrastructure investments while maintaining affordable and predictable customer rates.

The water business has a clear runway for growth, supported by organic customer additions, significant greenfield opportunities and a healthy acquisition pipeline. Looking ahead, we expect water to produce between 2% to 3% organic customer growth through 2030 and provide 10% to 15% of consolidated earnings per share in 2026.

We expect both the energy and water to outpace the overall consolidated growth rates of the company in the next 5 years, further diversifying our customer base and footprint. Confidence in our outlook is driven by strong organic opportunities across all 3 of our utilities, including 2% to 3% consolidated organic customer growth and rate base growth of 6% to 8%.

These fundamentals are supported by a record $2.6 billion to $2.9 billion of planned capital expenditures through 2030 and underpinned by healthy customer growth and critical safety and reliability spend. Importantly, we believe we can achieve our growth targets while keeping our services affordable for customers and maintaining a strong balance sheet with solid investment-grade ratings.

For 2026 specifically, we expect another record year for both capital investment and earnings. At the same time, we are focused on returning capital to shareholders. 2025 was the 70th year in a row of dividend growth for Northwest Natural Holdings. We are 1 of only 3 companies on the New York Stock Exchange with this impressive record.

In 2025, our dividend payout ratio moderated supported by strong earnings growth across the business. As earnings continue to grow, we expect to deliver steady dividend increases, outpacing our trend in recent years as we target a long-term dividend payout ratio of 55% to 65%.

And in summary, we have built a powerful platform, a strong set of businesses positioned for long-term growth. This marks the start of an important new chapter, and I have never been more confident in our strategy, our team and our future.

With that, I will pass it off to Ray for a more detailed update on our financial performance.

Thank you, Justin, and good morning, everyone. I will start by echoing Justin's sentiment about our strong performance in 2025. This was a year defined by disciplined execution as we delivered record adjusted earnings per share and are creating a strong platform position for long-term growth.

For the full year 2025, we reported record adjusted earnings per share of $2.93 compared to $2.33 per share for 2024. Earnings growth was fueled by new rates in Oregon healthy rate base growth across the business and continued strong organic customer growth.

For our Northwest Natural Gas Utility segment, adjusted earnings per share improved $0.45, primarily reflecting new rates in Oregon partially offset by higher operations and maintenance and depreciation expenses. SIEnergy contributed $0.33 per share for 2025. In our first year of ownership, margin and net income was strong, driving results above our expectations of $0.25 to $0.30 per share.

Our Water segment earnings per share increased $0.21 and contributed $0.35 per share to 2025 results, which was also above our expectation of $0.25 to $0.30 per share. The key drivers were new rates at our largest water and wastewater utility in Arizona and additional revenues from an acquisition late in 2024.

Finally, the adjusted net loss of our Other segment increased $0.39 per share compared to the same period last year, primarily due to higher interest expense at the holding company. For 2025, we generated approximately $270 million in cash provided by operating activities, about 35% above 2024.

We invested a record $467 million in our systems related to safety, reliability and technology. Roughly 75% of those capital expenditures were for Northwest Natural gas, we had about 15% for SIEnergy and 10% deployed for water. We invested nearly $340 million for acquisitions.

Cash provided by financing activities was $533 million, including $47 million of equity through our ATM program which was less than we originally expected. On December 31, 2025, we had liquidity of approximately $590 million with significant availability on our lines of credit and cash on hand.

Turning to our 2026 guidance. We are initiating 2026 earnings per share guidance of $2.95 to $3.15. Together, we expect SIEnergy and North West Natural Water to contribute approximately 25% of consolidated earnings this year. As Justin mentioned, we are reaffirming our long-term earnings per share growth rate of 4% to 6% compounded annually from 2025, adjusted earnings per share through 2030.

We are seeing the benefits of our strategy resulting in a more consistent linear year-over-year earnings trajectory. Our long-term growth target is supported by multiple durable drivers, including healthy consolidated rate base growth of 6% to 8% and including significant investment at Northwest Natural Gas and substantial customer growth from SIEnergy of 15% to 20% and strong 2% to 3% organic customer growth at Northwest Natural Water.

Resulting in a robust consolidated organic customer growth rate of 2% to 3%. Our guidance is grounded in projects we have clear line of sight into. For 2026, we anticipate consolidated capital expenditures of approximately $500 million to $550 million in 2026. Our 5-year CapEx plan has between $2.6 billion and $2.9 billion in investment through 2030. We with about 65% related to Northwest Natural Gas Company, approximately 25% related to Sea Energy and the remaining 10% related to Northwest Natural Water.

As Justin mentioned, we are not including the impact of MX3 gas storage expansion project in our guidance today. Including MX3, our expected long-term EPS growth rate is projected to increase to 5% to 7%. Once approved, the project is expected to cost approximately $300 million. MX3is expected to be earnings accretive and credit positive, improving cash flow quality through long duration contracted revenue streams.

Related to our financing, our balance sheet and funding strategies support our growth. We are committed to maintaining strong investment-grade credit ratings across our rated businesses long term. For 2026, we expect to support our CapEx program through strong cash from operations, incremental net long-term debt of approximately $150 million after considering modest maturities of $160 million and issuing equity off our ATM in the range of $40 million to $50 million.

Over the 5-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.

We also remain committed to returning capital to shareholders. With continued earnings growth, we expect dividend growth to be at a higher pace than shareholders have seen recently, while moderating our payout ratio to 55% to 65% over the next several years.

With record adjusted earnings in 2025 and multiple sustainable growth drivers expected to result in a strong 2026 and beyond, we are excited about the future.

With that, we'll open up the line for questions.

[Operator Instructions] Our first question will be from the line of Chris Ellinghaus with Siebert Williams Shank.

Congratulations on a great year. Given what you've said about potentially raising the guidance, the growth range, where did you guys see yourselves within the existing range that missed moves the needle that much.

So thanks for the question, Chris. This is Justin. Without MX3, we are very comfortable with our 4% to 6% long-term EPS growth guidance with the project once that achieves notice to proceed, we expect that we will increase that to the 5% to 7% that we just described. And we're very comfortable with our current range with everything else that we've got in our plan.

Okay. What is -- what do you -- when do you expect the notice to proceed? And what is the any hangups that might delay that?

Yes. So we expect notice to proceed by the end of next year. And we have a lot of milestones that we've achieved with this project already, including our Oregon permit, the Energy Facility Siting Council permit -- we've got that completed. We have FERC approval in place.

We've got our customer agreements executed and we are finalizing our EPC contracts. So that's one item that we still need to finalize and then we are also finalizing some local permits before we achieve notice to proceed.

Okay. So seems to be maybe ahead of the curve. Certainly, what I was kind of expecting on a pro forma basis. how much ahead do you see it relative to what your expectations were? And are you at a level at this point where maybe the '26 case is not as critical.

So we've been really pleased with the growth that we've seen at SIEnergy despite a slowdown in the housing market in Texas. We had incredible growth this year. We also had record additions to our backlog, which bodes well for the long-term future growth at SIEnergy I would say we're really pleased with what we're seeing. It's probably exceeded our expectations.

However, we have not gone in for a rate case yet, and there's still some remaining items that we want to see on an execution standpoint. So we are contemplating a rate case this year and studying that heavily right now.

But I can say that overall, the growth has been strong. It's been a few years since they've been in for a rate case, and there are certain elements of the rate case that we are evaluating that could be more beneficial down the road as well, including using the GRIP mechanism in Texas.

If I recall correctly, Texas pass legislation that's constructive -- would that bypass grip? Or would you stick with that sort of older mechanism?

We're evaluating that now, Chris, but I would expect that when we do go in for a rate case, that we would look at the GRIP mechanism, the HB-4384, which I think you're referring to has been helpful from an earnings perspective, and that is reflected a little bit in our results even in 2025.

But I would expect that because of the way the mechanism works for GRIP, that's likely what we would be looking at in a future rate case.

Okay. So given the mechanism that you filed for in Oregon, your guidance suggests, I guess, it's kind of silly to look at growth versus 2025. But your guidance suggests considerably lower growth, right? So are you anticipating receipt of that mechanism within the guidance?

Yes. We are expecting receipt of that the rate mechanism here in Oregon as part of that guidance. It is a relatively modest increase to rates about 1.5 and that is effectively just to recover on some capital investments that we are making in this interim period while we're working through the multiyear rate planning and so it's actually, we think, beneficial to have this modest incremental increase in the interim so that we avoid a scenario in the future where you have a larger rate shock for customers.

Sure. One last question. What's the next step for water? You've always had a robust M&A pipeline. Is it expanding regionally? Or is it just continuing to do tuck-ins in your existing service areas? What are your thoughts on what water is up to?

Yes. We're always looking opportunistically at acquisition opportunities that really add long-term shareholder value and would drive more incremental growth -- that being said, we are really happy with the platform that we have built. We are in 6 states now with our water business, and we have some great service stories that have a lot of organic growth embedded in them.

So we're very focused on executing, both investing in the business, ensuring timely recovery on those investments. and then also looking at expansion. So we're expanding our CCNs our regulated service areas in a number of our jurisdictions across the water business. And we are focused on greenfield growth as well.

So in Texas, in particular, where we've seen incredible growth with our SIEnergy business, our water platform is a lot smaller in Texas. So we're trying to find ways to combine our business development efforts down there to achieve greater greenfield growth in the future. And then we always look at tuck-in acquisitions.

It's probably a little less of a focus for us right now, given some of the other opportunities that we see to drive shareholder value in the near term and some of the growth that we're excited about in our existing service territories.

Okay. One more short question. So mortgage rates have come down a decent amount over the last 12 months. Have you seen some alleviation of the headwinds against house new customers, housing development expansion in Texas over the course of 12 months.

I would say that we saw a slowdown roughly around the middle of 2025 in new housing starts and completions -- it does seem that the more recent moderation in interest rates and perhaps other factors has had a little bit of uptick back the other way, which we think is positive. .

But it's pretty early to tell here in 2026, where that's going. Certainly, a reduction in mortgage rates is helpful. The Texas economy more generally continues to benefit from a lot of a lot of growth in terms of industrial and commercial activity in the state companies relocating there, announcing new manufacturing facilities, and that drives residential growth as well.

So we are very optimistic long term about the growth in the Texas market. And I think any reduction in interest rates is just going to be a tailwind around that.

Next question will be from the line of Alex Kania with BTIG.

I have a follow-up question on MX3 or actually 2 questions on mix. First is just for the perspective of thinking about the earnings profile of society with that project, it sounds like it's fork-regulated project.

So would you be able to get AFDC over the course of construction. And the second question related to that is just funding plan, kind of whenever the notice to proceed happens, you add the roughly $300 million SP541324311 Would you still be able to fund any incremental equity needs through the ATM in that instance? Or would you need to think of alternatives there?

Yes. Alex. So first on the funding plan. In terms of the profile, because we are still working to do time and crossing teas with our EPC contractors. We're not providing the actual cash flow profile at this point.

But you are correct that we believe we would be able to fund any equity through normal issuances under our ATM. And then to your first question, yes, we would also receive AFUDC during the construction period.

Great. And just so I heard the previous question right. So the idea of the target would be noticed to proceed would be the -- you're targeting by the end of next year, end of 2017, right?

Correct.

[Operator Instructions] The next question will be from the line of Selman Akyol with Stifel.

Just a real quick one for me. So very pleased to see the storage expansion. But I'm just kind of curious, maybe you can talk about other opportunities that you may be seeing like that. And one in particular, just thinking about -- are you having any conversations anyone approaching you on sort of behind-the-meter opportunities.

Yes. Thanks, Selman. The opportunities have a miss, are long term in nature and fairly exciting in that we do have other reservoirs that can be developed for additional gas storage beyond 3 they all have their own characteristics and cost profile and whatnot with them.

But it is something that we keep an eye on. We do believe there is strong customer demand for this. So 3, all of the capacity is spoken for with our existing customers there. And just what you're seeing in the broader energy constraints in the Pacific Northwest region with 1 major interstate pipe serving the region.

Gas storage is uniquely valuable here. So I do think there will be opportunities over the long term. It's very premature to comment on any specifics there. In terms of behind-the-meter opportunities, it is something we've been approached by numerous customers looking for access to really consistent, reliable energy in order to site data centers and other types of facilities here.

We do evaluate that on a case-by-case basis. There is a storage potential use case there, but there's nothing that we have today to announce on that front.

That will conclude our Q&A. And I just like to hand the call Justin Palfreyman for closing remarks.

Thank you. So thanks, everybody, for joining us this morning. We really appreciate the questions and your interest in Northwest Natural Holdings. We're really proud of what we achieved in 2025 and even more excited about the momentum we're carrying into 2026. As you've heard today, we're entering this next chapter with a focus on our strategy, execution and continuing to grow our utility business. .

Please don't hesitate to reach out to Nikki with any further questions, and thank you for participating today.

This concludes the Northwest Natural Holding Company Q4 2025 Earnings Call. Thank you all for joining. You may now disconnect your lines.

Good morning, and thank you all for attending the Northwest Natural Holdings Company's Third Quarter 2025 Earnings Call. My name is [ Brika ] and I will be your moderator for today. [Operator Instructions].

I would now like to pass the conference over to your host, Nikki Sparley, Head of Investor Relations. Thank you. You may proceed, Nikki.

Thank you. Good morning, and welcome to our third quarter 2025 earnings call. A presentation for today's call is available on our Investor Relations website at irnorthwestnaturalholdings.com. And following this call, a recording will also be available on our website.

Turning to Slide 2. 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. 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.

Moving to Slide 3. with us today are Justin Palfreyman, President and Chief Executive Officer; and Raymond Kaszuba, Senior Vice President and Chief Financial Officer. Justin will provide an update on each of our businesses, and Ray will walk through our financial results, liquidity and financing and guidance. After Justin and Ray's prepared remarks, they will be available, along with other members of our executive team to answer your questions.

With that, I will turn it over to Justin on Slide 4.

Thanks, Nikki. Good morning, and welcome, everyone. I am very proud of the effort and dedication from our team so far this year, resulting in significant progress toward our strategic goals while fulfilling our mission of delivering safe, reliable and affordable service to our nearly 1 million customers. We continue to expand our customer base, invest in our systems, drive operational excellence through cost efficiency and discipline and achieve constructive regulatory outcomes. We are well positioned to deliver on our commitments to shareholders and create value in the future.

Starting this morning with financial results, Northwest Natural Holdings continued its momentum from the first half of the year and delivered a strong third quarter. Our results reinforce my confidence in executing against our 2025 plan. That's why we are expecting full year 2025 results to be above the midpoint of our adjusted earnings range of $2.75 per share to $2.95 per share. Through September 30, we invested over $330 million in our gas and water systems to support customer growth, system reliability and long-term infrastructure resilience. Our combined utility customer growth rate was 10.9% for the 12 months ended September 30. This substantial growth was largely driven by our gas utility acquisitions in Texas.

Northwest Natural Water also contributed incremental meter growth, posting a 4.1% increase. With our robust long-term capital plan and customer growth, we are reaffirming our long-term earnings growth rate of 4% to 6%. We remain highly confident in our ability to execute. I am pleased to report that in the fourth quarter, the Board approved a dividend increase, making this the 70th consecutive year of annual dividend increases. Northwest Natural Holdings is 1 of only 3 companies on the New York Stock Exchange with this outstanding record. While our growth and financial results are strong, we are executing on our strategic priorities for 2025 and laying the foundation for success in the coming years.

Moving to Slide 5. Turning first to our Northwest Natural gas utility and a few updates on the regulatory front. I'm happy to report Northwest Natural and parties worked collaboratively and received a constructive order from the Oregon Public Utility Commission approving our all-party settlement. Under the order, Northwest Natural's revenue requirement increased $20.7 million. That consisted of a 50-50 capital structure and ROE of 9.5% and and a cost of capital of approximately 7.12%. In addition, rate base increased $180 million since the last case for a total of $2.3 billion. New rates went into effect on October 31.

At the end of August, we filed our first Washington general rate case since 2021. As context, -- about 10% of our Northwest Natural gas utility revenue comes from our Washington customer base. The 3-year rate case request has new rates beginning August 1, 2026. The request to be spread over 3 years included a total revenue requirement increase of $42.4 million over current rates. The increase is based on a capital structure of 51% equity, 48% long-term debt and 1% short-term debt, a return on equity of 10.2% by year 2 of the filing and the cost of capital of approximately 7.6% by year 2.

This request includes an increase in average rate base of $175 million since the last rate case. We carefully consider this rate case filing and the effect on customers' bills. In parallel, our team continues to identify operational efficiencies and cost-saving opportunities. while remaining focused on delivering safe, reliable service. In October, we received approval for our annual purchase gas adjustments in both Oregon and Washington. Taking into account the Oregon general rate case increase and gas costs, on average, Northwest Natural residential customers are paying about the same today for their natural gas service as they did 20 years ago.

While a customer's monthly bill has not changed much over the last 2 decades, the value of the gas system in the Pacific Northwest has increased exponentially. Let me give you an example. During our last peak event on the coldest winter hour, Northwest Natural system delivered 2.5x more energy from the largest electric utility in the region. Said another way, our gas system provided the equivalent of 12 gigawatt hours of electricity, which is comparable to about 11 nuclear power units operating at full capacity. At the same time, natural gas use in our customers' homes and businesses accounts for just 6% of Oregon's annual greenhouse gas emissions. Now that's an efficient system.

During that event, our system performed well. Our Mist gas storage facility delivered a new record volume and provided essential support for the entire region's energy system. These facts underscore the unmatched reliability, scalability and efficiency of our gas system, especially during critical peak events. As demand continues to grow, our investments in long-duration assets like our Mist storage facility position us to meet regional energy needs.

Turning to our SiEnergy gas utility in Texas. SiEnergy continues to provide strong customer growth and is hitting its financial targets. Perhaps most importantly, SiEnergy posted a sizable increase to its customer backlog and now has signed contracts representing over 240,000 future meters, including the Pines backlog, that's nearly a 35% increase in a year. a strong signal that developers increasingly want to work with SiEnergy and expect to build Texas housing for years to come.

Turning to regulatory updates. We are pleased with Texas House Bill 4384, which became law in June of 2025. This is a highly constructive piece of legislation for SiEnergy, and we expect it to be particularly beneficial after our first rate case. The bill enables real-time recovery of distribution investments, essentially eliminating lag, further streamlining the regulatory process and enhancing earned ROEs. This mechanism strengthens our ability to invest efficiently in the infrastructure buildout needed in Texas.

SiEnergy currently accounts for approximately 10% of our business. we anticipate it will be an increasing portion of our business mix moving forward and are very supportive of further investment in Texas.

Turning now to Northwest Natural Water. Our objective from the very beginning of our water strategy was to purchase anchor utilities in high-growth regions and then to smaller utilities and grow organically around that central utility. We continue to see the benefit of this strategy playing out. Over the last 12 months, our water and wastewater utility customer base grew quite rapidly at a 4.1% clip, including 3 small acquisitions. and organic customer growth on its own was 2.4%. Our water CapEx plan for 2025 continues to be robust as our utilities replace end-of-life infrastructure, improve our wastewater treatment facilities and support clean water and continued growth in our communities.

To recover our water investments, in 2025, we completed 7 rate cases and utilities in Idaho, Washington and Oregon. On average, we received about 67% of our requested revenue increases, a constructive outcome that reflects the value of upgrades to these systems and our regulatory approach. Looking ahead to 2026, we will continue to execute on rate cases to support essential investments in these utilities. Another recent success was the approval of the Texas Public Utility Commission of our purchase of in-line utilities in Houston, Texas. This is our second fair market value acquisition under the Texas rules, and I'm pleased with how our team worked with regulators to get this across the finish line.

We expect to close on the 1,500 connection water and wastewater utility by year-end. Beyond the regulatory progress, we're expanding our water playbook to further develop our footprint organically in Texas. To do that, we're leveraging SiEnergy's approach and relationships partnering with developers and homebuilders in the region and establishing a strong reputation for building out new infrastructure reliably and on time. Our Texas business development team is now offering developers in Houston water and wastewater services. We are already seeing strong momentum here. So far, we have signed multiple contracts for 3,200 future water and wastewater connections and the pipeline of opportunities is growing. We are just in the opening innings of this opportunity, and we'll continue to leverage strong existing relationships with developers and homebuilders to increase the scale of our operations at both SiEnergy and our water utilities in Texas.

Our Renewables business also continues to deliver steady operational performance and consistent financial results, supported by disciplined execution and long-term contracts. While we are taking a cautious approach to future project investments in this space, we are pleased with the projects we have operating today and the steady earnings and cash flows those assets are generating. In conclusion, I am happy to report that all of our businesses are in a strong financial position and poised for future growth.

With that, let me turn it over to Ray to cover the financials in more detail.

Thank you, Justin, and good morning, everyone. Turning to Slide 6. As Justin mentioned, third quarter results continued our momentum from the strong first half of the year. This performance keeps us firmly on track with our expectation to be above the midpoint of our guidance range for 2025. As a reminder, our gas utility earnings are seasonal with the majority of revenues and earnings generated in the first and fourth quarters during the winter heating months. We reported a loss of $0.73 per share for the third quarter of 2025, relatively unchanged from the loss of $0.71 per share for the same period in 2024. For our Northwest Natural Gas segment, earnings per share improved slightly, largely in line with last year.

SiEnergy provided an incremental $0.04 of earnings per share for the third quarter of 2025 compared to the same period last year. In our first year after the acquisition, margin and net income are trending well and are aligned with our expectations. Our Water segment earnings per share increased $0.04. The key drivers were new rates at our largest water and wastewater utility in Arizona and additional revenues from the ICH utilities after the acquisition in September 2024.

Finally, the adjusted net loss of our Other segment increased $0.14 per share compared to the same period last year, primarily due to higher interest expense at the holding company. On Slide 7, we have outlined our year-to-date results. Adjusted earnings per share were $1.52 to date in 2025 compared to $0.88 for the same period of 2024. The year-to-date increase in earnings per share reflected strong earnings across all business segments, including new rates for our gas utility in Oregon, contributions from SiEnergy, higher net income from our water utilities and earnings contribution from renewables, which is another. These items are partially offset by higher O&M costs, depreciation and interest expense.

Turning to our growth outlook and guidance on Slide 8. We reaffirmed annual 2025 adjusted earnings guidance today in the range of $2.75 per share to $2.95 per share. Given the strong results from the first 9 months of 2025, we expect to be above the midpoint for the full year. We continue to expect SiEnergy and Northwest Natural Water to each provide approximately $0.25 to $0.30 of adjusted earnings per share this year. For 2025, we continue to project 2% to 2.5% consolidated organic customer growth across our utilities.

Turning to our capital expenditures. For the year, consolidated capital expenditures are still expected to be in the range of $450 million to $500 million, anchored by the significant projects at our Northwest Natural gas utility related to modernizing end-of-life meters, system reinforcement and gas storage upgrades. Longer term, we continue to expect an earnings per share growth rate of 4% to 6% compounded annually from the midpoint of our 2025 adjusted EPS guidance range.

Moving to Slide 9. Regarding capital structure. Our objective remains to keep our balance sheet strong with ample liquidity. On September 30, 2025, we have liquidity of approximately $437 million with significant availability on our gas utility line of credit and cash on hand. Year-to-date, we have issued $48 million of equity through our ATM program. At this point, we have satisfied our 2025 ATM issuance needs and issued less than we originally expected.

Related to debt, we have no material debt maturities in 2025. In August, we successfully issued $185 million of inaugural investment-grade bond at SiEnergy, refinancing the existing debt of approximately $150 million. In summary, we are pleased with our performance so far in 2025 and remain confident in achieving our financial targets for the full year and beyond.

Thanks for joining us this morning. With that, we will open it up for questions.

[Operator Instructions]

We will now begin the question-and-answer session. [Operator Instructions] The first question we have comes from [ Alex Kania ] with BTIG.

Maybe the first question would just be on a little bit more color just on the lower equity requirement for '25. Is this a function of just performance year-to-date, kind of better cash flow generation? And is there any potential read through kind of on an ongoing basis to fund CapEx?

Alex. I appreciate the question. I think you've got it. We start the year off. We look at our plans from an overall capital structure perspective, debt issuance, earnings, cash flow, as the year goes, we reassess that. That's what you're seeing here, where we are now over or complete with our ATM program for the full year, and we wanted to communicate that.

Great. And maybe just kind of some additional follow-up just on where the company is seeing additional tuck-in opportunities, I guess, particularly in Texas around the water and gas lines of business here. Is there on top of the organic growth that you're seeing as well? Just is there a fairly wide kind of wide range of other kind of opportunities to tuck in relative to maybe -- and kind of how would you compare that relative to the organic growth matter?

Yes. Thanks for that question, Alex. This is Justin. So the tuck-in opportunities for us across our water business they constantly exist, but we have built up a platform now that gives us the opportunity to continue to build and expand through organic growth, and we are prioritizing that. We will continue to look at opportunities on an opportunistic basis as they arise. And as you probably know, the water segment is very, very fragmented. There's a lot of small systems out there. But where we're seeing most of our growth right now is organically, and it's in areas like Texas, Arizona and Idaho, where there's strong housing growth.

[Operator Instructions]

And your next question comes from Selman Akyol with Stifel.

Tyler on for Selman. With the change in the rate case timing with sort of 1 behind you now in Oregon, does it seem as though the commission has been more or less receptive to certain items in the request versus the multiyear rate cases?

Yes. Thanks for your question, Tyler. So we are -- the commission has just opened up a docket on multiyear planning in Oregon. As you know, something that's been in place for a while now in Washington. And again, as part of legislation that passed earlier this year, the commission is looking at implementing multiyear plans. We'll be engaged with them throughout that process, which will be a rule making process that occurs next year. But right now, with new rates in effect here in Oregon, we think we're well positioned.

One is there -- is there any change in the status of the -- like the hydrogen pilot projects given attitude with the administration has anything been kind of sidelined for the time being on blending or otherwise? .

Yes. So we have -- as you know, we've done hydrogen blending tests over the last few years at our facilities in Sherwood and are very comfortable with the technical capabilities there. We also had a hydrogen pilot at 1 of our facilities where we're testing new methane pyrolysis technology. And that pilot is largely complete as well. There are broader hydrogen production projects that you've probably heard of the hydrogen hub projects across the country. that were supported under the Biden administration, the latest news there, and we are not directly involved in those projects, but the latest news there is that funding has been reallocated away from those projects. So I think those are up in the air.

But at some point in the future, if there is a clean hydrogen available that's affordable and can compete with other forms of renewable fuels on an affordability basis. we would be in a position to blend that in our systems.

Thank you, I would like to conclude the question-and-answer session here and hand it back to Justin Palfreyman for final closing comments. .

Great. Thank you. Appreciate everybody's interest in participating in this call this morning and appreciate the questions and wishing everyone a safe rest of the week. Thank you.

Thank you all for joining. I can confirm that does conclude the Northwest Natural Holdings Company's Third Quarter 2025 Earnings Call. Thank you all for your participation. You may now disconnect, and please enjoy the rest of your day.