NORTHWEST NATURAL GAS CO (Form: 10-Q, Received: 08/06/2019 15:09:22)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to____________

Commission file number

1-38681

Commission file number

1-15973

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL GAS COMPANY

(Exact name of registrant as specified in its charter)

Oregon

82-4710680

Oregon

93-0256722

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

220 N.W. Second Avenue

Portland

Oregon

97209

Portland

Oregon

97209

(Address of principal executive offices)

(Zip Code)

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number:

(503)

226-4211

Registrant’s telephone number:

(503)

226-4211

Securities registered pursuant to Section 12(b) of the Act:

Registrant

Title of each class

Trading Symbol

Name of each exchange

on which registered

NORTHWEST NATURAL HOLDING COMPANY

Common Stock

NWN

New York Stock Exchange

NORTHWEST NATURAL GAS COMPANY

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

NORTHWEST NATURAL HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

NORTHWEST NATURAL HOLDING COMPANY

Yes

☒

☐

NORTHWEST NATURAL GAS COMPANY

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

NORTHWEST NATURAL HOLDING COMPANY

NORTHWEST NATURAL GAS COMPANY

Large Accelerated Filer

☒

Large Accelerated Filer

☐

Accelerated Filer

☐

Accelerated Filer

☐

Non-accelerated Filer

☐

Non-accelerated Filer

☒

Smaller Reporting Company

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

NORTHWEST NATURAL HOLDING COMPANY

Yes

☐

☒

NORTHWEST NATURAL GAS COMPANY

Yes

☐

☒

At July 26, 2019, 30,442,700 shares of Northwest Natural Holding Company's Common Stock (the only class of Common Stock) were outstanding. All shares of Northwest Natural Gas Company's Common Stock (the only class of Common Stock) outstanding were held by Northwest Natural Holding Company.

This combined Form 10-Q is separately filed by Northwest Natural Holding Company and Northwest Natural Gas Company. Information contained in this document relating to Northwest Natural Gas Company is filed by Northwest Natural Holding Company and separately by Northwest Natural Gas Company. Northwest Natural Gas Company makes no representation as to information relating to Northwest Natural Holding Company or its subsidiaries, except as it may relate to Northwest Natural Gas Company and its subsidiaries.

NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL HOLDING COMPANY

For the Quarterly Period Ended June 30, 2019

TABLE OF CONTENTS



PART 1.	FINANCIAL INFORMATION	Page

	Forward-Looking Statements	4

Item 1.	Unaudited Financial Statements:
	Consolidated Statements of Comprehensive Income of Northwest Natural Holding Company for the three and six months ended June 30, 2019 and 2018	6
	Consolidated Balance Sheets of Northwest Natural Holding Company at June 30, 2019 and 2018 and December 31, 2018	7
	Consolidated Statements of Shareholders' Equity of Northwest Natural Holding Company for the three and six months ended June 30, 2019 and 2018	9
	Consolidated Statements of Cash Flows of Northwest Natural Holding Company for the six months ended June 30, 2019 and 2018	10
	Consolidated Statements of Comprehensive Income of Northwest Natural Gas Company for the three and six months ended June 30, 2019 and 2018	11
	Consolidated Balance Sheets of Northwest Natural Gas Company at June 30, 2019 and 2018 and December 31, 2018	12
	Consolidated Statements of Shareholder's Equity of Northwest Natural Gas Company for the three and six months ended June 30, 2019 and 2018	14
	Consolidated Statements of Cash Flows of Northwest Natural Gas Company for the six months ended June 30, 2019 and 2018	15
	Notes to Unaudited Consolidated Financial Statements	16

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70

Item 4.	Controls and Procedures	70

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	71

Item 1A.	Risk Factors	71

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71

Item 6.	Exhibits	71

	Signature	73

PART I. FINANCIAL INFORMATION

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to the safe harbors created by such Act. Forward-looking statements can be identified by words such as anticipates, assumes, intends, plans, seeks, believes, estimates, expects, and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following:


•	plans, projections and predictions;


•	objectives, goals or strategies;


•	assumptions, generalizations and estimates;


•	ongoing continuation of past practices or patterns;


•	future events or performance;


•	trends;


•	risks;


•	uncertainties;


•	timing and cyclicality;


•	earnings and dividends;


•	capital expenditures and allocation;


•	capital or organizational structure;


•	climate change and our role in a low-carbon, renewable-energy future;


•	growth;


•	customer rates;


•	labor relations and workforce succession;


•	commodity costs;


•	gas reserves;


•	operational performance and costs;


•	energy policy, infrastructure and preferences;


•	public policy approach and involvement;


•	efficacy of derivatives and hedges;


•	liquidity, financial positions, and planned securities issuances;


•	valuations;


•	project and program development, expansion, or investment;


•	business development efforts, including acquisitions and integration thereof;


•	implementation and execution of our water strategy;


•	pipeline capacity, demand, location, and reliability;


•	adequacy of property rights and headquarter development;


•	technology implementation and cybersecurity practices;


•	competition;


•	procurement and development of gas and water supplies;


•	estimated expenditures;


•	costs of compliance;


•	customers bypassing our infrastructure;


•	credit exposures;


•	rate or regulatory outcomes, recovery or refunds;


•	impacts or changes of laws, rules and regulations;


•	tax liabilities or refunds, including effects of tax reform;


•	levels and pricing of gas storage contracts and gas storage markets;


•	outcomes, timing and effects of potential claims, litigation, regulatory actions, and other administrative matters;


•	projected obligations, expectations and treatment with respect to retirement plans;


•	availability, adequacy, and shift in mix, of gas and water supplies;


•	effects of new or anticipated changes in critical accounting policies or estimates;


•	approval and adequacy of regulatory deferrals;


•	effects and efficacy of regulatory mechanisms; and


•	environmental, regulatory, litigation and insurance costs and recoveries, and timing thereof.

Table of Contents

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We therefore caution you against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed in NW Holdings' and NW Natural's 2018 Annual Report on Form 10-K, Part I, Item 1A “Risk Factors” and Part II, Item 7 and Item 7A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures about Market Risk,” and in Part I, Items 2 and 3, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Quantitative and Qualitative Disclosures About Market Risk”, respectively of Part II of this report.

Any forward-looking statement made in this report speaks only as of the date on which it is made. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Table of Contents

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
In thousands, except per share data	2019			2018			2019			2018

Operating revenues	$	123,443		$	124,567		$	408,791		$	388,202

Operating expenses:
Cost of gas	35,107			42,053			140,564			150,159
Operations and maintenance	39,486			38,028			90,968			77,551
Environmental remediation	(2,656		)	1,882			6,291			6,506
General taxes	7,879			7,729			16,906			17,203
Revenue taxes	4,496			4,780			16,422			17,209
Depreciation and amortization	22,387			21,147			43,959			42,022
Other operating expenses	646			679			1,538			1,532
Total operating expenses	107,345			116,298			316,648			312,182
Income from operations	16,098			8,269			92,143			76,020
Other income (expense), net	(2,768		)	7			(16,515		)	(827		)
Interest expense, net	10,654			8,771			20,859			18,045
Income before income taxes	2,676			(495		)	54,769			57,148
Income tax expense (benefit)	625			(156		)	9,300			15,476
Net income (loss) from continuing operations	2,051			(339		)	45,469			41,672
Loss from discontinued operations, net of tax	(956		)	(659		)	(1,173		)	(1,133		)
Net income (loss)	1,095			(998		)	44,296			40,539
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $41 and $56 for the three months ended and $82 and $111 for the six months ended June 30, 2019 and 2018, respectively	115			153			230			307
Comprehensive income (loss)	$	1,210		$	(845	)	$	44,526		$	40,846
Average common shares outstanding:
Basic	29,337			28,791			29,123			28,772
Diluted	29,394			28,791			29,186			28,825
Earnings (loss) from continuing operations per share of common stock:
Basic	$	0.07		$	(0.01	)	$	1.56		$	1.45
Diluted	0.07			(0.01		)	1.56			1.45
Loss from discontinued operations per share of common stock:
Basic	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.04	)
Diluted	(0.03		)	(0.02		)	(0.04		)	(0.04		)
Earnings (loss) per share of common stock:
Basic	$	0.04		$	(0.03	)	$	1.52		$	1.41
Diluted	0.04			(0.03		)	1.52			1.41

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30,			June 30,			December 31,
In thousands	2019			2018			2018

Assets:
Current assets:
Cash and cash equivalents	$	60,885		$	8,755		$	12,633
Accounts receivable	42,670			31,512			66,970
Accrued unbilled revenue	14,840			13,995			57,827
Allowance for uncollectible accounts	(814		)	(657		)	(977		)
Regulatory assets	46,688			41,092			41,930
Derivative instruments	2,186			2,044			9,001
Inventories	23,100			43,109			44,149
Gas reserves	17,206			16,579			16,647
Income taxes receivable	—			—			6,000
Other current assets	18,296			11,672			28,472
Discontinued operations current assets (Note 18)	14,001			12,743			13,269
Total current assets	239,058			180,844			295,921
Non-current assets:
Property, plant, and equipment	3,355,811			3,298,856			3,414,490
Less: Accumulated depreciation	1,016,185			984,998			993,118
Total property, plant, and equipment, net	2,339,626			2,313,858			2,421,372
Gas reserves	56,171			75,362			66,197
Regulatory assets	318,340			339,177			371,786
Derivative instruments	670			1,077			725
Other investments	62,815			64,854			63,558
Operating lease right of use asset	5,013			—			—
Assets under sales-type leases	148,886			—			—
Goodwill	49,393			—			8,954
Other non-current assets	18,159			11,588			14,149
Total non-current assets	2,999,073			2,805,916			2,946,741
Total assets	$	3,238,131		$	2,986,760		$	3,242,662

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30,			June 30,			December 31,
In thousands, including share information	2019			2018			2018

Liabilities and equity:
Current liabilities:
Short-term debt	$	20,080		$	47,100		$	217,620
Current maturities of long-term debt	104,396			74,785			29,989
Accounts payable	76,429			70,551			115,878
Taxes accrued	7,003			6,916			11,023
Interest accrued	7,826			6,652			7,306
Regulatory liabilities	32,484			34,275			47,436
Derivative instruments	4,650			11,744			12,381
Operating lease liabilities	4,271			—			—
Other current liabilities	36,612			32,935			54,492
Discontinued operations current liabilities (Note 18)	13,279			12,922			12,959
Total current liabilities	307,030			297,880			509,084
Long-term debt	806,001			683,895			706,247
Deferred credits and other non-current liabilities:
Deferred tax liabilities	292,791			281,028			280,463
Regulatory liabilities	605,036			602,294			611,560
Pension and other postretirement benefit liabilities	217,909			218,061			221,886
Derivative instruments	2,062			3,913			3,025
Operating lease liabilities	721			—			—
Other non-current liabilities	129,835			140,163			147,763
Total deferred credits and other non-current liabilities	1,248,354			1,245,459			1,264,697
Commitments and contingencies (Note 17)
Equity:
Common stock - no par value; authorized 100,000 shares; issued and outstanding 30,422, 28,800, and 28,880 at June 30, 2019 and 2018, and December 31, 2018, respectively	555,052			452,195			457,640
Retained earnings	330,018			315,462			312,182
Accumulated other comprehensive loss	(8,324		)	(8,131		)	(7,188		)
Total equity	876,746			759,526			762,634
Total liabilities and equity	$	3,238,131		$	2,986,760		$	3,242,662

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL HOLDING COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)



In thousands, except per share amounts	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Total shareholders' equity, beginning balances	$	794,227		$	772,205		$	762,634		$	742,776

Common stock:
Beginning balances	459,932			450,408			457,640			448,865
Stock-based compensation	579			752			1,824			1,924
Shares issued pursuant to equity based plans	1,589			1,035			2,636			1,406
Issuance of common stock, net of issuance costs	92,952			—			92,952			—
Ending balances	555,052			452,195			555,052			452,195

Retained earnings:
Beginning balances	342,734			330,081			312,182			302,349
Net income	1,095			(998		)	44,296			40,539
Dividends on common stock	(13,811		)	(13,621		)	(27,826		)	(27,426		)
Reclassification of tax effects from the TCJA	—			—			1,366			—
Ending balances	330,018			315,462			330,018			315,462

Accumulated other comprehensive income (loss):
Beginning balances	(8,439		)	(8,284		)	(7,188		)	(8,438		)
Other comprehensive income	115			153			230			307
Reclassification of tax effects from the TCJA	—			—			(1,366		)	—
Ending balances	(8,324		)	(8,131		)	(8,324		)	(8,131		)

Total shareholders' equity, ending balances	$	876,746		$	759,526		$	876,746		$	759,526

Dividends per share of common stock	$	0.4750		$	0.4725		$	0.9500		$	0.9450

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL HOLDING COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
In thousands	2019			2018

Operating activities:
Net income	$	44,296		$	40,539
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	43,959			42,022
Regulatory amortization of gas reserves	9,467			7,816
Deferred income taxes	5,917			11,227
Qualified defined benefit pension plan expense	6,988			2,876
Contributions to qualified defined benefit pension plans	(4,650		)	(5,570		)
Deferred environmental expenditures, net	(7,148		)	(7,330		)
Amortization of environmental remediation	6,291			6,506
Regulatory revenue recovery deferral from the TCJA	639			9,212
Regulatory disallowance of pension costs	10,500			—
Other	6,282			810
Changes in assets and liabilities:
Receivables, net	69,036			79,332
Inventories	14,929			4,803
Income and other taxes	16,300			(11,967		)
Accounts payable	(27,843		)	(26,613		)
Interest accrued	520			(121		)
Deferred gas costs	(44,850		)	4,787
Decoupling mechanism	8,635			4,613
Other, net	(4,797		)	(990		)
Discontinued operations	638			700
Cash provided by operating activities	155,109			162,652
Investing activities:
Capital expenditures	(91,147		)	(102,370		)
Acquisitions, net of cash acquired	(55,811		)	—
Other	(5,389		)	195
Discontinued operations	(1,050		)	(283		)
Cash used in investing activities	(153,397		)	(102,458		)
Financing activities:
Proceeds from stock options exercised	1,723			45
Proceeds from common stock issued	93,182			—
Long-term debt issued	175,000			—
Long-term debt retired	—			(22,000		)
Change in short-term debt	(197,540		)	(7,100		)
Cash dividend payments on common stock	(25,916		)	(25,577		)
Other	91			(279		)
Cash provided by (used in) financing activities	46,540			(54,911		)
Increase in cash and cash equivalents	48,252			5,283
Cash and cash equivalents, beginning of period	12,633			3,472
Cash and cash equivalents, end of period	$	60,885		$	8,755

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	$	19,725		$	17,117
Income taxes paid (refunded), net	(6,095		)	13,347

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
In thousands	2019			2018			2019			2018

Operating revenues	$	122,242		$	124,563		$	407,088		$	388,198

Operating expenses:
Cost of gas	35,163			42,107			140,676			150,271
Operations and maintenance	37,292			37,899			87,726			77,399
Environmental remediation	(2,656		)	1,882			6,291			6,506
General taxes	7,826			7,721			16,814			17,180
Revenue taxes	4,496			4,780			16,422			17,209
Depreciation and amortization	22,243			21,090			43,747			41,958
Other operating expenses	638			679			1,528			1,532
Total operating expenses	105,002			116,158			313,204			312,055
Income from operations	17,240			8,405			93,884			76,143
Other income (expense), net	(2,814		)	(33		)	(16,582		)	(848		)
Interest expense, net	10,387			8,771			20,520			18,045
Income (loss) before income taxes	4,039			(399		)	56,782			57,250
Income tax expense (benefit)	985			(128		)	9,833			15,507
Net income (loss) from continuing operations	3,054			(271		)	46,949			41,743
Loss from discontinued operations, net of tax	—			(727		)	—			(1,204		)
Net income (loss)	3,054			(998		)	46,949			40,539
Other comprehensive income:
Amortization of non-qualified employee benefit plan liability, net of taxes of $41 and $56 for the three months ended and $82 and $111 for the six months ended June 30, 2019 and 2018, respectively	115			153			230			307
Comprehensive income (loss)	$	3,169		$	(845	)	$	47,179		$	40,846

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30,			June 30,			December 31,
In thousands	2019			2018			2018

Assets:
Current assets:
Cash and cash equivalents	$	57,864		$	8,322		$	7,947
Accounts receivable	42,180			31,512			66,824
Accrued unbilled revenue	14,730			13,995			57,773
Receivables from affiliates	289			265			4,166
Allowance for uncollectible accounts	(812		)	(657		)	(975		)
Regulatory assets	46,688			41,092			41,930
Derivative instruments	2,186			2,044			9,001
Inventories	22,999			43,109			44,126
Gas reserves	17,206			16,579			16,647
Other current assets	18,259			11,603			25,347
Discontinued operations current assets (Note 18)	—			5,873			—
Total current assets	221,589			173,737			272,786
Non-current assets:
Property, plant, and equipment	3,337,005			3,298,481			3,410,439
Less: Accumulated depreciation	1,015,761			984,791			992,855
Total property, plant, and equipment, net	2,321,244			2,313,690			2,417,584
Gas reserves	56,171			75,362			66,197
Regulatory assets	318,340			339,177			371,786
Derivative instruments	670			1,077			725
Other investments	49,281			51,181			49,922
Operating lease right of use asset	4,797			—			—
Assets under sales-type leases	148,886			—			—
Other non-current assets	17,715			11,578			13,736
Discontinued operations non-current assets (Note 18)	—			25,037			—
Total non-current assets	2,917,104			2,817,102			2,919,950
Total assets	$	3,138,693		$	2,990,839		$	3,192,736

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30,			June 30,			December 31,
In thousands	2019			2018			2018

Liabilities and equity:
Current liabilities:
Short-term debt	$	—		$	47,100		$	217,500
Current maturities of long-term debt	104,359			74,785			29,989
Accounts payable	74,918			70,155			114,937
Payables to affiliates	6,878			3,811			523
Taxes accrued	6,903			6,887			10,990
Interest accrued	7,675			6,652			7,273
Regulatory liabilities	32,484			34,275			47,436
Derivative instruments	4,650			11,744			12,381
Operating lease liabilities	4,141			—			—
Other current liabilities	35,113			31,934			53,027
Discontinued operations current liabilities (Note 18)	—			2,702			—
Total current liabilities	277,121			290,045			494,056
Long-term debt	768,947			683,895			704,134
Deferred credits and other non-current liabilities:
Deferred tax liabilities	307,133			296,050			294,739
Regulatory liabilities	605,036			602,294			611,560
Pension and other postretirement benefit liabilities	217,909			218,061			221,886
Derivative instruments	2,062			3,913			3,025
Operating lease liabilities	634			—			—
Other non-current liabilities	129,736			140,073			147,668
Discontinued operations - non-current liabilities (Note 18)	—			(3,018		)	—
Total deferred credits and other non-current liabilities	1,262,510			1,257,373			1,278,878
Commitments and contingencies (Note 17)
Equity:
Common stock	319,634			452,195			226,452
Retained earnings	518,805			315,462			496,404
Accumulated other comprehensive loss	(8,324		)	(8,131		)	(7,188		)
Total equity	830,115			759,526			715,668
Total liabilities and equity	$	3,138,693		$	2,990,839		$	3,192,736

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)



In thousands	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Total shareholder's equity, beginning balances	$	746,743		$	772,205		$	715,668		$	742,776

Common stock:
Beginning balances	226,452			450,408			226,452			448,865
Stock-based compensation⁽¹⁾	—			752			—			1,924
Additional paid-in capital pursuant to employee stock purchase plan	—			1,035			—			1,406
Capital contribution from parent	93,182			—			93,182			—
Ending balances	319,634			452,195			319,634			452,195

Retained earnings:
Beginning balances	528,730			330,081			496,404			302,349
Net income	3,054			(998		)	46,949			40,539
Dividends on common stock	(12,979		)	(13,621		)	(25,914		)	(27,426		)
Reclassification of tax effects from the TCJA	—			—			1,366			—
Ending balances	518,805			315,462			518,805			315,462

Accumulated other comprehensive income (loss):
Beginning balances	(8,439		)	(8,284		)	(7,188		)	(8,438		)
Other comprehensive income	115			153			230			307
Reclassification of tax effects from the TCJA	—			—			(1,366		)	—
Ending balances	(8,324		)	(8,131		)	(8,324		)	(8,131		)

Total shareholder's equity, ending balances	$	830,115		$	759,526		$	830,115		$	759,526

⁽¹⁾Stock-based compensation is based on stock awards to NW Natural employees to be issued in shares of NW Holdings.

See Notes to Unaudited Consolidated Financial Statements

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NORTHWEST NATURAL GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
In thousands	2019			2018

Operating activities:
Net income	$	46,949		$	40,539
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization	43,747			41,958
Regulatory amortization of gas reserves	9,467			7,816
Deferred income taxes	5,042			9,387
Qualified defined benefit pension plan expense	6,988			2,876
Contributions to qualified defined benefit pension plans	(4,650		)	(5,570		)
Deferred environmental expenditures, net	(7,148		)	(7,330		)
Amortization of environmental remediation	6,291			6,506
Regulatory revenue deferral from the TCJA	639			9,212
Regulatory disallowance of pension costs	10,500			—
Other	5,563			1,180
Changes in assets and liabilities:
Receivables, net	73,186			79,333
Inventories	14,923			4,434
Income and other taxes	7,199			(11,957		)
Accounts payable	(23,744		)	(26,195		)
Interest accrued	402			(121		)
Deferred gas costs	(44,850		)	4,787
Decoupling mechanism	8,635			4,613
Other, net	(3,003		)	(1,990		)
Discontinued operations	—			3,104
Cash provided by operating activities	156,136			162,582
Investing activities:
Capital expenditures	(90,675		)	(102,370		)
Other	(5,389		)	195
Discontinued operations	—			(284		)
Cash used in investing activities	(96,064		)	(102,459		)
Financing activities:
Capital contribution from parent	93,182			—
Long-term debt issued	140,000			—
Long-term debt retired	—			(22,000		)
Change in short-term debt	(217,500		)	(7,100		)
Cash dividend payments on common stock	(25,914		)	(25,577		)
Other	77			(234		)
Cash used in financing activities	(10,155		)	(54,911		)
Increase in cash and cash equivalents	49,917			5,212
Cash and cash equivalents, beginning of period	7,947			3,110
Cash and cash equivalents, end of period	$	57,864		$	8,322

Supplemental disclosure of cash flow information:
Interest paid, net of capitalization	$	19,529		$	17,117
Income taxes paid (refunded), net	(6,095		)	13,347

See Notes to Unaudited Consolidated Financial Statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

On October 1, 2018, we completed a reorganization into a holding company structure. In this reorganization, shareholders of NW Natural (the predecessor publicly held parent company) became shareholders of NW Holdings on a one-for-one basis; maintaining the same number of shares and ownership percentage as held in NW Natural immediately prior to the reorganization. NW Natural became a wholly-owned subsidiary of NW Holdings. Additionally, certain subsidiaries of NW Natural were transferred to NW Holdings. This reorganization was accounted for as a transaction among entities under common control. As required under accounting guidance, these subsidiaries are presented in this report as discontinued operations in the consolidated results of NW Natural. See Note 18 for additional information.

The accompanying consolidated financial statements represent the respective, consolidated financial results of NW Holdings and NW Natural and all respective companies that each registrant directly or indirectly controls, either through majority ownership or otherwise. This is a combined report of NW Holdings and NW Natural, which includes separate consolidated financial statements for each registrant.

NW Natural's regulated natural gas distribution activities are reported in the natural gas distribution (NGD) segment. The NGD segment is NW Natural's core operating business and serves residential, commercial, and industrial customers in Oregon and southwest Washington. The NGD segment is the only reportable segment for NW Holdings and NW Natural. All other activities, water businesses, and other investments are aggregated and reported as other at their respective registrant.

In addition, NW Holdings has reported discontinued operations results related to the pending sale of Gill Ranch Storage, LLC (Gill Ranch). All prior period amounts have been retrospectively adjusted to reflect this change both in operational results and reportable segments for NW Holdings and NW Natural, respectively. These reclassifications and the reorganization activities described above had no effect on the prior year’s consolidated results of operations, financial condition, or cash flows. See Note 18 for additional information.

NW Holdings' direct and indirect wholly-owned subsidiaries as of the filing date of this report include:


•	Northwest Natural Gas Company (NW Natural);


•	Northwest Energy Corporation (Energy Corp);


•	NWN Gas Reserves LLC (NWN Gas Reserves);


•	NW Natural Energy, LLC (NWN Energy);


•	NW Natural Gas Storage, LLC (NWN Gas Storage);


▪	Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;


•	NNG Financial Corporation (NNG Financial);


•	KB Pipeline Company (KB);


•	NW Natural Water Company, LLC (NWN Water);


▪	Falls Water Co., Inc. (Falls Water);


▪	Salmon Valley Water Company;


▪	NW Natural Water of Oregon, LLC (NWN Water of Oregon);


•	Sunstone Water, LLC;


•	Sunstone Infrastructure, LLC;


•	Sunriver Water, LLC;


•	Sunriver Environmental, LLC;


▪	NW Natural Water of Washington, LLC (NWN Water of Washington);


•	Cascadia Infrastructure, LLC;


▪	Cascadia Water, LLC (Cascadia);


▪	NW Natural Water of Idaho, LLC (NWN Water of Idaho);


•	Gem State Water Company, LLC (Gem State); and


•	Gem State Infrastructure, LLC.

Investments in corporate joint ventures and partnerships that NW Holdings does not directly or indirectly control, and for which it is not the primary beneficiary, include NNG Financial's investment in Kelso-Beaver Pipeline and NWN Energy's investment in Trail West Holdings, LLC (TWH), which are accounted for under the equity method. NW Holdings and its direct and indirect subsidiaries are collectively referred to herein as NW Holdings, and NW Natural and its direct and indirect subsidiaries are collectively referred to herein as NW Natural. The consolidated financial statements of NW Holdings and NW Natural are presented after elimination of all intercompany balances and transactions.

Information presented in these interim consolidated financial statements is unaudited, but includes all material adjustments management considers necessary for a fair statement of the results for each period reported including normal recurring accruals.

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These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in NW Holdings' and NW Natural's combined 2018 Annual Report on Form 10-K (2018 Form 10-K). A significant part of NW Holdings' and NW Natural's business is of a seasonal nature; therefore, NW Holdings and NW Natural results of operations for interim periods are not necessarily indicative of full year results. Seasonality affects the comparability of the results of other operations across quarters but not across years.

During the second quarter of 2018, we moved forward with our long-term strategic plans, which include a shift away from the California gas storage business. In June 2018, NWN Gas Storage, a wholly-owned subsidiary of NW Natural at the time and now a wholly-owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in its wholly-owned subsidiary, Gill Ranch, subject to various regulatory approvals and closing conditions. We have concluded that the pending sale of Gill Ranch qualifies as assets and liabilities held for sale and discontinued operations. As such, the results of Gill Ranch have been presented as a discontinued operation for NW Holdings for all periods presented and for NW Natural up until the holding company reorganization was effective on October 1, 2018 on the consolidated statements of comprehensive income and cash flows, and the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and liabilities on the NW Holdings consolidated balance sheet. See Note 18 for additional information. Additionally, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements to be separately reported as a segment. Interstate Storage Services is now reported in Other under NW Natural and NW Holdings as applicable, and all prior periods reflect this change. See Note 4, which provides segment information.

Notes to the consolidated financial statements reflect the activity of continuing operations for both NW Holdings and NW Natural for all periods presented, unless otherwise noted.

2. SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies are described in Note 2 of the 2018 Form 10-K. There were no material changes to those accounting policies during the six months ended June 30, 2019 other than those set forth in this Note 2. The following are current updates to certain critical accounting policy estimates and new accounting standards.

Industry Regulation

In applying regulatory accounting principles, NW Holdings and NW Natural capitalize or defer certain costs and revenues as regulatory assets and liabilities pursuant to orders of the Oregon Public Utilities Commission (OPUC), Washington Utilities and Transportation Commission (WUTC) or Idaho Public Utilities Commission (IPUC), which provide for the recovery of revenues or expenses from, or refunds to, utility customers in future periods, including a return or a carrying charge in certain cases.

Amounts deferred as regulatory assets and liabilities were as follows:



	Regulatory Assets
	June 30,				December 31,
In thousands	2019		2018		2018
Current:
Unrealized loss on derivatives⁽¹⁾	$	4,385	$	11,744	$	12,381
Gas costs	19,195		273		2,873
Environmental costs⁽²⁾	5,089		5,594		5,601
Decoupling⁽³⁾	1,680		10,232		9,140
Pension balancing⁽⁴⁾	5,009		—		—
Income taxes	2,209		2,217		2,218
Other⁽⁵⁾	9,121		11,032		9,717
Total current	$	46,688	$	41,092	$	41,930
Non-current:
Unrealized loss on derivatives⁽¹⁾	$	2,062	$	3,913	$	3,025
Pension balancing⁽⁴⁾	50,080		67,527		74,173
Income taxes	17,758		19,267		19,185
Pension and other postretirement benefit liabilities	168,137		171,186		174,993
Environmental costs⁽²⁾	68,240		65,156		76,149
Gas costs	2,994		28		9,978
Decoupling⁽³⁾	37		1,636		2,545
Other⁽⁵⁾	9,032		10,464		11,738
Total non-current	$	318,340	$	339,177	$	371,786

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	Regulatory Liabilities
	June 30,				December 31,
In thousands	2019		2018		2018
Current:
Gas costs	$	5,630	$	20,906	$	17,182
Unrealized gain on derivatives⁽¹⁾	1,944		1,938		8,740
Decoupling⁽³⁾	857		2,153		2,264
Income taxes	7,763		—		—
Other⁽⁵⁾	16,290		9,278		19,250
Total current	$	32,484	$	34,275	$	47,436
Non-current:
Gas costs	$	226	$	3,460	$	552
Unrealized gain on derivatives⁽¹⁾	670		1,077		725
Decoupling⁽³⁾	74		410		—
Income taxes⁽⁶⁾	202,422		222,734		225,408
Accrued asset removal costs⁽⁷⁾	390,345		370,245		380,464
Other⁽⁵⁾	11,299		4,368		4,411
Total non-current	$	605,036	$	602,294	$	611,560


⁽¹⁾	Unrealized gains or losses on derivatives are non-cash items and therefore do not earn a rate of return or a carrying charge. These amounts are recoverable through NGD rates as part of the annual Purchased Gas Adjustment (PGA) mechanism when realized at settlement.


⁽²⁾	Refer to footnote (3) of the Deferred Regulatory Asset table in Note 17 for a description of environmental costs.


⁽³⁾	This deferral represents the margin adjustment resulting from differences between actual and expected volumes.


⁽⁴⁾	Refer to Note 10 for information regarding the deferral of pension expenses.


⁽⁵⁾	Balances consist of deferrals and amortizations under approved regulatory mechanisms and typically earn a rate of return or carrying charge.


⁽⁶⁾	This balance represents estimated amounts associated with the Tax Cuts and Jobs Act. See Note 11.


⁽⁷⁾	Estimated costs of removal on certain regulated properties are collected through rates.

We believe all costs incurred and deferred at June 30, 2019 are prudent. All regulatory assets and liabilities are reviewed annually for recoverability, or more often if circumstances warrant. If we should determine that all or a portion of these regulatory assets or liabilities no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances in the period such determination is made.

New Accounting Standards

We consider the applicability and impact of all accounting standards updates (ASUs) issued by the Financial Accounting Standards Board (FASB). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on NW Natural's consolidated financial position or results of operations.

Recently Adopted Accounting Pronouncements

ACCUMULATED OTHER COMPREHENSIVE INCOME. On February 14, 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This update was issued in response to concerns from certain stakeholders regarding the current requirements under U.S. GAAP that deferred tax assets and liabilities are adjusted for a change in tax laws or rates, and the effect is to be included in income from continuing operations in the period of the enactment date. This requirement is also applicable to items in accumulated other comprehensive income where the related tax effects were originally recognized in other comprehensive income. The adjustment of deferred taxes due to the new corporate income tax rate enacted through the Tax Cuts and Jobs Act (TCJA) on December 22, 2017 recognized in income from continuing operations causes the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects) to not reflect the appropriate tax rate. The amendments in this update allow but do not require a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA and require certain disclosures about stranded tax effects. NW Natural adopted and applied the standard in the first quarter of 2019. NW Natural elected to reclassify the stranded tax effects of the TJCA of $1.4 million from accumulated other comprehensive loss to retained earnings in the period of adoption. Going forward, our policy is that, in the event that regulation changes result in stranded tax effects, such amounts will be reclassified from accumulated other comprehensive income (loss) to retained earnings in the final period that the related deferred tax balance remeasurement is expected to impact income from continuing operations.

DERIVATIVES AND HEDGING. On August 28, 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities." The purpose of the amendment is to more closely align hedge accounting with companies’ risk management strategies. The ASU amends the accounting for risk component hedging, the hedged item in fair value hedges of interest rate risk, and amounts excluded from the assessment of hedge effectiveness. The guidance also amends the recognition and presentation of the effect of hedging instruments and includes other simplifications of hedge

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accounting. The amendments in this update were effective beginning January 1, 2019 and were applied prospectively to hedging instruments. The adoption did not have an impact on the financial statements or disclosures of NW Holdings or NW Natural.

GOODWILL. On January 26, 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." The ASU removes Step 2 from the goodwill impairment test and under the amended guidance an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount in which the carrying amounts exceed the fair value of the reporting unit. The amendments in this standard are effective for us beginning January 1, 2020 and early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. NW Natural early adopted ASU 2017-04 in the quarter ended September 30, 2018. The adoption of this ASU did not materially affect the financial statements and disclosures of NW Holdings or NW Natural.

LEASES. On February 25, 2016, the FASB issued ASU 2016-02, "Leases," which revises the existing lease accounting guidance. Pursuant to the new standard (“ASC 842”), lessees are required to recognize all leases, including operating leases that are greater than 12 months at lease commencement, on the balance sheet and record corresponding right of use assets and lease liabilities. Lessor accounting will remain substantially the same under the new standard. Quantitative and qualitative disclosures are also required for users of the financial statements to have a clear understanding of the nature of our leasing activities.

We elected the alternative prospective transition approach for adoption beginning January 1, 2019. All comparative periods prior to January 1, 2019 will retain the financial reporting and disclosure requirements of ASC 840 “Leases” (“ASC 840”). There was no cumulative effect adjustment to the opening balance of retained earnings recorded as of January 1, 2019 for adoption as there were no initial direct costs or other capitalized costs related to the legacy leases that needed to be derecognized upon adoption of ASC 842.

We elected the land easement optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under the ASC 840 lease guidance. For the existing lease portfolio, we did not elect the optional practical expedient package to retain the legacy lease accounting conclusions upon adoption; we re-assessed our existing contracts under the new leasing standard including whether the contract meets the definition of a lease and lease classification. As a result, we determined that most of our underground gas storage contracts no longer meet the definition of a lease under the new lease standard. Our lease portfolio under the new standard consists primarily of our current leased headquarters, which expires in 2020.

In October 2017, NW Natural entered into a 20-year operating lease agreement commencing in 2020 for a new headquarters location in Portland, Oregon. The lease was analyzed under ASC 840 in consideration of build-to-suit lease accounting guidance with the conclusion that NW Natural was the owner of the asset during construction for accounting purposes. Under the new lease standard, ASC 842, NW Natural is no longer considered the owner of the asset during construction for accounting purposes. As such, in January 2019 we derecognized the build-to-suit asset and liability balances of $26.0 million as of December 31, 2018 that were previously recorded within property, plant and equipment and other non-current liabilities in the consolidated balance sheet.

Upon adoption on January 1, 2019, NW Holdings recorded an operating lease right of use asset and an associated operating lease liability of approximately $7.3 million, of which $7.0 million was recorded at NW Natural. Lease liabilities are measured using NW Natural's incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments. See Note 7.

CLOUD COMPUTING. On August 29, 2018, the FASB issued ASU 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." The purpose of the amendment is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this update are effective for us beginning January 1, 2020. Early adoption is permitted, and NW Holdings and NW Natural early adopted ASU 2018-15 in the quarter ended March 31, 2019 utilizing the prospective application methodology. The adoption of this ASU did not materially affect the financial statements and disclosures of NW Holdings or NW Natural.

Recently Issued Accounting Pronouncements

RETIREMENT BENEFITS. On August 28, 2018, the FASB issued ASU 2018-14, "Changes to the Disclosure Requirements for Defined Benefit Plans." The purpose of the amendment is to modify the disclosure requirements for defined benefit pension and other postretirement plans. The amendments in this update are effective for us beginning January 1, 2020. Early adoption is permitted. The amended presentation and disclosure guidance should be applied retrospectively. We are currently assessing the effect of this standard on disclosures.

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FAIR VALUE MEASUREMENT. On August 28, 2018, the FASB issued ASU 2018-13, "Changes to the Disclosure Requirements for Fair Value Measurement." The purpose of the amendment is to modify the disclosure requirements for fair value measurements. The amendments in this update are effective for us beginning January 1, 2020. Early adoption is permitted. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. We are currently assessing the effect of this standard on disclosures.

CREDIT LOSSES. On June 16, 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which applies to financial assets subject to credit losses and measured at amortized cost. The new standard will require financial assets measured at amortized cost to be presented at the net amount expected to be collected and the allowance for credit losses is to be recorded as a valuation account that is deducted from the amortized cost basis. The amendments in this update are effective beginning January 1, 2020. Early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently assessing the effect of this standard, and subsequent standard updates which clarify ASU 2016-13, on our financial statements and disclosures.

3. EARNINGS PER SHARE

Basic earnings per share are computed using NW Holdings' net income and the weighted average number of common shares outstanding for each period presented. Diluted earnings per share are computed in the same manner, except using the weighted average number of common shares outstanding plus the effects of the assumed exercise of stock options and the payment of estimated stock awards from other stock-based compensation plans that are outstanding at the end of each period presented. Anti-dilutive stock awards are excluded from the calculation of diluted earnings per common share.

NW Holdings' diluted earnings or loss per share are calculated as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
In thousands, except per share data	2019			2018			2019			2018
Net Income (loss) from continuing operations	$	2,051		$	(339	)	$	45,469		$	41,672
Loss from discontinued operations, net of tax	(956		)	(659		)	(1,173		)	(1,133		)
Net income (loss)	$	1,095		$	(998	)	$	44,296		$	40,539
Average common shares outstanding - basic	29,337			28,791			29,123			28,772
Additional shares for stock-based compensation plans (See Note 8)	57			—			63			53
Average common shares outstanding - diluted	29,394			28,791			29,186			28,825
Earnings (loss) from continuing operations per share of common stock:
Basic	$	0.07		$	(0.01	)	$	1.56		$	1.45
Diluted	$	0.07		$	(0.01	)	$	1.56		$	1.45
Loss from discontinued operations per share of common stock:
Basic	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.04	)
Diluted	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.04	)
Earnings (loss) per share of common stock:
Basic	$	0.04		$	(0.03	)	$	1.52		$	1.41
Diluted	$	0.04		$	(0.03	)	$	1.52		$	1.41
Additional information:
Anti-dilutive shares	1			53			2			10

4. SEGMENT INFORMATION

We primarily operate in one reportable business segment, which is NW Natural's local gas distribution business and is referred to as the NGD segment. During the second quarter of 2018, we moved forward with long-term strategic plans, which include a shift away from the California gas storage business, by entering into a Purchase and Sale Agreement that provides for the sale of all of the membership interests in Gill Ranch, subject to various regulatory approvals and closing conditions. As such, we reevaluated reportable segments and concluded that the remaining gas storage activities no longer meet the requirements of a reportable segment. Interstate Storage Services and asset management activities at the Mist gas storage facility, are now reported as other under NW Natural. NW Natural and NW Holdings also have investments and business activities not specifically related to the NGD, which are aggregated and reported as other and described below for each entity.

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Natural Gas Distribution

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

NW Natural

NW Natural's activities in Other include Interstate Storage Services and third-party asset management services for the Mist facility in Oregon, appliance retail center operations, and corporate operating and non-operating revenues and expenses that cannot be allocated to NGD operations.

Earnings from Interstate Storage Services assets are primarily related to firm storage capacity revenues. Earnings from the Mist facility also include revenue, net of amounts shared with NGD customers, from management of NGD assets at Mist and upstream pipeline capacity when not needed to serve NGD customers. Under the Oregon sharing mechanism, NW Natural retains 80% of the pre-tax income from these services when the costs of the capacity were not included in NGD rates, or 10% of the pre-tax income when the costs have been included in these rates. The remaining 20% and 90%, respectively, are recorded in a deferred regulatory account for crediting back to NGD customers.

NW Holdings

NW Holdings' activities in Other include all remaining activities not associated with NW Natural, specifically: NWN Water, which consolidates the water and wastewater operations and is pursuing other investments in the water sector through itself and wholly-owned subsidiaries; NWN Gas Storage, a wholly-owned subsidiary of NWN Energy; NWN Energy's equity investment in TWH, which is pursuing development of a cross-Cascades transmission pipeline project (TWP); and other pipeline assets in NNG Financial. For more information on TWP, see Note 14. Other also includes corporate revenues and expenses that cannot be allocated to other operations.

All prior period amounts have been retrospectively adjusted to reflect the change in reportable segments and the designation of Gill Ranch as a discontinued operation for NW Holdings, and the designation of subsidiaries previously owned by NW Natural that are now owned by NW Holdings as discontinued operations for NW Natural.

Segment Information Summary

Inter-segment transactions were immaterial for the periods presented. The following table presents summary financial information concerning the reportable segments of continuing operations. See Note 18 for information regarding discontinued operations for NW Holdings and NW Natural.



	Three Months Ended June 30,
In thousands	NGD			Other (NW Natural)		NW Natural			Other (NW Holdings)			NW Holdings
2019
Operating revenues	$	117,984		$	4,258	$	122,242		$	1,201		$	123,443
Depreciation and amortization	21,992			251		22,243			144			22,387
Income (loss) from operations	14,657			2,583		17,240			(1,142		)	16,098
Net income (loss) from continuing operations	1,212			1,842		3,054			(1,003		)	2,051
Capital expenditures	41,912			105		42,017			366			42,383
2018
Operating revenues	$	118,515		$	6,048	$	124,563		$	4		$	124,567
Depreciation and amortization	20,766			324		21,090			57			21,147
Income (loss) from operations	4,545			3,860		8,405			(136		)	8,269
Net income (loss) from continuing operations	(2,970		)	2,699		(271		)	(68		)	(339		)
Capital expenditures	43,801			1,240		45,041			—			45,041

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	Six Months Ended June 30,
In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)			NW Holdings
2019
Operating revenues	$	397,025	$	10,063	$	407,088	$	1,703		$	408,791
Depreciation and amortization	43,241		506		43,747		212			43,959
Income (loss) from operations	87,555		6,329		93,884		(1,741		)	92,143
Net income (loss) from continuing operations	42,418		4,531		46,949		(1,480		)	45,469
Capital expenditures	90,518		157		90,675		472			91,147
Total assets at June 30, 2019⁽¹⁾	3,089,944		48,749		3,138,693		85,437			3,224,130
2018
Operating revenues	$	376,448	$	11,750	$	388,198	$	4		$	388,202
Depreciation and amortization	41,309		649		41,958		64			42,022
Income from operations	69,301		6,842		76,143		(123		)	76,020
Net income (loss) from continuing operations	36,913		4,830		41,743		(71		)	41,672
Capital expenditures	100,695		1,675		102,370		—			102,370
Total assets at June 30, 2018⁽¹⁾	2,907,936		51,993		2,959,929		14,088			2,974,017
Total assets at December 31, 2018⁽¹⁾	3,141,969		50,767		3,192,736		36,657			3,229,393


⁽¹⁾	Total assets for NW Holdings exclude assets related to discontinued operations of $14.0 million, $12.7 million, and $13.3 million as of June 30, 2019, June 30, 2018, and December 31, 2018, respectively. Total assets for NW Natural exclude assets related to discontinued operations of $30.9 million as of June 30, 2018.

Natural Gas Distribution Margin

NGD margin is a financial measure used by the Chief Operating Decision Maker (CODM), consisting of NGD operating revenues, reduced by the associated cost of gas, environmental remediation expense, and revenue taxes. The cost of gas purchased for NGD customers is generally a pass-through cost in the amount of revenues billed to regulated NGD customers. Environmental remediation expense represents collections received from customers through the environmental recovery mechanism in Oregon as well as adjustments for the environmental earnings test. This is offset by environmental remediation expense presented in in operating expenses. Revenue taxes are collected from NGD customers and remitted to taxing authorities. The collections from customers are offset by the expense recognition of the obligation to the taxing authority. By subtracting cost of gas, environmental remediation expense, and revenue taxes from NGD operating revenues, NGD margin provides a key metric used by the CODM in assessing the performance of the NGD segment.

The following table presents additional segment information concerning NGD margin:



	Three Months Ended June 30,					Six Months Ended June 30,
In thousands	2019			2018		2019		2018
NGD margin calculation:
NGD distribution revenues	$	115,792		$	118,435	$	394,775	$	376,341
Other regulated services	2,192			80		2,250		107
Total NGD operating revenues	117,984			118,515		397,025		376,448
Less: NGD cost of gas	35,163			42,107		140,676		150,271
Environmental remediation	(2,656		)	1,882		6,291		6,506
Revenue taxes	4,496			4,780		16,422		17,209
NGD margin	$	80,981		$	69,746	$	233,636	$	202,462

5. COMMON STOCK

During June 2019, NW Holdings completed an equity issuance consisting of an offering of 1,250,000 shares of its common stock along with a 30-day option for the underwriters to purchase an additional 187,500 shares. The offering closed on June 7, 2019 and resulted in a total issuance of 1,437,500 shares as both the initial offering and the underwriter option were fully executed. All shares were issued on June 7, 2019 at an offering price of $67.00 per share. The issuance resulted in proceeds to NW Holdings, net of $0.4 million in estimated expenses, of $92.8 million. The issuance was executed to raise funds for general corporate purposes, including for NW Holdings’ subsidiaries, that are reflected as equity transfers on occurrence. During the period, contributions received by NW Natural were also used, in part, to repay short-term indebtedness.

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6. REVENUE

The following tables present disaggregated revenue from continuing operations:



	Three Months Ended June 30,
In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)		NW Holdings
2019
Natural gas sales	$	112,015	$	—	$	112,015	$	—	$	112,015
Gas storage revenue, net	—		2,740		2,740		—		2,740
Asset management revenue, net	—		460		460		—		460
Appliance retail center revenue	—		1,058		1,058		—		1,058
Other revenue	104		—		104		1,201		1,305
Revenue from contracts with customers	112,119		4,258		116,377		1,201		117,578

Alternative revenue	3,733		—		3,733		—		3,733
Leasing revenue	2,132		—		2,132		—		2,132
Total operating revenues	$	117,984	$	4,258	$	122,242	$	1,201	$	123,443

2018
Natural gas sales	$	114,726	$	—	$	114,726	$	—	$	114,726
Gas storage revenue, net	—		2,737		2,737		—		2,737
Asset management revenue, net	—		2,140		2,140		—		2,140
Appliance retail center revenue	—		1,171		1,171		—		1,171
Other revenue	—		—		—		4		4
Revenue from contracts with customers	114,726		6,048		120,774		4		120,778

Alternative revenue	3,663		—		3,663		—		3,663
Leasing revenue	126		—		126		—		126
Total operating revenues	$	118,515	$	6,048	$	124,563	$	4	$	124,567

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	Six Months Ended June 30,
In thousands	NGD			Other (NW Natural)		NW Natural			Other (NW Holdings)		NW Holdings
2019
Natural gas sales	$	408,201		$	—	$	408,201		$	—	$	408,201
Gas storage revenue, net	—			5,523		5,523			—		5,523
Asset management revenue, net	—			1,966		1,966			—		1,966
Appliance retail center revenue	—			2,574		2,574			—		2,574
Other revenue	104			—		104			1,703		1,807
Revenue from contracts with customers	408,305			10,063		418,368			1,703		420,071

Alternative revenue	(13,520		)	—		(13,520		)	—		(13,520		)
Leasing revenue	2,240			—		2,240			—		2,240
Total operating revenues	$	397,025		$	10,063	$	407,088		$	1,703	$	408,791

2018
Natural gas sales	$	372,954		$	—	$	372,954		$	—	$	372,954
Gas storage revenue, net	—			5,314		5,314			—		5,314
Asset management revenue, net	—			3,719		3,719			—		3,719
Appliance retail center revenue	—			2,717		2,717			—		2,717
Other revenue	—			—		—			4		4
Revenue from contracts with customers	372,954			11,750		384,704			4		384,708

Alternative revenue	3,291			—		3,291			—		3,291
Leasing revenue	203			—		203			—		203
Total operating revenues	$	376,448		$	11,750	$	388,198		$	4	$	388,202

NW Natural's revenue represents substantially all of NW Holdings' revenue and is recognized for both registrants when the obligation to customers is satisfied and in the amount expected to be received in exchange for transferring goods or providing services. Revenue from contracts with customers contains one performance obligation that is generally satisfied over time, using the output method based on time elapsed, due to the continuous nature of the service provided. The transaction price is determined by a set price agreed upon in the contract or dependent on regulatory tariffs. Customer accounts are settled on a monthly basis or paid at time of sale and based on historical experience. It is probable that we will collect substantially all of the consideration to which we are entitled.

NW Holdings and NW Natural do not have any material contract assets, as net accounts receivable and accrued unbilled revenue balances are unconditional and only involve the passage of time until such balances are billed and collected. NW Holdings and NW Natural do not have any material contract liabilities.

Revenue-based taxes are primarily franchise taxes, which are collected from NGD customers and remitted to taxing authorities. Beginning January 1, 2018, revenue taxes are included in operating revenues with an equal and offsetting expense recognized in operating expenses in the consolidated statements of comprehensive income.

Natural Gas Distribution

Natural gas sales. NW Natural's primary source of revenue is providing natural gas to customers in the NGD service territory, which includes residential, commercial, industrial and transportation customers. NGD revenue is generally recognized over time upon delivery of the gas commodity or service to the customer, and the amount of consideration received and recognized as revenue is dependent on the Oregon and Washington tariffs. Customer accounts are to be paid in full each month, and there is no right of return or warranty for services provided. Revenues include firm and interruptible sales and transportation services, franchise taxes recovered from the customer, late payment fees, service fees, and accruals for gas delivered but not yet billed (accrued unbilled revenue). The accrued unbilled revenue balance is based on estimates of deliveries during the period from the last meter reading and management judgment is required for a number of factors used in this calculation, including customer use and weather factors.

We applied the significant financing practical expedient and have not adjusted the consideration NW Natural expects to receive from NGD customers for the effects of a significant financing component as all payment arrangements are settled annually. Due to the election of the right to invoice practical expedient, we do not disclose the value of unsatisfied performance obligations as of June 30, 2019.

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Alternative revenue. Weather normalization (WARM) and decoupling mechanisms are considered to be alternative revenue programs. Alternative revenue programs are considered to be contracts between NW Natural and its regulator and are excluded from revenue from contracts with customers.

Leasing revenue. Leasing revenue primarily consists of revenues from NW Natural's North Mist Storage contract with Portland General Electric (PGE) in support of PGE's gas-fired electric power generation facilities under an initial 30-year contract with options to extend, totaling up to an additional 50 years upon mutual agreement of the parties. The facility is accounted for as a sales-type lease with regulatory accounting deferral treatment. The investment is included in rate base under an established cost-of-service tariff schedule, with revenues recognized according to the tariff schedule and as such, profit upon commencement was deferred and will be amortized over the lease term. Leasing revenue also contains rental revenue from small leases of property owned by NW Natural to third parties. The majority of these transactions are accounted for as operating leases and the revenue is recognized over the term of the lease agreement. Lease revenue is excluded from revenue from contracts with customers. See Note 7.

NW Natural Other

Gas storage revenue. NW Natural's other revenue includes gas storage activity, which includes Interstate Storage Services used to store natural gas for customers. Gas storage revenue is generally recognized over time as the gas storage service is provided to the customer and the amount of consideration received and recognized as revenue is dependent on set rates defined per the storage agreements. Noncash consideration in the form of dekatherms of natural gas is received as consideration for providing gas injection services to gas storage customers. This noncash consideration is measured at fair value using the average spot rate. Customer accounts are generally paid in full each month, and there is no right of return or warranty for services provided. Revenues include firm and interruptible storage services, net of the profit sharing amount refunded to NGD customers.

Asset management revenue. Asset management revenue is generally recognized over time using a straight-line approach over the term of each contract, and the amount of consideration received and recognized as revenue is dependent on a variable pricing model. Variable revenues earned above guaranteed amounts are estimated and recognized at the end of each period using the most likely amount approach. Revenues include management services of the storage assets and pipeline capacity provided, net of the profit sharing amount refunded to NGD customers. Asset management accounts are settled on a monthly basis.

As of June 30, 2019, unrecognized revenue for the fixed component of the transaction price related to gas storage and asset management revenue was approximately $58.4 million. Of this amount, approximately $7.4 million will be recognized during the remainder of 2019, $13.7 million in 2020, $12.8 million in 2021, $9.1 million in 2022, $7.8 million in 2023 and $7.5 million thereafter. The amounts presented here are calculated using current contracted rates.

Appliance retail center revenue. NW Natural owns and operates an appliance store that is open to the public, where customers can purchase natural gas home appliances. Revenue from the sale of appliances is recognized at the point in time in which the appliance is transferred to the third party responsible for delivery and installation services and when the customer has legal title to the appliance. It is required that the sale be paid for in full prior to transfer of legal title. The amount of consideration received and recognized as revenue varies with changes in marketing incentives and discounts offered to customers.

NW Holdings Other

NW Holdings' primary source of other revenue is providing water and wastewater services to customers. Water distribution revenue is generally recognized over time upon delivery of the water commodity or service to the customer, and the amount of consideration received and recognized as revenue is dependent on the Oregon, Washington and Idaho tariffs. Customer accounts are to be paid in full each month, and there is no right of return or warranty for services provided.

We applied the significant financing practical expedient and have not adjusted the consideration we expect to receive from water distribution customers for the effects of a significant financing component as all payment arrangements are settled annually. Due to the election of the right to invoice practical expedient, we do not disclose the value of unsatisfied performance obligations as of June 30, 2019.

7. LEASES

Lease Revenue

Leasing revenue primarily consists of NW Natural's North Mist natural gas storage agreement with Portland General Electric (PGE) which is billed under an OPUC-approved rate schedule and includes an initial 30-year term with options to extend, totaling up to an additional 50 years upon mutual agreement of the parties. Under U.S. GAAP, this agreement is classified as a sales-type lease and qualifies for regulatory accounting deferral treatment. The investment in the storage facility is included in rate base under a separately established cost-of-service tariff, with revenues recognized according to the tariff schedule. As such, the selling profit that was calculated upon commencement as part of the sale-type lease recognition was deferred and will be amortized over the lease term. Billing rates under the cost-of-service tariff will be updated annually to reflect current information including depreciable asset levels, forecasted operating expenses, and the results of regulatory proceedings, as applicable, and revenue received under this agreement is recognized as operating revenue on the consolidated statements of

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comprehensive income. There are no variable payments or residual value guarantees. The lease does not contain an option to purchase the underlying assets.

NW Natural also maintains a sales-type lease for specialized compressor facilities to provide high pressure compressed natural gas (CNG) services. Lease payments are outlined in an OPUC-approved rate schedule over a 10-year term. There are no variable payments or residual value guarantees. The selling profit computed upon lease commencement was not significant.

Our lessor portfolio also contains small leases of property owned by NW Natural to third parties. These transactions are accounted for as operating leases and the revenue is recognized over the term of the lease agreement.

The components of lease revenue at NW Natural were as follows:



In thousands	Three months ended June 30, 2019		Six months ended June 30, 2019
Lease revenue
Operating leases	$	47	$	95
Sales-type leases	2,085		2,145
Total lease revenue	$	2,132	$	2,240

Total future minimum lease payments to be received under non-cancelable leases at NW Natural at June 30, 2019 are as follows:



In thousands	Operating		Sales-Type		Total
Remainder of 2019	$	58	$	9,708	$	9,766
2020	61		18,228		18,289
2021	49		17,518		17,567
2022	45		17,026		17,071
2023	45		16,557		16,602
Thereafter	138		280,607		280,745
Total lease revenue	$	396	$	359,644	$	360,040
Less: imputed interest			208,877
Total leases receivable			$	150,767

The total leases receivable above is reported under the NGD segment and the short- and long-term portions are included within other current assets and assets under sales-type leases on the consolidated balance sheets, respectively. The total amount of unguaranteed residual assets at June 30, 2019 was $3.8 million and is included in assets under sales-type leases on the consolidated balance sheets. Additionally, under regulatory accounting, the revenues and expenses associated with these agreements are presented on the consolidated statements of comprehensive income such that their presentation aligns with similar regulated activities at NW Natural.

Lease Expense

Operating Leases

We have operating leases for land, buildings and equipment. Our primary lease is for NW Natural's headquarters. Our leases have remaining lease terms of one year to 11 years. Many of our lease agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Short-term leases with a term of 12 months or less are not recorded on the balance sheet.

As most of our leases do not provide an implicit rate and are entered into by NW Natural, we use NW Natural's incremental borrowing rate based on information available at the lease commencement date in determining the present value of lease payments.

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The components of lease expense, a portion of which is capitalized, were as follows:



	Three months ended June 30, 2019
In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Operating lease expense	$	1,155	$	46	$	1,201
Short-term lease expense	331		—		331

	Six months ended June 30, 2019
In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Operating lease expense	$	2,297	$	92	$	2,389
Short-term lease expense	491		—		491

Supplemental balance sheet information related to operating leases as of June 30, 2019 is as follows:



In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Operating lease right of use asset	$	4,797	$	216	$	5,013

Operating lease liabilities - current liabilities	$	4,141	$	130	$	4,271
Operating lease liabilities - non-current liabilities	634		87		721
Total operating lease liabilities	$	4,775	$	217	$	4,992

As of June 30, 2019, the weighted average remaining lease term for the operating leases is 1.06 years for NW Natural. The weighted average discount rate used in the valuation of the operating lease right of use assets over the remaining lease term is 3.82% for NW Natural.

Maturities of operating lease liabilities at June 30, 2019 were as follows:



In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Remainder of 2019	$	2,298	$	93	$	2,391
2020	1,980		102		2,082
2021	101		28		129
2022	93		—		93
2023	71		—		71
Thereafter	497		—		497
Total lease payments	5,040		223		5,263
Less: imputed interest	265		6		271
Total lease obligations	4,775		217		4,992
Less: current obligations	4,141		130		4,271
Long-term lease obligations	$	634	$	87	$	721

Significant Lease Not Yet Commenced

In October 2017, NW Natural entered into a 20-year operating lease agreement for a new headquarters in Portland, Oregon in anticipation of the expiration of the current headquarters lease in 2020. The lease is expected to commence when construction of the asset is completed in early 2020. Total estimated base rent payments over the life of the lease are approximately $160 million. There is an option to extend the term of the lease for two additional periods of seven years.

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Cash Flow Information

Supplemental cash flow information related to leases was as follows:



	Three months ended June 30, 2019
In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,115	$	44	$	1,159

	Six months ended June 30, 2019
	NW Natural		Other (NW Holdings)		NW Holdings
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,206	$	87	$	2,293
Right of use assets obtained in exchange for lease obligations
Operating leases	$	6,987	$	304	$	7,291

Finance Leases

NW Natural also leases building storage spaces for use as a gas meter room in order to provide natural gas to multifamily or mixed use developments. These contracts are accounted for as finance leases and typically involve a one-time upfront payment with no remaining liability. The right of use asset for finance leases was $0.3 million at June 30, 2019.

Lease Disclosures Related to Periods Prior to the First Quarter of 2019

Land, buildings, and equipment are leased under agreements that expire in various years, including a 99-year land lease that extends through 2108. Rental costs for continuing operations were $5.9 million, $7.3 million, and $5.9 million for the years ended December 31, 2018, 2017, and 2016, respectively, a portion of which was capitalized.

The following table reflects NW Natural's future minimum lease payments due under non-cancelable operating leases for continuing operations at December 31, 2018. These commitments relate principally to the lease of the office headquarters and underground gas storage facilities.



In thousands	Minimum lease payments
2019	$	5,368
2020	4,812
2021	7,077
2022	7,223
2023	7,304
Thereafter	149,881
Total	$	181,665

8. STOCK-BASED COMPENSATION

Stock-based compensation plans are designed to promote stock ownership in NW Holdings by employees and officers. These compensation plans include a Long Term Incentive Plan (LTIP), an Employee Stock Purchase Plan (ESPP), and a Restated Stock Option Plan. For additional information on stock-based compensation plans, see Note 7 in the 2018 Form 10-K and the updates provided below.

Long Term Incentive Plan

Performance Shares

LTIP performance shares incorporate a combination of market, performance, and service-based factors. During the six months ended June 30, 2019, no performance-based shares were granted under the LTIP for accounting purposes. In February 2019 and 2018, LTIP shares were awarded to participants; however, the agreements allow for one of the performance factors to remain variable until the first quarter of the third year of the award period. As the performance factor will not be approved until the first quarters of 2021 and 2020, respectively, there is not a mutual understanding of the awards' key terms and conditions between NW Holdings and the participants as of June 30, 2019, and therefore, no expense was recognized for the 2019 and 2018 awards. NW Holdings will calculate the grant date fair value and NW Natural and other subsidiaries will recognize expense over the remaining service period for each award once the final performance factor has been approved.

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For the 2019 and 2018 LTIP awards, share payouts range from a threshold of 0% to a maximum of 200% based on achievement of pre-established goals. The performance criteria for the 2019 and 2018 performance shares consists of a three-year Return on Invested Capital (ROIC) threshold that must be satisfied and a cumulative EPS factor, which can be modified by a total shareholder return factor (TSR modifier) relative to the performance of the Russell 2500 Utilities Index over the performance period of three years for each respective award. If the targets were achieved for the 2019 and 2018 awards, NW Holdings would grant 36,250 and 32,497 shares in the first quarters of 2021 and 2020, respectively.

As of June 30, 2019, there was $0.6 million of unrecognized compensation cost associated with the 2017 LTIP grants, which is expected to be recognized through 2019.

Restricted Stock Units

During the six months ended June 30, 2019, 33,804 RSUs were granted under the LTIP with a weighted-average grant date fair value of $64.93 per share. Generally, the RSUs awarded are forfeitable and include a performance-based threshold as well as a vesting period of four years from the grant date. Generally, an RSU obligates NW Holdings, upon vesting, to issue the RSU holder one share of common stock plus a cash payment equal to the total amount of dividends paid per share between the grant date and vesting date of that portion of the RSU. The fair value of an RSU is equal to the closing market price of common stock on the grant date. As of June 30, 2019, there was $4.0 million of unrecognized compensation cost from grants of RSUs, which is expected to be recognized by NW Natural and other subsidiaries over a period extending through 2023.

9. DEBT

Short-Term Debt

At June 30, 2019, NW Holdings had short-term debt outstanding of $20.1 million and NW Natural had no commercial paper outstanding. The carrying cost of commercial paper approximates fair value using Level 2 inputs. See Note 2 in the 2018 Form 10-K for a description of the fair value hierarchy.

Long-Term Debt

At June 30, 2019, NW Holdings and NW Natural had long-term debt outstanding of $910.4 million and $873.3 million, respectively, which included $6.4 million of unamortized debt issuance costs at NW Natural. NW Natural's long-term debt consists of first mortgage bonds (FMBs) with maturity dates ranging from 2019 through 2049, interest rates ranging from 2.822% to 9.050%, and a weighted average interest rate of 4.786%.

In June 2019, NW Natural issued $90.0 million of FMBs with an interest rate of 3.869%, due in 2049 and $50.0 million of FMBs with an interest rate of 3.141%, due in 2029.

In June 2019, NW Natural Water, a wholly-owned subsidiary of NW Holdings, entered into a new two-year term loan agreement for $35.0 million, due in 2021. The loan carries an interest rate based upon the three-month LIBOR rate, which at June 30, 2019 was 2.86%. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at June 30, 2019, with a consolidated indebtedness to total capitalization ratio of 51.5%.

Fair Value of Long-Term Debt

NW Holdings' and NW Natural's outstanding debt does not trade in active markets. The fair value of long-term debt is estimated using the value of outstanding debt at natural gas distribution companies with similar credit ratings, terms, and remaining maturities to NW Holdings' and NW Natural's debt that actively trade in public markets. Substantially all outstanding debt at NW Holdings is comprised of NW Natural debt. These valuations are based on Level 2 inputs as defined in the fair value hierarchy. See Note 2 in the 2018 Form 10-K for a description of the fair value hierarchy.

The following table provides an estimate of the fair value of NW Holdings' long-term debt, including current maturities of long-term debt, using market prices in effect on the valuation date:



	NW Holdings
	June 30,						December 31,
In thousands	2019			2018			2018
Gross long-term debt	$	916,832		$	764,700		$	741,813
Unamortized debt issuance costs	(6,435		)	(6,020		)	(5,577		)
Carrying amount	$	910,397		$	758,680		$	736,236
Estimated fair value⁽¹⁾	$	970,205		$	792,623		$	762,335

⁽¹⁾Estimated fair value does not include unamortized debt issuance costs.

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The following table provides an estimate of the fair value of NW Natural's long-term debt, including current maturities of long-term debt, using market prices in effect on the valuation date:



	NW Natural
	June 30,						December 31,
In thousands	2019			2018			2018
Gross long-term debt	$	879,700		$	764,700		$	739,700
Unamortized debt issuance costs	(6,394		)	(6,020		)	(5,577		)
Carrying amount	$	873,306		$	758,680		$	734,123
Estimated fair value⁽¹⁾	$	933,167		$	792,623		$	760,222

⁽¹⁾Estimated fair value does not include unamortized debt issuance costs.

10. PENSION AND OTHER POSTRETIREMENT BENEFIT COSTS

NW Natural maintains a qualified non-contributory defined benefit pension plan, non-qualified supplemental pension plans for eligible executive officers and other key employees, and other postretirement employee benefit plans. NW Natural also has a qualified defined contribution plan (Retirement K Savings Plan) for all eligible employees. The qualified defined benefit pension plan and Retirement K Savings Plan have plan assets, which are held in qualified trusts to fund retirement benefits.

The service cost component of net periodic benefit cost for NW Natural pension and other postretirement benefit plans is recognized in operations and maintenance expense in the consolidated statements of comprehensive income. The other non-service cost components are recognized in other income (expense), net in the consolidated statements of comprehensive income.

The following table provides the components of net periodic benefit cost for the pension and other postretirement benefit plans:



	Three Months Ended June 30,												Six Months Ended June 30,
	Pension Benefits						Other Postretirement Benefits						Pension Benefits						Other Postretirement Benefits
In thousands	2019			2018			2019			2018			2019			2018			2019			2018
Service cost	$	1,516		$	1,807		$	67		$	79		$	3,033		$	3,614		$	135		$	159
Interest cost	4,661			4,183			283			241			9,323			8,366			564			482
Expected return on plan assets	(5,207		)	(5,150		)	—			—			(10,414		)	(10,301		)	—			—
Amortization of prior service costs	2			10			(117		)	(117		)	4			21			(234		)	(234		)
Amortization of net actuarial loss	3,603			4,524			96			112			7,206			9,047			193			222
Net periodic benefit cost	4,575			5,374			329			315			9,152			10,747			658			629
Amount allocated to construction	(596		)	(685		)	(23		)	(28		)	(1,182		)	(1,367		)	(47		)	(55		)
Amount deferred to regulatory balancing account	—			(2,747		)	—			—			—			(5,503		)	—			—
Net periodic benefit cost charged to expense	3,979			1,942			306			287			7,970			3,877			611			574
Regulatory pension disallowance	—			—			—			—			10,500			—			—			—
Amortization of regulatory balancing account	1,281			—			—			—			13,792			—			—			—
Net amount charged to expense	$	5,260		$	1,942		$	306		$	287		$	32,262		$	3,877		$	611		$	574

The service cost component of net periodic benefit costs is reduced by amounts capitalized to NGD plant based on an approximately 25% to 35% payroll overhead charge. In addition, a certain amount of net periodic benefit costs were recorded to the regulatory balancing account, representing net periodic pension expense for the qualified plan above the amount set in rates, as approved by the OPUC, from 2011 through October 31, 2018.

In March 2019, the OPUC issued an order concluding the NW Natural 2018 Oregon rate case. The Order allowed for the application of certain deferred revenues and tax benefits from the TCJA to reduce NW Natural's pension regulatory balancing account. A corresponding total of $12.5 million in pension expenses were recognized in operating and maintenance expense and other income (expense), net in the consolidated statements of comprehensive income in the first quarter of 2019, with offsetting benefits recorded within operating revenues and income taxes. The Order also directed NW Natural to reduce the balancing

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account by an additional $10.5 million, which was also charged to operating and maintenance expense and other income (expense), net in the consolidated statements of comprehensive income. Amortization of the remaining amount of the balancing account began in the second quarter of 2019 in accordance with the Order.

The following table presents amounts recognized in accumulated other comprehensive loss (AOCL) and the changes in AOCL related to non-qualified employee benefit plans:



	Three Months Ended June 30,						Six Months Ended June 30,
In thousands	2019			2018			2019			2018
Beginning balance	$	(8,439	)	$	(8,284	)	$	(7,188	)	$	(8,438	)
Amounts reclassified from AOCL:
Amortization of actuarial losses	156			209			312			418
Reclassification of stranded tax effects⁽¹⁾	—			—			(1,366		)	—
Total reclassifications before tax	156			209			(1,054		)	418
Tax (benefit) expense	(41		)	(56		)	(82		)	(111		)
Total reclassifications for the period	115			153			(1,136		)	307
Ending balance	$	(8,324	)	$	(8,131	)	$	(8,324	)	$	(8,131	)


⁽¹⁾	Reclassification of $1.4 million of income tax effects resulting from the TCJA from accumulated other comprehensive loss to retained earnings was made pursuant to the adoption of ASU 2018-02. See Note 2.

Employer Contributions to Company-Sponsored Defined Benefit Pension Plans

For the six months ended June 30, 2019, NW Natural made cash contributions totaling $4.7 million to qualified defined benefit pension plans. NW Natural expects further plan contributions of $6.3 million during the remainder of 2019.

Defined Contribution Plan

The Retirement K Savings Plan is a qualified defined contribution plan under Internal Revenue Code Sections 401(a) and 401(k). Employer contributions totaled $3.8 million and $3.5 million for the six months ended June 30, 2019 and 2018, respectively.

See Note 9 in the 2018 Form 10-K for more information concerning these retirement and other postretirement benefit plans.

11. INCOME TAX

An estimate of annual income tax expense is made each interim period using estimates for annual pre-tax income, regulatory flow-through adjustments, tax credits, and other items. The estimated annual effective tax rate is applied to year-to-date, pre-tax income to determine income tax expense for the interim period consistent with the annual estimate. Discrete events are recorded in the interim period in which they occur or become known.

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The effective income tax rate varied from the combined federal and state statutory tax rates due to the following:



	Three Months Ended June 30,
	NW Holdings						NW Natural
In thousands	2019			2018			2019			2018
Income taxes at statutory rates (federal and state)	$	694		$	(135	)	$	1,055		$	(107	)
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(37		)	(14		)	(37		)	(14		)
Other, net	(32		)	(7		)	(33		)	(7		)
Total provision for income taxes on continuing operations	$	625		$	(156	)	$	985		$	(128	)
Effective tax rate for continuing operations	23.4		%	31.5		%	24.4		%	32.1		%

	Six Months Ended June 30,
	NW Holdings						NW Natural
In thousands	2019			2018			2019			2018
Income taxes at statutory rates (federal and state)	$	15,007		$	15,233		$	15,540		$	15,264
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(5,297		)	835			(5,297		)	835
Other, net	(410		)	(592		)	(410		)	(592		)
Total provision for income taxes on continuing operations	$	9,300		$	15,476		$	9,833		$	15,507
Effective tax rate for continuing operations	17.0		%	27.1		%	17.3		%	27.1		%

The NW Holdings and NW Natural effective income tax rate for the three and six months ended June 30, 2019 compared to the same periods in 2018 changed primarily as a result of regulatory amortization of deferred TCJA benefits as approved in the March 2019 OPUC order. See "U.S. Federal TCJA Matters" below and Note 10 in the 2018 Form 10-K for more detail on income taxes and effective tax rates.

The IRS Compliance Assurance Process (CAP) examination of the 2017 tax year was completed during the first quarter of 2019. There were no material changes to the return as filed. The 2018 tax year is subject to examination under CAP and the 2019 tax year CAP application has been accepted by the IRS. The Oregon State examination of tax years 2015, 2016, and 2017 was completed in January 2019. There were no material changes to the returns as originally filed.

U.S. Federal TCJA Matters

On December 22, 2017, the TCJA was enacted and permanently lowered the U.S. federal corporate income tax rate to 21% from the previous maximum rate of 35%, effective for the tax year beginning January 1, 2018. The TCJA included specific provisions related to regulated public utilities that provide for the continued deductibility of interest expense and the elimination of bonus tax depreciation for property both acquired and placed into service on or after January 1, 2018. See Note 10 in the 2018 Form 10-K.

NW Natural previously filed applications with the OPUC and WUTC to defer the NGD net income tax benefits resulting from the TCJA. In March 2019, the OPUC issued an order addressing the regulatory amortization of the income tax benefits from the TCJA that NW Natural deferred for Oregon customers in December of 2017. Under the order, NW Natural will provide the benefit of these TCJA income tax deferrals to Oregon customers through ongoing annual credits to customer base rates and as a one-time recovery of a portion of the pension balancing account regulatory asset balance. On an annualized basis, it is anticipated that the income tax benefits from the provision of these TCJA benefits to customers should approximate the reduction to pretax income that occurs as a result of the customer base rate credits and one-time recovery of a portion of the pension balancing account. The resolution of deferred TCJA income tax benefits for Washington customers is expected later this year as part of NW Natural's Washington general rate case.

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12. PROPERTY, PLANT, AND EQUIPMENT

The following table sets forth the major classifications of property, plant, and equipment and accumulated depreciation of continuing operations:



	June 30,				December 31,
In thousands	2019		2018		2018
NW Natural:
NGD plant in service	$	3,193,121	$	3,035,089	$	3,134,122
NGD work in progress	75,045		192,496		204,978
Less: Accumulated depreciation	997,111		966,766		974,252
NGD plant, net	2,271,055		2,260,819		2,364,848
Other plant in service	63,385		65,548		66,009
Other construction work in progress	5,454		5,347		5,330
Less: Accumulated depreciation	18,650		18,024		18,603
Other plant, net ⁽¹⁾	50,189		52,871		52,736
Total property, plant, and equipment	$	2,321,244	$	2,313,690	$	2,417,584

Other (NW Holdings):
Other plant in service	$	18,806	$	376	$	4,051
Less: Accumulated depreciation	424		208		263
Other plant, net ⁽¹⁾	$	18,382	$	168	$	3,788

NW Holdings:
Total property, plant, and equipment	$	2,339,626	$	2,313,858	$	2,421,372

NW Natural and NW Holdings:
Capital expenditures in accrued liabilities	$	32,923	$	22,112	$	23,676


⁽¹⁾	NW Natural previously reported other balances were restated due to certain assets and liabilities now being classified as discontinued operations assets and liabilities in its balance sheets. See Note 18 for further discussion.

NW Holdings

Other plant balances include long-lived assets associated with water operations and non-regulated activities not held by NW Natural or its subsidiaries.

NW Natural

Other plant balances include long-lived assets not related to NGD.

In October 2017, NW Natural entered into a 20-year operating lease agreement expected to commence in 2020 for its new headquarters location in Portland, Oregon. Under the new lease standard, NW Natural is no longer considered the accounting owner of the asset during construction. As such, the build to suit asset and liability balances at December 31, 2018 of $26.0 million were derecognized in January 2019. The previous build to suit balances were recorded under ASC 840 within property, plant and equipment and other non-current liabilities in the consolidated balance sheet. See Note 16 in the 2018 Form 10-K.

In May 2019, NW Natural placed its North Mist gas storage expansion project into service and commenced storage services to the facility's single customer, Portland General Electric (PGE). Under U.S. GAAP, this agreement is classified as a sales-type lease and qualifies for regulatory accounting deferral treatment. Accordingly, the project was de-recognized from property, plant and equipment upon lease commencement and the investment balance is presented net of the current portion of scheduled billings within assets under sales-type leases on the consolidated balance sheets. A total of $146.0 million was de-recognized from plant on the lease commencement date. See Note 7 for information regarding leases, including North Mist.

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13. GAS RESERVES

NW Natural has invested $188 million through the gas reserves program in the Jonah Field located in Wyoming as of June 30, 2019. Gas reserves are stated at cost, net of regulatory amortization, with the associated deferred tax benefits recorded as liabilities in the consolidated balance sheets. The investment in gas reserves provides long-term price protection for NGD customers through the original agreement with Encana Oil & Gas (USA) Inc. under which NW Natural invested $178 million and the amended agreement with Jonah Energy LLC under which an additional $10 million was invested.

The cost of gas, including a carrying cost for the rate base investment, is included in the annual Oregon PGA filing, which allows NW Natural to recover these costs through customer rates. The investment under the original agreement, less accumulated amortization and deferred taxes, earns a rate of return. See Note 12 in the 2018 Form 10-K.

Gas produced from the additional wells is included in the Oregon PGA at a fixed rate of $0.4725 per therm, which approximates the 10-year hedge rate plus financing costs at the inception of the investment.

The following table outlines NW Natural's net gas reserves investment:



	June 30,				December 31,
In thousands	2019		2018		2018
Gas reserves, current	$	17,206	$	16,579	$	16,647
Gas reserves, non-current	170,101		170,958		170,660
Less: Accumulated amortization	113,930		95,596		104,463
Total gas reserves⁽¹⁾	73,377		91,941		82,844
Less: Deferred taxes on gas reserves	26,995		20,381		20,071
Net investment in gas reserves	$	46,382	$	71,560	$	62,773


⁽¹⁾	The net investment in additional wells included in total gas reserves was $4.3 million, $5.5 million and $4.8 million at June 30, 2019 and 2018 and December 31, 2018, respectively.

NW Natural's investment is included in NW Holdings' and NW Natural's consolidated balance sheets under gas reserves with the maximum loss exposure limited to the investment balance.

14. INVESTMENTS

Investments in Gas Pipeline

Trail West Pipeline, LLC (TWP), a wholly-owned subsidiary of TWH, is pursuing the development of a new gas transmission pipeline that would provide an interconnection with NW Natural's NGD system. NWN Energy, a wholly-owned subsidiary of NW Holdings, owns 50% of TWH, and 50% is owned by TransCanada American Investments Ltd., an indirect wholly-owned subsidiary of TransCanada Corporation.

Variable Interest Entity (VIE) Analysis

TWH is a VIE, with NW Holdings' investment in TWP reported under equity method accounting. It has been determined that NW Holdings is not the primary beneficiary of TWH’s activities as it only has a 50% share of the entity, and there are no stipulations that allow NW Holdings a disproportionate influence over it. Investments in TWH and TWP are included in other investments in NW Holdings' balance sheet. If this investment is not developed, then the maximum loss exposure related to TWH is limited to NW Holdings' equity investment balance, less its share of any cash or other assets available to NW Holdings as a 50% owner. The investment balance in TWH was $13.4 million at June 30, 2019 and 2018 and December 31, 2018. See Note 13 in the 2018 Form 10-K.

Other Investments

Other investments include financial investments in life insurance policies, which are accounted for at cash surrender value, net of policy loans. See Note 13 in the 2018 Form 10-K.

15. BUSINESS COMBINATIONS

2019 Business Combinations

Sunriver

On May 31, 2019, NWN Water of Oregon, a wholly-owned indirect subsidiary of NW Holdings, completed the acquisition of Sunriver Water, LLC and Sunriver Environmental, LLC (collectively referred to as Sunriver), a privately-owned water utility and wastewater treatment company located in Sunriver, Oregon that serves approximately 9,400 connections. The acquisition-date fair value of the total consideration transferred was approximately $55.2 million in cash consideration, subject to closing adjustments. The transaction aligns with NW Holdings' water sector strategy as the Company continues to expand its water utility service territory in the Pacific Northwest and begins to pursue wastewater investment opportunities.

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The Sunriver acquisition met the criteria of a business combination, and as such a preliminary allocation of the consideration to the acquired assets based on their estimated fair value as of the acquisition date was performed. In accordance with U.S. GAAP, the fair value determination was made using existing market and regulatory conditions as well as standard valuation approaches in order to allocate value as determined by an independent third party assessor for certain assets, with the remaining difference from the consideration transferred being recorded as goodwill. This allocation is considered preliminary as of June 30, 2019, as facts and circumstances that existed as of the acquisition date may be discovered as we continue to integrate Sunriver. As a result, subsequent adjustments to the preliminary valuation of tangible assets, contract assets and liabilities, working capital adjustments, tax positions, and goodwill may be required. Subsequent adjustments are not expected to be significant, and any such adjustments are expected to be completed within the one-year measurement period. The acquisition costs were expensed as incurred.

Preliminary goodwill of $40.2 million was recognized from this acquisition. The goodwill recognized is attributable to Sunriver's regulated water utility service territory, experienced workforce, and the strategic benefits for both the water utility and wastewater services expected from growth in its service territory. No intangible assets aside from goodwill were acquired. The total amount of goodwill that is expected to be deductible for income tax purposes is approximately $50.7 million.

The preliminary purchase price for the acquisition has been allocated to the assets acquired as of the acquisition date and is as follows:



In thousands	May 31, 2019
Current assets	$	211
Property, plant and equipment	14,009
Goodwill	40,153
Deferred tax assets	828
Total assets acquired	$	55,201

The amount of Sunriver revenues included in NW Holdings' consolidated statements of comprehensive income is $0.6 million for the three and six months ended June 30, 2019. Earnings from Sunriver activities for the three and six months ended June 30, 2019 were not material to the results of NW Holdings.

Other Acquisitions

During 2019, NWN Water completed one additional acquisition qualifying as a business combination. The aggregate fair value of the preliminary consideration transferred for this acquisition was approximately $0.7 million. This business combination was not significant to NW Holdings' results of operations.

2018 Business Combinations

Falls Water

On September 13, 2018, NWN Water, then a wholly-owned subsidiary of NW Natural and now a wholly-owned subsidiary of NW Holdings, completed the acquisition of Falls Water Co., Inc. (Falls Water), a privately-owned water utility in the Pacific Northwest for preliminary non-cash consideration of $8.5 million, subject to closing adjustments, in the form of 125,000 shares of NW Natural common stock, which were converted to NW Holdings common stock in our October 1, 2018 reorganization. Falls Water became a wholly-owned subsidiary of NWN Water and marked its first acquisition in the water utility sector. This acquisition aligns with NW Holdings' water sector strategy as the acquisition provides NWN Water entry into Idaho, expands service area, and opens further opportunity for growth. Falls Water is based in Idaho Falls, Idaho and served approximately 5,300 connections at the time of acquisition.

Through the purchase of all of the outstanding shares of Falls Water, NWN Water acquired the net assets and 100% control of Falls Water. We determined that the Falls Water acquisition met the criteria of a business combination, and as such performed a preliminary allocation of the consideration to the acquired assets and assumed liabilities based on their fair value as of the acquisition date, the majority of which was allocated to goodwill. The allocation is considered preliminary, and is primarily associated with tax positions and goodwill. Subsequent adjustments are not expected to be significant, and any such adjustments are expected to be completed within a one-year measurement period. The acquisition costs were insignificant and were expensed as incurred. The results of Falls Water are not material to the consolidated financial results of NW Holdings.

Preliminary goodwill of $6.4 million was recognized from this acquisition and is attributable to Falls Water's regulated service territory and experienced workforce as well as the strategic benefits expected from this high-growth service territory. NW Holdings has included this goodwill in other for segment reporting purposes, and it is not deductible for income tax purposes. No intangible assets aside from goodwill were acquired.

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Other Acquisitions

During 2018, in addition to the Falls Water acquisition, NWN Water completed three acquisitions qualifying as business combinations. The aggregate fair value of the preliminary consideration transferred for these acquisitions was approximately $2.8 million. These business combinations, both individually and in aggregate, were not significant to NW Holdings' results of operations.

Goodwill

NW Holdings allocates goodwill to reporting units based on the expected benefit from the business combination. We perform an annual impairment assessment of goodwill at the reporting unit level, or more frequently if events and circumstances indicate that goodwill might be impaired. An impairment loss is recognized if the carrying value of a reporting unit’s goodwill exceeds its fair value.

As a result of all acquisitions completed in 2018 and 2019, total goodwill was $49.4 million as of June 30, 2019 and $9.0 million as of December 31, 2018. The increase in the goodwill balance was due to additions associated with our acquisitions in the water sector. All of our goodwill is related to water and wastewater acquisitions and is included in the other category for segment reporting purposes. The annual impairment assessment of goodwill occurs in the fourth quarter of each year. There have been no impairments recognized to date.

16. DERIVATIVE INSTRUMENTS

NW Natural enters into financial derivative contracts to hedge a portion of the NGD segment's natural gas sales requirements. These contracts include swaps, options and combinations of option contracts. These derivative financial instruments are primarily used to manage commodity price variability. A small portion of NW Natural's derivative hedging strategy involves foreign currency exchange contracts.

NW Natural enters into these financial derivatives, up to prescribed limits, primarily to hedge price variability related to physical gas supply contracts as well as to hedge spot purchases of natural gas. The foreign currency forward contracts are used to hedge the fluctuation in foreign currency exchange rates for pipeline demand charges paid in Canadian dollars.

In the normal course of business, NW Natural also enters into indexed-price physical forward natural gas commodity purchase contracts and options to meet the requirements of NGD customers. These contracts qualify for regulatory deferral accounting treatment.

NW Natural also enters into exchange contracts related to the third-party asset management of its gas portfolio, some of which are derivatives that do not qualify for hedge accounting or regulatory deferral, but are subject to NW Natural's regulatory sharing agreement. These derivatives are recognized in operating revenues, net of amounts shared with NGD customers.

Notional Amounts

The following table presents the absolute notional amounts related to open positions on NW Natural derivative instruments:



	June 30,				December 31,
In thousands	2019		2018		2018
Natural gas (in therms):
Financial	466,280		473,900		408,850
Physical	564,500		724,450		472,275
Foreign exchange	$	7,552	$	7,804	$	6,936

Purchased Gas Adjustment (PGA)

Derivatives entered into by NW Natural for the procurement or hedging of natural gas for future gas years generally receive regulatory deferral accounting treatment. In general, commodity hedging for the current gas year is completed prior to the start of the gas year, and hedge prices are reflected in weighted-average cost of gas in the PGA filing. Hedge contracts entered into after the start of the PGA period are subject to the PGA incentive sharing mechanism in Oregon. NW Natural entered the 2018-19 and 2017-18 gas year with forecasted sales volumes hedged at 48% and 49% in financial swap and option contracts, and 24% and 26% in physical gas supplies, respectively. Hedge contracts entered into prior to the PGA filing in September 2018 were included in the PGA for the 2018-19 gas year. Hedge contracts entered into after the PGA filing, and related to subsequent gas years, may be included in future PGA filings and qualify for regulatory deferral.

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Unrealized and Realized Gain/Loss

The following table reflects the income statement presentation for the unrealized gains and losses from NW Natural's derivative instruments, which also represents all derivative instruments at NW Holdings:



	Three Months Ended June 30,
	2019						2018
In thousands	Natural gas commodity			Foreign exchange			Natural gas commodity			Foreign exchange
Benefit (expense) to cost of gas	$	(5,143	)	$	246		$	2,658		$	(56	)
Operating revenues (expense)	(4,333		)	—			391			—
Amounts deferred to regulatory accounts on balance sheet	8,847			(246		)	(2,915		)	56
Total gain (loss) in pre-tax earnings	$	(629	)	$	—		$	134		$	—



	Six Months Ended June 30,
	2019						2018
In thousands	Natural gas commodity			Foreign exchange			Natural gas commodity			Foreign exchange
Benefit (expense) to cost of gas	$	1,864		$	157		$	(3,089	)	$	(210	)
Operating revenues (expense)	(1,966		)	—			164			—
Amounts deferred to regulatory accounts on balance sheet	(182		)	(157		)	2,980			210
Total gain (loss) in pre-tax earnings	$	(284	)	$	—		$	55		$	—

UNREALIZED GAIN/LOSS. Outstanding derivative instruments related to regulated NGD operations are deferred in accordance with regulatory accounting standards. The cost of foreign currency forward and natural gas derivative contracts are recognized immediately in the cost of gas; however, costs above or below the amount embedded in the current year PGA are subject to a regulatory deferral tariff and therefore, are recorded as a regulatory asset or liability.

REALIZED GAIN/LOSS. NW Natural realized net losses of $0.9 million and net gains of $10.4 million for the three and six months ended June 30, 2019, from the settlement of natural gas financial derivative contracts. Whereas, net losses of $4.7 million and $13.7 million were realized for the three and six months ended June 30, 2018. Realized gains and losses offset the higher or lower cost of gas purchased resulting in no incremental amounts to collect or refund to customers.

Credit Risk Management of Financial Derivatives Instruments

No collateral was posted with or by NW Natural counterparties as of June 30, 2019 or 2018. NW Natural attempts to minimize the potential exposure to collateral calls by counterparties to manage liquidity risk. Counterparties generally allow a certain credit limit threshold before requiring NW Natural to post collateral against loss positions. Given NW Natural's counterparty credit limits and portfolio diversification, it was not subject to collateral calls in 2019 or 2018. The collateral call exposure is set forth under credit support agreements, which generally contain credit limits. NW Natural could also be subject to collateral call exposure where it has agreed to provide adequate assurance, which is not specific as to the amount of credit limit allowed, but could potentially require additional collateral in the event of a material adverse change.

Based upon current commodity financial swap and option contracts outstanding, which reflect unrealized losses of $4.6 million at June 30, 2019, we have estimated the level of collateral demands, with and without potential adequate assurance calls, using current gas prices and various credit downgrade rating scenarios for NW Natural as follows:



			Credit Rating Downgrade Scenarios
In thousands	(Current Ratings) A+/A3		BBB+/Baa1		BBB/Baa2		BBB-/Baa3			Speculative
With Adequate Assurance Calls	$	—	$	—	$	—	$	(840	)	$	(2,179	)
Without Adequate Assurance Calls	—		—		—		(840		)	(1,910		)

NW Natural's financial derivative instruments are subject to master netting arrangements; however, they are presented on a gross basis in the consolidated balance sheets. NW Natural and its counterparties have the ability to set-off obligations to each other under specified circumstances. Such circumstances may include a defaulting party, a credit change due to a merger affecting either party, or any other termination event.

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If netted by counterparty, NW Natural's physical and financial derivative position would result in an asset of $1.6 million and a liability of $5.5 million as of June 30, 2019, an asset of $2.5 million and a liability of $15.0 million as of June 30, 2018, and an asset of $3.6 million and a liability of $9.3 million as of December 31, 2018.

NW Natural is exposed to derivative credit and liquidity risk primarily through securing fixed price natural gas commodity swaps to hedge the risk of price increases for natural gas purchases made on behalf of customers. See Note 15 in the 2018 Form 10-K for additional information.

Fair Value

In accordance with fair value accounting, NW Natural includes non-performance risk in calculating fair value adjustments. This includes a credit risk adjustment based on the credit spreads of NW Natural counterparties when in an unrealized gain position, or on NW Natural's own credit spread when in an unrealized loss position. The inputs in our valuation models include natural gas futures, volatility, credit default swap spreads and interest rates. Additionally, the assessment of non-performance risk is generally derived from the credit default swap market and from bond market credit spreads. The impact of the credit risk adjustments for all outstanding derivatives was immaterial to the fair value calculation at June 30, 2019. Using significant other observable or Level 2 inputs, the net fair value was a liability of $3.9 million, a liability of $12.5 million, and a liability of $5.7 million as of June 30, 2019 and 2018, and December 31, 2018, respectively. No Level 3 inputs were used in our derivative valuations, and there were no transfers between Level 1 or Level 2 during the six months ended June 30, 2019 and 2018. See Note 2 in the 2018 Form 10-K.

17. ENVIRONMENTAL MATTERS

NW Natural owns, or previously owned, properties that may require environmental remediation or action. The range of loss for environmental liabilities is estimated based on current remediation technology, enacted laws and regulations, industry experience gained at similar sites, and an assessment of the probable level of involvement and financial condition of other potentially responsible parties (PRPs). When amounts are prudently expended related to site remediation of those sites described herein, NW Natural has a recovery mechanism in place to collect 96.68% of remediation costs allocable to Oregon customers, and NW Natural is allowed to defer environmental remediation costs allocated to customers in Washington annually until they are reviewed for prudence at a subsequent proceeding.

These sites are subject to the remediation process prescribed by the Environmental Protection Agency (EPA) and the Oregon Department of Environmental Quality (ODEQ). The process begins with a remedial investigation (RI) to determine the nature and extent of contamination and then a risk assessment (RA) to establish whether the contamination at the site poses unacceptable risks to humans and the environment. Next, a feasibility study (FS) or an engineering evaluation/cost analysis (EE/CA) evaluates various remedial alternatives. It is at this point in the process when NW Natural is able to estimate a range of remediation costs and record a reasonable potential remediation liability, or make an adjustment to the existing liability. From this study, the regulatory agency selects a remedy and issues a Record of Decision (ROD). After a ROD is issued, NW Natural would seek to negotiate a consent decree or consent judgment for designing and implementing the remedy. NW Natural would have the ability to further refine estimates of remediation liabilities at that time.

Remediation may include treatment of contaminated media such as sediment, soil and groundwater, removal and disposal of media, institutional controls such as legal restrictions on future property use, or natural recovery. Following construction of the remedy, the EPA and ODEQ also have requirements for ongoing maintenance, monitoring and other post-remediation care that may continue for many years. Where appropriate and reasonably known, NW Natural will provide for these costs in the remediation liabilities described below.

Due to the numerous uncertainties surrounding the course of environmental remediation and the preliminary nature of several site investigations, in some cases, NW Natural may not be able to reasonably estimate the high end of the range of possible loss. In those cases, the nature of the possible loss has been disclosed, as has the fact that the high end of the range cannot be reasonably estimated where a range of potential loss is available. Unless there is an estimate within the range of possible losses that is more likely than other cost estimates within that range, NW Natural records the liability at the low end of this range. It is likely changes in these estimates and ranges will occur throughout the remediation process for each of these sites due to the continued evaluation and clarification concerning responsibility, the complexity of environmental laws and regulations and the determination by regulators of remediation alternatives. In addition to remediation costs, NW Natural could also be subject to Natural Resource Damages (NRD) claims. NW Natural will assess the likelihood and probability of each claim and recognize a liability if deemed appropriate. Refer to "Other Portland Harbor" below.

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Environmental Sites

The following table summarizes information regarding liabilities related to environmental sites, which are recorded in other current liabilities and other noncurrent liabilities in NW Natural's balance sheet:



	Current Liabilities						Non-Current Liabilities
	June 30,				December 31,		June 30,				December 31,
In thousands	2019		2018		2018		2019		2018		2018
Portland Harbor site:
Gasco/Siltronic Sediments	$	4,403	$	2,174	$	5,117	$	44,374	$	45,330	$	44,351
Other Portland Harbor	2,150		1,444		2,600		5,645		3,871		6,273
Gasco/Siltronic Upland site	9,964		9,947		13,983		42,672		45,578		44,830
Central Service Center site	10		25		10		—		—		—
Front Street site	1,051		906		11,402		10,150		10,683		3
Oregon Steel Mills	—		—		—		179		179		179
Total	$	17,578	$	14,496	$	33,112	$	103,020	$	105,641	$	95,636

PORTLAND HARBOR SITE. The Portland Harbor is an EPA listed Superfund site that is approximately 10 miles long on the Willamette River and is adjacent to NW Natural's Gasco uplands site. NW Natural is one of over one hundred PRPs, each jointly and severally liable, to the Superfund site. In January 2017, the EPA issued its Record of Decision, which selects the remedy for the cleanup of the Portland Harbor site (Portland Harbor ROD). The Portland Harbor ROD estimates the present value total cost at approximately $1.05 billion with an accuracy between -30% and +50% of actual costs. NW Natural is actively pursuing clarification and flexibility under the Portland Harbor ROD in order to better understand its obligations.

NW Natural's potential liability is a portion of the costs of the remedy for the entire Portland Harbor Superfund site. The cost of that remedy is expected to be allocated among more than 100 PRPs. NW Natural is participating in a non-binding allocation process with the other PRPs in an effort to resolve its potential liability. The Portland Harbor ROD does not provide any additional clarification around allocation of costs among PRPs and, as a result of issuance of the Portland Harbor ROD, NW Natural has not modified any of the recorded liabilities at this time.

NW Natural manages the liability related to the Superfund site as two distinct remediation projects: the Gasco/Siltronic Sediments and Other Portland Harbor projects.

Gasco/Siltronic Sediments. In 2009, NW Natural and Siltronic Corporation entered into a separate Administrative Order on Consent with the EPA to evaluate and design specific remedies for sediments adjacent to the Gasco uplands and Siltronic uplands sites. NW Natural submitted a draft EE/CA to the EPA in May 2012 to provide the estimated cost of potential remedial alternatives for this site. At this time, the estimated costs for the various sediment remedy alternatives in the draft EE/CA for the additional studies and design work needed before the cleanup can occur, and for regulatory oversight throughout the cleanup range from $48.8 million to $350 million. NW Natural has recorded a liability of $48.8 million for the sediment cleanup, which reflects the low end of the range. At this time, NW Natural believes sediments at this site represent the largest portion of its liability related to the Portland Harbor site discussed above.

Other Portland Harbor. While we believe liabilities associated with the Gasco/Siltronic sediments site represent NW Natural's largest exposure, there are other potential exposures associated with the Portland Harbor ROD, including NRD costs and harborwide remedial design and cleanup costs (including downstream petroleum contamination), for which allocations among the PRPs have not yet been determined.

NW Natural and other parties have signed a cooperative agreement with the Portland Harbor Natural Resource Trustee council to participate in a phased NRD assessment to estimate liabilities to support an early restoration-based settlement of NRD claims. One member of this Trustee council, the Yakama Nation, withdrew from the council in 2009, and in 2017, filed suit against NW Natural and 29 other parties seeking remedial costs and NRD assessment costs associated with the Portland Harbor site, set forth in the complaint. The complaint seeks recovery of alleged costs totaling $0.3 million in connection with the selection of a remedial action for the Portland Harbor site as well as declaratory judgment for unspecified future remedial action costs and for costs to assess the injury, loss or destruction of natural resources resulting from the release of hazardous substances at and from the Portland Harbor site. The Yakama Nation has filed two amended complaints addressing certain pleading defects and dismissing the State of Oregon. The Magistrate Judge has recommended granting NW Natural and certain other defendants' motion to stay the case. NW Natural has recorded a liability for NRD claims which is at the low end of the range of the potential liability; the high end of the range cannot be reasonably estimated at this time. The NRD liability is not included in the aforementioned range of costs provided in the Portland Harbor ROD.

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GASCO UPLANDS SITE. A predecessor of NW Natural, Portland Gas and Coke Company, owned a former gas manufacturing plant that was closed in 1958 (Gasco site) and is adjacent to the Portland Harbor site described above. The Gasco site has been under investigation by NW Natural for environmental contamination under the ODEQ Voluntary Cleanup Program (VCP). It is not included in the range of remedial costs for the Portland Harbor site noted above. The Gasco site is managed in two parts, the uplands portion and the groundwater source control action.

NW Natural submitted a revised Remedial Investigation Report for the uplands to ODEQ in May 2007. In March 2015, ODEQ approved the RA, enabling commencement of work on the FS in 2016. NW Natural has recognized a liability for the remediation of the uplands portion of the site which is at the low end of the range of potential liability; the high end of the range cannot be reasonably estimated at this time.

In October 2016, ODEQ and NW Natural agreed to amend their VCP agreement to incorporate a portion of the Siltronic property adjacent to the Gasco site formerly owned by Portland Gas & Coke between 1939 and 1960 into the Gasco RA and FS, excluding the uplands for Siltronic. Previously, NW Natural was conducting an investigation of manufactured gas plant constituents on the entire Siltronic uplands for ODEQ. Siltronic will be working with ODEQ directly on environmental impacts to the remainder of its property.

In September 2013, NW Natural completed construction of a groundwater source control system, including a water treatment station, at the Gasco site. NW Natural has estimated the cost associated with the ongoing operation of the system and has recognized a liability which is at the low end of the range of potential cost. NW Natural cannot estimate the high end of the range at this time due to the uncertainty associated with the duration of running the water treatment station, which is highly dependent on the remedy determined for both the upland portion as well as the final remedy for Gasco sediment exposure.

OTHER SITES. In addition to those sites above, NW Natural has environmental exposures at three other sites: Central Service Center, Front Street and Oregon Steel Mills. NW Natural may have exposure at other sites that have not been identified at this time. Due to the uncertainty of the design of remediation, regulation, timing of the remediation and in the case of the Oregon Steel Mills site, pending litigation, liabilities for each of these sites have been recognized at their respective low end of the range of potential liability; the high end of the range could not be reasonably estimated at this time.

Central Service Center site. NW Natural is currently performing an environmental investigation of the property under ODEQ's Independent Cleanup Pathway. This site is on ODEQ's list of sites with confirmed releases of hazardous substances, and cleanup is necessary.

Front Street site. The Front Street site was the former location of a gas manufacturing plant NW Natural operated (the former Portland Gas Manufacturing site, or PGM). At ODEQ’s request, NW Natural conducted a sediment and source control investigation and provided findings to ODEQ. In December 2015, an FS on the former Portland Gas Manufacturing site was completed.

In July 2017, ODEQ issued the PGM ROD. The ROD specifies the selected remedy, which requires a combination of dredging, capping, treatment, and natural recovery. In addition, the selected remedy also requires institutional controls and long-term inspection and maintenance. NW Natural revised the liability in the second quarter of 2017 to incorporate the estimated undiscounted cost of approximately $10.5 million for the selected remedy. Further, NW Natural has recognized an additional liability of $0.7 million for additional studies and design costs as well as regulatory oversight throughout the cleanup. NW Natural plans to complete the remedial design in 2019 and currently expects to construct the remedy in 2020.

Oregon Steel Mills site. Refer to "Legal Proceedings" below.

Site Remediation and Recovery Mechanism (SRRM)

NW Natural has an SRRM through which it tracks and has the ability to recover past deferred and future prudently incurred environmental remediation costs allocable to Oregon, subject to an earnings test, for those sites identified therein. See Note 17 in the 2018 Form 10-K for a description of the SRRM collection process.

The following table presents information regarding the total regulatory asset deferred:



	June 30,						December 31,
In thousands	2019			2018			2018
Deferred costs and interest ⁽¹⁾	$	43,222		$	46,862		$	41,883
Accrued site liabilities ⁽²⁾	120,226			119,712			128,369
Insurance proceeds and interest	(90,119		)	(95,824		)	(88,502		)
Total regulatory asset deferral⁽¹⁾	$	73,329		$	70,750		$	81,750
Current regulatory assets⁽³⁾	5,089			5,594			5,601
Long-term regulatory assets⁽³⁾	68,240			65,156			76,149

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⁽¹⁾	Includes pre-review and post-review deferred costs, amounts currently in amortization, and interest, net of amounts collected from customers.


⁽²⁾	Excludes 3.32% of the Front Street site liability, or $0.4 million in 2019 and $0.4 million in 2018, as the OPUC only allows recovery of 96.68% of costs for those sites allocable to Oregon, including those that historically served only Oregon customers.

⁽³⁾

Environmental costs relate to specific sites approved for regulatory deferral by the OPUC and WUTC. In Oregon, NW Natural earns a carrying charge on cash amounts paid, whereas amounts accrued but not yet paid do not earn a carrying charge until expended. It also accrues a carrying charge on insurance proceeds for amounts owed to customers. In Washington, a carrying charge related to deferred amounts is expected to be determined in the current general rate case. Current environmental costs represent remediation costs management expects to collect from customers in the next 12 months. Amounts included in this estimate are still subject to a prudence and earnings test review by the OPUC and do not include the $5.0 million tariff rider. The amounts allocable to Oregon are recoverable through NGD rates, subject to an earnings test.

ENVIRONMENTAL EARNINGS TEST. To the extent NW Natural earns at or below its authorized Return on Equity (ROE) as defined by the SRRM, remediation expenses and interest in excess of the $5.0 million tariff rider and $5.0 million insurance proceeds are recoverable through the SRRM. To the extent that NW Natural earns more than its authorized ROE in a year, it is required to cover environmental expenses and interest on expenses greater than the $10.0 million with those earnings that exceed its authorized ROE. In the first quarter of 2019, NW Natural recorded a $4.4 million reserve for an anticipated adjustment for fiscal year 2019 as a result of expected earnings that would exceed the authorized ROE and expenses that would be subject to deferral through the SRRM. In the second quarter of 2019, compliance with certain remediation requirements delayed an environmental project to 2020 and accordingly the reserve was reversed for the change in amounts that would be subject to deferral through the SRRM.

Under the 2015 Order, the OPUC stated they would revisit the deferral and amortization of future remediation expenses, as well as the treatment of remaining insurance proceeds three years from the original Order, or earlier if NW Natural gains greater certainty about future remediation costs, to consider whether adjustments to the mechanism may be appropriate. NW Natural filed an update with the OPUC in March 2018 and recommended no changes.

WASHINGTON DEFERRAL. Cost recovery and carrying charges on amounts deferred for costs associated with services provided to Washington customers will be determined in a future proceeding.

Legal Proceedings

Other than the matters discussed above, NW Holdings is not currently party to any direct claims or litigation, though in the future it may be subject to claims and litigation arising in the ordinary course of business.

NW Natural is subject to claims and litigation arising in the ordinary course of business. Although the final outcome of any of these legal proceedings cannot be predicted with certainty, including the matter described below, NW Natural and NW Holdings do not expect that the ultimate disposition of any of these matters will have a material effect on financial condition, results of operations or cash flows. See also Part II, Item 1, “Legal Proceedings".

OREGON STEEL MILLS SITE. See Note 17 in the 2018 Form 10-K.

For additional information regarding other commitments and contingencies, see Note 16 in the 2018 Form 10-K.

18. DISCONTINUED OPERATIONS

NW Holdings

On June 20, 2018, NWN Gas Storage, then a wholly owned subsidiary of NW Natural, entered into a Purchase and Sale Agreement (the Agreement) that provides for the sale by NWN Gas Storage of all of the membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. Pacific Gas and Electric Company (PG&E) owns the remaining 25% interest in the Gill Ranch Gas Storage Facility. The CPUC regulates Gill Ranch under a market-based rate model which allows for the price of storage services to be set by the marketplace. The CPUC also regulates the issuance of securities, system of accounts, and regulates intrastate storage services.

The Agreement provides for an initial cash purchase price of $25.0 million (subject to a working capital adjustment), plus potential additional payments to NWN Gas Storage of up to $26.5 million in the aggregate if Gill Ranch achieves certain economic performance levels for the first three full gas storage years (April 1 of one year through March 31 of the following year) occurring after the closing and the remaining portion of the gas storage year during which the closing occurs.

The closing of the transaction is subject to approval by the CPUC and other customary closing conditions. In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction. On February 14, 2019, the active parties to the CPUC proceeding filed a settlement agreement with the CPUC. On July 23, 2019, one of the parties to the settlement agreement, the CPUC’s Office of Safety Advocates (OSA), filed a motion with the CPUC to withdraw from the settlement agreement and requested a new pre-hearing conference. On July 29, 2019, Gill Ranch and the proposed purchaser filed motions with the CPUC to strike the OSA’s motion of withdrawal together with a request to supplement the evidentiary record with materials which

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the applicants believe demonstrate that the issues raised by the OSA are not relevant to the CPUC proceeding. We continue to strive to close this transaction by the end of 2019.

As a result of the strategic shift away from the California gas storage market and the significance of Gill Ranch's financial results in 2017, we concluded that the pending sale of Gill Ranch qualified it as assets and liabilities held for sale and discontinued operations. As such, the assets and liabilities associated with Gill Ranch have been classified as discontinued operations assets and discontinued operations liabilities, respectively, and, the results of Gill Ranch are presented, net of tax, as discontinued operations separately from the results of continuing operations for all periods presented. The expenses included in the results of discontinued operations are the direct operating expenses incurred by Gill Ranch that may be reasonably segregated from the costs of NW Holdings' continuing operations.

The following table presents the carrying amounts of the major components of Gill Ranch that are classified as discontinued operations assets and liabilities on the consolidated balance sheets:



	NW Holdings Discontinued Operations
	June 30,				December 31,
In thousands	2019		2018		2018
Assets:
Accounts receivable	$	519	$	497	$	390
Inventories	756		646		685
Other current assets	183		413		333
Property, plant, and equipment	12,184		10,948		11,621
Less: Accumulated depreciation	6		6		7
Operating lease right of use asset	118		—		—
Other non-current assets	247		245		247
Total discontinued operations assets - current assets ⁽¹⁾	$	14,001	$	12,743	$	13,269

Liabilities:
Accounts payable	$	1,230	$	572	$	873
Other current liabilities	296		436		307
Operating lease liabilities	113		—		—
Other non-current liabilities	11,640		11,914		11,779
Total discontinued operations liabilities - current liabilities ⁽¹⁾	$	13,279	$	12,922	$	12,959


⁽¹⁾	The total assets and liabilities of Gill Ranch are classified as current as of June 30, 2019 and December 31, 2018 because it is probable that the sale will be completed within one year.

The following table presents the operating results of Gill Ranch, which was reported within the gas storage segment historically, and is presented net of tax on the consolidated statements of comprehensive income:



	NW Holdings Discontinued Operations
	Three Months Ended June 30,						Six Months Ended June 30,
In thousands, except per share data	2019			2018			2019			2018
Revenues	$	1,748		$	1,006		$	3,469		$	2,083
Expenses:
Operations and maintenance	2,651			1,554			4,264			2,590
General taxes	60			346			119			680
Depreciation and amortization	106			108			212			218
Other expenses and interest	229			(107		)	466			134
Total expenses	3,046			1,901			5,061			3,622
Loss from discontinued operations before income taxes	(1,298		)	(895		)	(1,592		)	(1,539		)
Income tax benefit	(342		)	(236		)	(419		)	(406		)
Loss from discontinued operations, net of tax	$	(956	)	$	(659	)	$	(1,173	)	$	(1,133	)

Loss from discontinued operations per share of common stock:
Basic	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.04	)
Diluted	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.04	)

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NW Natural

As a result of the holding company reorganization in October 2018, NWN Energy, NWN Gas Storage, Gill Ranch, NNG Financial, NWN Water, and NW Holdings, which were direct and indirect subsidiaries of NW Natural prior to the reorganization, are no longer subsidiaries of NW Natural. As a result, NW Natural's financial statements reflect amounts related to these entities as discontinued operations for all periods presented. The expenses included in the results of discontinued operations are the direct operating expenses incurred by the entities that may be reasonably segregated from the costs of NW Natural's continuing operations.

The following table presents the carrying amounts of the major components of NWN Energy, NWN Gas Storage, Gill Ranch, NNG Financial, NWN Water, and NW Holdings that are classified as discontinued operations assets and liabilities on NW Natural's consolidated balance sheets:



	NW Natural Discontinued Operations
In thousands	June 30, 2018
Assets:
Cash	$	433
Accounts receivable	498
Receivables from affiliates	3,814
Inventories	646
Other current assets	482
Property, plant, and equipment	11,323
Less: Accumulated depreciation	213
Other investments	13,673
Other non-current assets	254
Discontinued operations - current assets	5,873
Discontinued operations - non-current assets	25,037
Total discontinued operations assets	$	30,910

Liabilities:
Accounts payable	$	971
Taxes accrued	30
Payables to affiliates	265
Other current liabilities	1,436
Deferred tax liabilities	(15,022		)
Other non-current liabilities	12,004
Discontinued operations - current liabilities	2,702
Discontinued operations - non-current liabilities	(3,018		)
Total discontinued operations liabilities	$	(316	)

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The following table presents the operating results prior to the holding company reorganization effective October 1, 2018 of NWN Energy, NWN Gas Storage, Gill Ranch, NNG Financial, NWN Water, and NW Holdings, which were historically reported within the gas storage segment and other, and is presented net of tax on NW Natural's consolidated statements of comprehensive income:



	NW Natural Discontinued Operations
	Three Months Ended June 30,			Six Months Ended June 30,
In thousands, except per share data	2018			2018
Revenues	$	1,065		$	2,198
Expenses:
Operations and maintenance	1,684			2,743
General taxes	356			703
Depreciation and amortization	165			282
Other expenses and interest	(150		)	110
Total expenses	2,055			3,838
Loss from discontinued operations before income taxes	(990		)	(1,640		)
Income tax benefit	(263		)	(436		)
Loss from discontinued operations, net of tax	$	(727	)	$	(1,204	)

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s assessment of NW Holdings' and NW Natural's financial condition, including the principal factors that affect results of operations. The discussion refers to the consolidated results from continuing operations for the three and six months ended June 30, 2019 and 2018 of NW Holdings, the substantial majority of which consist of the operating results of NW Natural. When significant activity exists at NW Holdings that does not exist at NW Natural, additional disclosure has been provided. References in this discussion to "Notes" are to the Notes to Unaudited Consolidated Financial Statements in this report. A significant portion of the business results are seasonal in nature, and, as such, the results of operations for the three and six month periods are not necessarily indicative of expected fiscal year results. Therefore, this discussion should be read in conjunction with NW Holdings' and NW Natural's 2018 Annual Report on Form 10-K, as applicable (2018 Form 10-K).

NW Holdings' direct and indirect wholly-owned subsidiaries include:


•	Northwest Natural Gas Company (NW Natural);


◦	Northwest Energy Corporation (Energy Corp);


▪	NWN Gas Reserves LLC (NWN Gas Reserves);


•	NW Natural Energy, LLC (NWN Energy);


◦	NW Natural Gas Storage, LLC (NWN Gas Storage);


▪	Gill Ranch Storage, LLC (Gill Ranch), which is presented as a discontinued operation;


•	NNG Financial Corporation (NNG Financial);


◦	KB Pipeline Company (KB);


•	NW Natural Water Company, LLC (NWN Water);


◦	Falls Water Co., Inc. (Falls Water);


◦	Salmon Valley Water Company;


◦	NW Natural Water of Oregon, LLC (NWN Water of Oregon);


▪	Sunstone Water, LLC;


▪	Sunstone Infrastructure, LLC;


▪	Sunriver Water, LLC;


▪	Sunriver Environmental, LLC;


◦	NW Natural Water of Washington, LLC (NWN Water of Washington);


▪	Cascadia Infrastructure, LLC;


◦	Cascadia Water, LLC (Cascadia);


◦	NW Natural Water of Idaho, LLC (NWN Water of Idaho);


▪	Gem State Water Company, LLC (Gem State); and


▪	Gem State Infrastructure, LLC.

On October 1, 2018, we completed a reorganization into a holding company structure. We believe that our holding company structure is an agile and efficient platform from which to pursue, finance, and oversee new opportunities, such as in the water sector, while also providing legal separation between regulated natural gas distribution operations and other businesses. In this reorganization, shareholders of NW Natural (the predecessor publicly held parent company) became shareholders of NW Holdings, on a one-for-one basis, with the same number of shares and same ownership percentage as they held in NW Natural immediately prior to the reorganization. NW Natural became a wholly-owned subsidiary of NW Holdings. Additionally, certain subsidiaries of NW Natural were transferred to NW Holdings. As required under accounting guidance, these subsidiaries are presented as discontinued operations in the consolidated results of NW Natural within this report.

NW Natural's natural gas distribution activities are reported in the natural gas distribution (NGD) segment. The NGD segment includes our NW Natural local gas distribution business, NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, and the NGD-portion of NW Natural's Mist storage facility in Oregon. Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center operations. Other activities aggregated and reported as other at NW Holdings include NWN Energy's equity investment in Trail West Holding, LLC (TWH), which is pursuing the development of a proposed natural gas pipeline through its wholly-owned subsidiary, Trail West Pipeline, LLC (TWP); NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); and NWN Water, which through itself or its subsidiaries owns and continues to pursue investments in the water sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries.

NON-GAAP FINANCIAL MEASURES. In addition to presenting the results of operations and earnings amounts in total, certain financial measures are expressed in cents per share, which are non-GAAP financial measures. All references in this section to earnings per share (EPS) are on the basis of diluted shares. We use such non-GAAP financial measures to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations. Our non-GAAP financial measures should not be considered a substitute for, or superior to, measures calculated in accordance with U.S. GAAP.

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EXECUTIVE SUMMARY

We manage our business and strategic initiatives with a long-term view of providing natural gas service safely and reliably to customers, working with regulators on key policy initiatives, and remaining focused on growing our business. See "2019 Outlook" in the 2018 Form 10-K for more information. Current operational highlights include:


•	NGD business added over 12,400 meters during the past twelve months for a growth rate of 1.7% at June 30, 2019;


•	invested $90.5 million in the NGD distribution system and facilities for growth, safety, and reliability;


•	placed our North Mist expansion project into service and began providing storage services; and


•	continued executing our water expansion strategy by completing our largest water and wastewater acquisitions to date.

Key quarter-to-date financial highlights for NW Holdings include:



	Three Months Ended June 30,
	2019						2018						QTD
In thousands, except per share data	Amount			Per Share			Amount			Per Share			Change
Net income from continuing operations	$	2,051		$	0.07		$	(339	)	$	(0.01	)	$	2,390
Loss from discontinued operations, net of tax	(956		)	(0.03		)	(659		)	(0.02		)	(297		)
Consolidated net income	$	1,095		$	0.04		$	(998	)	$	(0.03	)	$	2,093
NGD margin	$	80,981					$	69,746					$	11,235

Key quarter-to-date financial highlights for NW Natural include:



	Three Months Ended June 30,
	2019		2018			QTD
In thousands, except per share data	Amount		Amount			Change
Net income from continuing operations	$	3,054	$	(271	)	$	3,325
Loss from discontinued operations, net of tax	—		(727		)	727
Consolidated net income	$	3,054	$	(998	)	$	4,052
NGD margin	$	80,981	$	69,746		$	11,235

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Net income from continuing operations increased $2.4 million and $3.3 million at NW Holdings and NW Natural, respectively. The increase was primarily due to the following factors, all of which occurred at NW Natural:

•

a $11.2 million increase in NGD margin driven by a $5.0 million increase from new customer rates in Oregon from NW Natural's 2018 rate case, a $4.4 million increase due to the reversal of a first quarter 2019 estimated reserve for environmental cost sharing as compliance with certain remediation requirements delayed an environmental project to 2020, and the commencement of storage services at the North Mist expansion facility; partially offset by


•	a $4.7 million increase in pension costs within operations and maintenance expense and other income (expense), net, resulting from the Oregon rate case in which NW Natural was required to freeze its pension balancing account and begin collecting both the account and full pension expenses in rates; and interest expense from higher short-term debt balances; and


•	a $4.4 million decrease due to higher NGD income tax expense from NGD pretax income in the current period compared to a NGD pretax loss in the prior period, lower allowance for funds used during construction (AFUDC) interest income due to the placement of the North Mist expansion project into service, and increased NGD depreciation expense from plant additions.

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Key year-to-date financial highlights for NW Holdings include:



	Six Months Ended June 30,
	2019						2018						YTD
In thousands, except per share data	Amount			Per Share			Amount			Per Share			Change
Net income from continuing operations	$	45,469		$	1.56		$	41,672		$	1.45		$	3,797
Loss from discontinued operations, net of tax	(1,173		)	(0.04		)	(1,133		)	(0.04		)	(40		)
Consolidated net income	$	44,296		$	1.52		$	40,539		$	1.41		$	3,757
NGD margin	$	233,636					$	202,462					$	31,174

Key year-to-date financial highlights for NW Natural include:



	Six Months Ended June 30,
	2019		2018			YTD
In thousands, except per share data	Amount		Amount			Change
Net income from continuing operations	$	46,949	$	41,743		$	5,206
Loss from discontinued operations, net of tax	—		(1,204		)	1,204
Consolidated net income	$	46,949	$	40,539		$	6,410
NGD margin	$	233,636	$	202,462		$	31,174

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Net income from continuing operations increased $3.8 million and $5.2 million at NW Holdings and NW Natural, respectively.

In March 2019, the OPUC issued an order resolving the remaining open items from NW Natural's 2018 Oregon general rate case regarding recovery of the pension balancing account and treatment of the benefits associated with the Tax Cuts and Jobs Act (TCJA). As a result of the order, in the first quarter of 2019, NW Natural recorded a disallowance and several benefits and expenses through the consolidated statements of comprehensive income as follows:

Pension balancing account. Approximately $12.5 million in previously deferred pension expenses were recognized of which approximately $4.6 million was recorded in operations and maintenance expense and $7.9 million was recorded in other income (expense), net. These charges were offset with a corresponding increase in revenue of $7.1 million and in income tax benefits of $2.7 million as the order required the offset of certain deferred TCJA benefits against the pension balancing account. Additional TCJA income tax benefits will be realized throughout 2019 to offset the remainder of the $12.5 million charge. NW Natural also recognized a regulatory pension disallowance of $10.5 million with approximately $3.9 million recognized in operations and maintenance expense and $6.6 million recognized in other income (expense), net, partially offset by related discrete income tax benefits of $1.1 million. Lastly, NW Natural realized $3.8 million of deferred regulatory interest accrued on the pension balancing account.

Deferred TCJA benefits and timing variance. In addition, the OPUC ordered the return of approximately $6.3 million of excess deferred income taxes associated with plant and gas reserves beginning April 1, 2019. As a result, NW Natural recognized approximately $2.0 million in income tax benefits in the first quarter of 2019. Reductions to customer billings commenced April 1, 2019 and will offset these income tax benefits in total by the end of 2019 and in subsequent years until all benefits have been returned.

The increase in net income from continuing operations of $3.8 million and $5.2 million at NW Holdings and NW Natural, respectively, was primarily due to the following factors, all of which occurred at NW Natural:

•

a $31.2 million increase in NGD margin driven by a $15.3 million increase from new customer rates in Oregon from NW Natural's 2018 rate case and increases from customer growth, colder weather in 2019 compared to 2018, and the commencement of storage services at the North Mist expansion facility; the remaining increase primarily relates to $7.1 million in revenues which were offset by pension expenses as discussed above as well as;


•	a $5.5 million decrease in NGD income tax expense primarily due to the income tax implications of the March 2019 OPUC order, including commencement of deferred TCJA benefit credits to customers and the regulatory pension disallowance;


•	a $4.8 million increase in deferred regulatory interest income in other income (expense), net, of which $4.2 million relates to interest recognized in association with the OPUC order discussed above; partially offset by


•	a $10.5 million regulatory pension disallowance with $3.9 million reflected in operations and maintenance expense and $6.6 million recorded in other income (expense), net, as discussed above;

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•	a $8.6 million increase in expenses related to higher pension costs within operations and maintenance expense and other income (expense), net, as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion to the pension balancing account, and interest expense from higher short-term debt balances;


•	a $1.9 million increase in NGD depreciation expense due to plant additions; and


•	a $1.9 million decrease in NGD AFUDC interest income due to placing the North Mist expansion project into service.

See the discussion in "Results of Operations" below for additional detail regarding all significant activity that occurred during the second quarter of 2019.

DIVIDENDS

Dividend highlights include:



	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change		YTD Change
Per common share	2019		2018		2019		2018		QTD Change		YTD Change
Dividends paid	$	0.4750	$	0.4725	$	0.9500	$	0.9450	$	0.0025	$	0.0050

In July 2019, the Board of Directors of NW Holdings declared a quarterly dividend on NW Holdings common stock of $0.4750 per share. The dividend is payable on August 15, 2019, to shareholders of record on July 31, 2019, reflecting an annual indicated dividend rate of $1.90 per share.

RESULTS OF OPERATIONS

Regulatory Matters

For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in the 2018 Form 10-K.

Regulation and Rates

NATURAL GAS DISTRIBUTION. NW Natural's natural gas distribution business is subject to regulation by the OPUC and WUTC with respect to, among other matters, rates and terms of service, systems of accounts, and issuances of securities by NW Natural. In 2018, approximately 89% of NGD customers were located in Oregon, with the remaining 11% in Washington. Earnings and cash flows from natural gas distribution operations are largely determined by rates set in general rate cases and other proceedings in Oregon and Washington. They are also affected by weather, the local economies in Oregon and Washington, the pace of customer growth in the residential, commercial, and industrial markets, and NW Natural's ability to remain price competitive, control expenses, and obtain reasonable and timely regulatory recovery of its natural gas distribution-related costs, including operating expenses and investment costs in plant and other regulatory assets. See "Most Recent Completed General Rate Cases" below.

MIST INTERSTATE GAS STORAGE. NW Natural's interstate storage activity at Mist is subject to regulation by the OPUC, WUTC, and the Federal Energy Regulatory Commission (FERC) with respect to, among other matters, rates and terms of service. The OPUC also regulates the intrastate storage services at Mist, while FERC regulates the interstate storage services at Mist. The FERC uses a maximum cost of service model which allows for gas storage prices to be set at or below the cost of service as approved by each agency in their last regulatory filing. The OPUC Schedule 80 rates are tied to the FERC rates, and are updated whenever NW Natural modifies FERC maximum rates.

OTHER. In June 2018, NW Natural entered into a Purchase and Sale Agreement for the sale of all of its ownership interests in Gill Ranch, a natural gas storage facility located near Fresno, California, which is subject to approval by the CPUC and other customary closing conditions. See Note 18 for more information. The wholly-owned regulated water businesses of NW Natural Water are subject to regulation by the OPUC, WUTC, and IPUC, as applicable.

Most Recent Completed General Rate Cases

OREGON. On October 26, 2018, the OPUC issued an order regarding NW Natural's general rate case (Order) originally filed in December 2017 and approved the following items effective beginning November 1, 2018:


•	Annual revenue requirement increase of $23.4 million or 3.72% over NW Natural's revenue from existing rates, which includes approximately $12.1 million that would otherwise be recovered under the conservation tariff deferral;


•	Capital structure of 50% debt and 50% equity;


•	Return on equity (ROE) of 9.4%;


•	Cost of capital of 7.317%;


•	Rate base of $1.186 billion, or an increase of $300 million since the last rate case in 2012;


•	Pension expenses will be recovered through rates with an increase of $8.1 million to revenue requirement; and


•	The sharing of asset management revenues related to utility pipeline and storage assets will be 90%/10% with 90% being credited to customers. Previously customers received 67% of these revenues.

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The Order also froze NW Natural’s pension balancing account as of October 31, 2018 and directed NW Natural and the other parties to the rate case to engage in further regulatory proceedings to resolve open issues with respect to the recovery of the pension balancing account, and treatment of the 10-month deferral period benefits associated with the TCJA.

In March 2019, the OPUC issued an order resolving the remaining rate case items. As a result, the following items were recorded in the first quarter of 2019:


•	Applied $7.1 million of TCJA benefits deferred from January 1, 2018 to October 31, 2018, as a reduction against the pension balancing account;


•	Credited to customers' benefit $5.4 million of deferred income taxes as a reduction against the pension balancing account;


•	Reduced the amount of the frozen balancing account by an additional $10.5 million; and


•	Reduced the interest rate on the pension balancing account from NW Natural's authorized rate of return of 7.317 percent to 4.3 percent.

The items above resulted in the recovery of $12.5 million of deferred pension expenses by applying deferred tax benefits against the pension balancing account. Recognition of these items resulted in higher operations and maintenance expense and other income (expense), net with offsetting benefits recognized in operating revenues and income tax expense. Additional pension expenses of $10.5 million from the regulatory disallowance were also recognized in operations and maintenance expense and other income (expense), net. Deferred regulatory interest income of $3.8 million was also realized in other income (expense), net.

Commencing April 1, 2019, the OPUC also ordered the following:


•	Provide an annual credit to base rates of $3.4 million for excess deferred income taxes to all customers, subject to the average rate assumption method;


•	Provide an additional annual credit of $3.0 million to sales service customers for five years;


•	Collect the remainder of the pension balancing account over ten years in a customer tariff of $7.3 million per year; and


•	An increase in rate base of $15.4 million, and corresponding increase to revenue requirement of $1.4 million.

If NW Natural files a general rate case within five years of the date of the Pension Order, this revenue requirement may be adjusted as part of that general rate case.

WASHINGTON. Effective January 1, 2009, the WUTC authorized rates to customers based on an ROE of 10.1% and an overall rate of return of 8.4% with a capital structure of 51% common equity, 5% short-term debt, and 44% long-term debt.

On December 31, 2018, NW Natural filed a general rate case in Washington requesting an ROE of 10.3%, an overall rate of return of 7.63%, and a capital structure of 49.5% common equity, 49.5% long-term debt, and 1% short-term debt. For additional information, see "Regulatory Proceeding Updates" below.

FERC. NW Natural is required under its Mist interstate storage certificate authority and rate approval orders to file every five years either a petition for rate approval or a cost and revenue study to change or justify maintaining the existing rates for its interstate storage services. On October 12, 2018, NW Natural filed a rate petition with FERC for revised maximum cost-based rates, which incorporated the new federal corporate income tax rate. The revised rates were effective beginning November 1, 2018.

NW Natural continuously evaluates the need for rate cases in its jurisdictions. For additional information, see "Regulatory Proceeding Updates— Washington General Rate Case" below.

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Rate Mechanisms

During 2019, NW Natural's key approved rates and recovery mechanisms for each service area included:



	Oregon	Washington
	2018 Rate Case (effective 11/1/2018)	2009 Rate Case
Authorized Rate Structure:
ROE	9.4%	10.1%
ROR	7.3%	8.4%
Debt/Equity Ratio	50%/50%	49%/51%

Key Regulatory Mechanisms:
Purchased Gas Adjustment (PGA)	X	X
Gas Cost Incentive Sharing	X
Decoupling	X
Weather Normalization (WARM)	X
Environmental Cost Deferral	X	X
Site Remediation and Recovery Mechanism (SRRM)	X
Interstate Storage and Asset Management Sharing	X	X

PURCHASED GAS ADJUSTMENT. Rate changes are established for NW Natural each year under PGA mechanisms in Oregon and Washington to reflect changes in the expected cost of natural gas commodity purchases. The PGA filings include gas costs under spot purchases as well as contract supplies, gas costs hedged with financial derivatives, gas costs from the withdrawal of storage inventories, the production of gas reserves, interstate pipeline demand costs, temporary rate adjustments, which amortize balances of deferred regulatory accounts, and the removal of temporary rate adjustments effective for the previous year.

Typically, each year NW Natural hedges gas prices on a portion of NW Natural's annual sales requirement based on normal weather, including both physical and financial hedges. NW Natural entered the 2018-19 gas year with its forecasted sales volumes hedged at 48% in financial swap and option contracts and 24% in physical gas supplies for Oregon and Washington.

As of June 30, 2019, NW Natural was also hedged in future gas years at approximately 34% for the 2019-20 gas year and between 1% and 16% for annual requirements over the subsequent five gas years. Hedge levels are subject to change based on actual load volumes, which depend to a certain extent on weather, economic conditions, and estimated gas reserve production. Also, gas storage inventory levels may increase or decrease with storage expansion, changes in storage contracts with third parties, variations in the heat content of the gas, and/or storage recall by NW Natural.

In September 2018, NW Natural filed its annual PGA and received OPUC and WUTC approval in October 2018. PGA rate changes were effective November 1, 2018. Rates between states can vary due to different rate structures and mechanisms. In addition, as required with the Washington PGA filing, NW Natural provided the WUTC with a full strategy implementation plan to incorporate risk-responsive hedging strategies in its natural gas procurement process. The plan calls for a flexible hedging approach that reacts to changes in market conditions as those changes occur. NW Natural expects to begin implementing risk-responsive hedging strategies for the 2019-20 PGA for its Washington gas supplies.

Under the current PGA mechanism in Oregon, there is an incentive sharing provision whereby NW Natural is required to select each year an 80% deferral or a 90% deferral of higher or lower actual gas costs compared to estimated PGA prices, such that the impact on NW Natural's current earnings from the incentive sharing is either 20% or 10% of the difference between actual and estimated gas costs, respectively. For the 2017-18 and 2018-19 gas years, NW Natural selected the 90% deferral option. Under the Washington PGA mechanism, NW Natural defers 100% of the higher or lower actual gas costs, and those gas cost differences are passed on to customers through the annual PGA rate adjustment.

EARNINGS TEST REVIEW. NW Natural is subject to an annual earnings review in Oregon to determine if the NGD business is earning above its authorized ROE threshold. If NGD business earnings exceed a specific ROE level, then 33% of the amount above that level is required to be deferred or refunded to customers. Under this provision, if NW Natural selects the 80% deferral gas cost option, then NW Natural retains all earnings up to 150 basis points above the currently authorized ROE. If NW Natural selects the 90% deferral option, then it retains all earnings up to 100 basis points above the currently authorized ROE. For the 2017-18 and 2018-19 gas years, NW Natural selected the 90% deferral option. The ROE threshold is subject to adjustment annually based on movements in long-term interest rates. For calendar year 2018, the ROE threshold was 10.48%. NW Natural filed the 2018 earnings test in May 2019, and it was approved by the Commission in July 2019. As a result, we were not subject to a customer refund adjustment for 2018.

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GAS RESERVES. In 2011, the OPUC approved the Encana gas reserves transaction to provide long-term gas price protection for NGD business customers and determined costs under the agreement would be recovered on an ongoing basis through the annual PGA mechanism. Gas produced from NW Natural's interests is sold at then prevailing market prices, and revenues from such sales, net of associated operating and production costs and amortization, are included in cost of gas. The cost of gas, including a carrying cost for the rate base investment made under the original agreement, is included in NW Natural's annual Oregon PGA filing, which allows NW Natural to recover these costs through customer rates. The net investment under the original agreement earns a rate of return.

In 2014, NW Natural amended the original gas reserves agreement in response to Encana's sale of its interest in the Jonah field located in Wyoming to Jonah Energy. Under the amended agreement with Jonah Energy, NW Natural has the option to invest in additional wells on a well-by-well basis with drilling costs and resulting gas volumes shared at the amended proportionate working interest for each well in which NW Natural invests. Volumes produced from the additional wells drilled after the amended agreement are included in NW Natural's Oregon PGA at a fixed rate of $0.4725 per therm. NW Natural did not participate in additional wells during the six months ended June 30, 2019.

DECOUPLING. In Oregon, NW Natural has a decoupling mechanism. Decoupling is intended to break the link between earnings and the quantity of gas consumed by customers, removing any financial incentive to discourage customers’ efforts to conserve energy.

The Oregon decoupling mechanism was reauthorized and the baseline expected usage per customer was reset in the 2018 Oregon general rate case. This mechanism employs a use-per-customer decoupling calculation, which adjusts margin revenues to account for the difference between actual and expected customer volumes. The margin adjustment resulting from differences between actual and expected volumes under the decoupling component is recorded to a deferral account, which is included in the annual PGA filing. In Washington, customer use is not covered by such a tariff. However, NW Natural's general rate case filed in Washington on December 31, 2018, requests that such a tariff be implemented that would adjust for variances in both weather and usage. See "Regulatory Proceeding Updates—Washington General Rate Case" below.

WARM. In Oregon, NW Natural has an approved weather normalization mechanism, which is applied to residential and commercial customer bills. This mechanism is designed to help stabilize the collection of fixed costs by adjusting residential and commercial customer billings based on temperature variances from average weather, with rate decreases when the weather is colder than average and rate increases when the weather is warmer than average. The mechanism is applied to bills from December through mid-May of each heating season. The mechanism adjusts the margin component of customers’ rates to reflect average weather, which uses the 25-year average temperature for each day of the billing period. Daily average temperatures and 25-year average temperatures are based on a set point temperature of 59 degrees Fahrenheit for residential customers and 58 degrees Fahrenheit for commercial customers. The collections of any unbilled WARM amounts due to tariff caps and floors are deferred and earn a carrying charge until collected, or returned, in the PGA the following year. Residential and commercial customers in Oregon are allowed to opt out of the weather normalization mechanism, and as of June 30, 2019, 8% of total customers had opted out. NW Natural does not have a weather normalization mechanism approved for residential and commercial Washington customers, which account for about 11% of total customers. See "Business Segments—Natural Gas Distribution" below.

INDUSTRIAL TARIFFS. The OPUC and WUTC have approved tariffs covering NGD service to major industrial customers, which are intended to give NW Natural certainty in the level of gas supplies needed to serve this customer group. The approved terms include, among other things, an annual election period, special pricing provisions for out-of-cycle changes, and a requirement that industrial customers complete the term of their service election under NW Natural's annual PGA tariff.

ENVIRONMENTAL COST DEFERRAL AND SRRM. NW Natural has a SRRM through which it tracks and has the ability to recover past deferred and future prudently incurred environmental remediation costs allocable to Oregon, subject to an earnings test.

Under the SRRM collection process there are three types of deferred environmental remediation expense:


•	Pre-review - This class of costs represents remediation spend that has not yet been deemed prudent by the OPUC. Carrying costs on these remediation expenses are recorded at NW Natural's authorized cost of capital. NW Natural anticipates the prudence review for annual costs and approval of the earnings test prescribed by the OPUC to occur by the third quarter of the following year.


•	Post-review - This class of costs represents remediation spend that has been deemed prudent and allowed after applying the earnings test, but is not yet included in amortization. NW Natural earns a carrying cost on these amounts at a rate equal to the five-year treasury rate plus 100 basis points.

•

Amortization - This class of costs represents amounts included in current customer rates for collection and is calculated as one-fifth of the post-review deferred balance. NW Natural earns a carrying cost equal to the amortization rate determined annually by the OPUC, which approximates a short-term borrowing rate. NW Natural included $6.1 million and $7.4 million of deferred remediation expense approved by the OPUC for collection during the 2018-19 and 2017-18 PGA years, respectively.

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In addition, the SRRM also provides for the annual collection of $5.0 million from Oregon customers through a tariff rider. As it collects amounts from customers, NW Natural recognizes these collections as revenue net of any earnings test adjustments and separately amortizes an equal and offsetting amount of the deferred regulatory asset balance through the environmental remediation operating expense line shown separately in the operating expenses section of the Consolidated Statements of Comprehensive Income. For additional information, see Note 17 in the 2018 Form 10-K.

The SRRM earnings test is an annual review of adjusted NGD ROE compared to authorized NGD ROE. For 2018, the first ten months were weighted at 9.5% and the last two months at 9.4%, reflecting the ROE change from NW Natural's most recent rate case effective November 1, 2018. To apply the earnings test NW Natural must first determine what if any costs are subject to the test through the following calculation:

Annual spend

Less: $5.0 million base rate rider

Prior year carry-over⁽¹⁾

$5.0 million insurance + interest on insurance

Total deferred annual spend subject to earnings test

Less: over-earnings adjustment, if any

Add: deferred interest on annual spend⁽²⁾

Total amount transferred to post-review


⁽¹⁾	Prior year carry-over results when the prior year amount transferred to post-review is negative. The negative amount is carried over to offset annual spend in the following year.


⁽²⁾	Deferred interest is added to annual spend to the extent the spend is recoverable.

To the extent the NGD business earns at or below its authorized ROE as defined in the SRRM, the total amount transferred to post-review is recoverable through the SRRM. To the extent more than authorized ROE is earned in a year, the amount transferred to post-review would be reduced by those earnings that exceed its authorized ROE.

NW Natural concluded there was no earnings test adjustment for 2018 based on the environmental earnings test that was submitted in May 2019, and approved by the Commission in July 2019.

In the first quarter of 2019, NW Natural recorded a $4.4 million reserve for an anticipated adjustment for fiscal year 2019 as a result of expected earnings that would exceed the authorized ROE and expenses that would be subject to deferral through the SRRM. In the second quarter of 2019, compliance with certain remediation requirements delayed an environmental project to 2020 and accordingly the reserve was reversed for the change in amounts that would be subject to deferral through the SRRM. See Note 17.

The WUTC has also previously authorized the deferral of environmental costs, if any, that are appropriately allocated to Washington customers. This Order was effective in January 2011 with cost recovery and carrying charges on amounts deferred for costs associated with services provided to Washington customers to be determined in a future proceeding. Annually, or more often if circumstances warrant, NW Natural reviews all regulatory assets for recoverability. If NW Natural should determine all or a portion of these regulatory assets no longer meet the criteria for continued application of regulatory accounting, then NW Natural would be required to write-off the net unrecoverable balances against earnings in the period such a determination was made. See "Regulatory Proceeding Updates - Washington General Rate Case" below.

PENSION COST DEFERRAL AND PENSION BALANCING ACCOUNT. From 2011 through October 2018, the OPUC authorized a regulatory mechanism in which NW Natural deferred annual pension expenses above the amount set in rates, with recovery of these deferred amounts through the implementation of a balancing account, which included the expectation of higher and lower pension expenses in future years. During this period the mechanism permitted for NW Natural to accrue interest on the account balance at the NGD business' authorized rate of return. The means by which the account would be recovered by NW Natural was determined by an OPUC order issued in NW Natural's general rate case in March 2019. Pension expense deferrals, excluding interest, were $5.5 million during the six months ended June 30, 2018. Deferred pension expense recoveries were $13.8 million during the six months ended June 30, 2019. See "Regulatory Proceeding Updates-Oregon General Rate Case" below.

INTERSTATE STORAGE AND ASSET MANAGEMENT SHARING. On an annual basis, NW Natural credits amounts to Oregon and Washington customers as part of a regulatory incentive sharing mechanism related to net revenues earned from Mist gas storage and asset management activities. Generally, amounts are credited to Oregon customers in June, while credits are given to customers in Washington as reductions in rates through the annual PGA filing in November.

In 2019, NW Natural received regulatory approval to refund an interstate storage credit of $16.1 million to Oregon customers. Of this amount, $14.2 million was reflected in customers' June bills with the remainder to be credited to their bills in the third quarter. Bill credits to Oregon and Washington customers in 2018 were approximately $11.7 million and $1.0 million, respectively.

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Regulatory Proceeding Updates

During 2019, NW Natural was involved in the regulatory activities discussed below. For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters" in the 2018 Form 10-K.

INTERSTATE STORAGE AND ASSET MANAGEMENT SHARING. NW Natural received an Order from the OPUC in March 2015 on their review of the current revenue sharing arrangement that allocates a portion of the net revenues generated from non-NGD Mist storage services and third-party asset management services to NGD business customers. The Order required a third-party cost study to be performed. In 2017, a third-party consultant completed a cost study and their final report was filed with the OPUC in February 2018. The OPUC concluded on this matter in the Oregon general rate case proceeding. For additional information, see "Most Recent Completed General Rate Cases - Oregon" above.

HOLDING COMPANY REORGANIZATION. On October 1, 2018, we completed the reorganization to a holding company structure. There are a number of conditions under the agreement with the OPUC and the WUTC related to the formation of a holding company structure. One of the conditions is that, for three years following formation of a holding company, NW Natural will be required to provide an annual $500,000 credit to Oregon customers and a $55,000 credit to Washington customers. The first-year credit to both Oregon and Washington customers was given in conjunction with the PGA filings, with the rate adjustments commencing on November 1, 2018.

TAX REFORM DEFERRAL. In December 2017, NW Natural filed applications with the OPUC and WUTC to defer the overall net benefit associated with the TCJA that was enacted on December 22, 2017. Through the Oregon general rate case, in October 2018 the OPUC issued an order directing NW Natural and the other parties to the rate case to engage in further regulatory proceedings to resolve open issues with respect to the treatment of the 10-month deferral period of benefits associated with the TCJA. On February 4, 2019, NW Natural and the other parties to the rate case agreed upon terms by which the deferred benefits would be returned to customers via a joint stipulation filed with the OPUC. On March 25, 2019, the OPUC approved the terms in their entirety. See "Most Recent Completed General Rate Cases - Oregon" above for more information.

NW Natural is working with the WUTC regarding the Washington deferral for the TCJA as part of the general rate case filed in Washington on December 31, 2018, and is currently deferring all amounts for the benefit of Washington customers. See "Regulatory Proceeding Updates - Washington General Rate Case" below.

WATER BUSINESS. In 2019, NW Holdings, through its water subsidiaries, continued implementation of its water strategy and entered into the following agreements which require or required regulatory approval:


•	Sunriver Water, LLC and Sunriver Environmental, LLC — NWN Water of Oregon filed an application for regulatory approval from the OPUC for the Sunriver Water, LLC acquisition in October 2018. We received OPUC approval for the transaction in April 2019. Sunriver Environmental, LLC is not subject to the OPUC's jurisdiction. The transaction closed in May 2019.


•	Spirit Lake East Water Company and Lynnwood Water - Gem State filed an application for regulatory approval from the IPUC for these Coeur d'Alene, Idaho acquisitions in February 2019. The transaction closed in July 2019.


•	Estates Water Systems Inc. and Monterra Inc. - Cascadia filed an application for regulatory approval from the WUTC for these Sequim, Washington acquisitions in February 2019, and received approval in April 2019. The transaction closed in May 2019.

The acquisitions described above, combined with NW Holdings' other water acquisitions to date, are expected to represent approximately $70 million of aggregate investment.

WASHINGTON GENERAL RATE CASE. On December 31, 2018, NW Natural filed for a general rate case in the state of Washington. The requested increase, the first in approximately 10 years, is intended to recover operating costs and investments made in the Washington distribution system and is based upon the following assumptions or requests:


•	Capital structure of 49.5% long-term debt, 1.0% short-term debt, and 49.5% common equity;


•	Return on equity of 10.3%;


•	Cost of capital of 7.63%; and


•	Rate base of $186.5 million, an increase of $58.7 million since the last rate case.

The filing also included a proposal to provide federal tax reform benefits to customers related to the TCJA. NW Natural estimated the tax reform benefits for Washington customers to be approximately $20.2 million, which were comprised of excess deferred income taxes of $18.1 million, including a gross up for income taxes, and an estimated $2.1 million associated with interim tax benefits accumulated from January 1, 2018 to November 30, 2019. NW Natural requested that the benefit of the excess deferred income taxes be provided to customers as annual base rate credits. NW Natural requested that the interim tax benefit be provided to customers over two years.

In addition, NW Natural requested a decoupling tariff for Washington customers, which is intended to allow the NGD business to continue encouraging customers to conserve energy without adversely affecting earnings due to reductions in sales volumes. The proposed decoupling tariff would also adjust for any deviation from normal usage, including weather.

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Finally, NW Natural requested that the WUTC review costs allocable to Washington related to environmental remediation expenses and consider a mechanism for recovery of these costs. The requested costs are estimated to be approximately 3.32% of total costs associated with those sites related to serving Washington customers.

On May 23, 2019, NW Natural and other parties to the rate case proceeding filed two settlements with the WUTC as described below. The settlements, if approved by the WUTC, would resolve all disputed issues in the rate case and result in new rates going into effect on November 1, 2019. Each settlement is subject to the review and approval of the WUTC. For the settlements to be effective, the WUTC must issue an order, which may approve or deny the terms of each settlement or be issued under the WUTC’s own terms.

The first settlement (Joint Settlement) was entered into by NW Natural, the WUTC staff, the Public Counsel Unit of the Washington Attorney General (Public Counsel), the Alliance of Western Energy Consumers and The Energy Project, which comprise all of the parties to the rate case, and addresses all disputed issues in the rate case with the exception of NW Natural’s proposed decoupling tariff. Under the Joint Settlement, effective November 1, 2019, NW Natural would be authorized to implement base rate changes designed to increase annual revenues from its Washington customers by approximately $5.14 million. The rate increases are based on the following assumptions:


•	Capital structure of 50.0% long-term debt, 1.0% short-term debt, and 49.0% common equity;


•	Return on equity of 9.40%;


•	Cost of capital of 7.161%; and


•	Rate base of $173.7 million, an increase of $46 million since the last rate case.

Under the terms of the Joint Settlement, NW Natural will provide customers with a rate reduction of $2.1 million over one year to reflect the benefit of the lower federal corporate income tax rate accumulating from January 1, 2018 through October 31, 2019, and will provide an additional annual rate reduction initially set at approximately $0.5 million to reflect a benefit from the re-measurement of deferred tax liabilities of approximately $15.0 million.

The Joint Settlement also addresses the recovery of environmental remediation expenses allocable to Washington customers. Under the terms of the Joint Settlement, NW Natural would allocate to Washington 3.32 percent of environmental remediation expense associated with remediation sites for which costs are shared between Oregon and Washington. Additionally, NW Natural would not recover approximately $1.5 million of deferred environmental remediation expenses. Insurance proceeds would be applied to offset deferred environmental remediation expenses of approximately $3.0 million for a period commencing in February 2011 through November 2018 with additional application of insurance proceeds for a ten and one-half year period ending December 31, 2029. An environmental cost recovery mechanism tariff would be established, with annual adjustments, to collect prudent environmental remediation expenditures made in the prior year, less that year’s allocation of insurance proceeds. If the Joint Settlement is approved, NW Natural expects to recognize an after-tax charge of approximately $1.1 million in the quarter in which an order is issued.

The second settlement was entered into by all of the parties to the rate case other than the Public Counsel and relates to NW Natural’s proposed decoupling tariff (Decoupling Settlement). The parties to the Decoupling Settlement agree that the WUTC should approve and authorize the proposed decoupling tariff with certain modifications effective on the date of the general rate revisions. The decoupling mechanism is intended to encourage customers to conserve energy without adversely affecting earnings due to reductions in sales volumes. The tariff would also adjust for deviation from normal usage, including weather. The terms of the Decoupling Settlement would require that NW Natural request reauthorization of the decoupling tariff within five years of its effective date. A revised procedural schedule has been established for the remainder of the rate case, and Public Counsel will have an opportunity to challenge the Decoupling Settlement.

INTEGRATED RESOURCE PLAN (IRP). NW Natural files a full IRP biennially for Oregon and Washington with the OPUC and WUTC, respectively. NW Natural filed its 2018 Oregon and Washington IRPs in August 2018, and received both a letter of compliance from the WUTC and acknowledgment by the OPUC in February 2019. The IRPs included analysis of different growth scenarios and corresponding resource acquisition strategies. This analysis is needed to develop supply and demand resource requirements, consider uncertainties in the planning process, and to establish a plan for providing reliable and low cost natural gas service.

RENEWABLE NATURAL GAS. On June 19, 2019, the Oregon legislature passed Senate Bill 98 (SB98), which enables natural gas utilities to procure or develop renewable natural gas (RNG) on behalf of their Oregon customers. Renewable natural gas is produced from local organic materials like food, agricultural and forestry waste, wastewater, or landfills. Methane is captured from these local organic materials as they decompose and conditioned to pipeline quality, so it can be added into the existing natural gas system thereby reducing the carbon content of the energy supply.

SB98 outlines the following parameters for the RNG program including: setting out broad targets for gas utilities to have as much as 30% of the state's pipeline system be carrying RNG by 2050; allowing gas utilities to invest in RNG infrastructure for the production, processing, pipeline interconnection and distribution of RNG to their customers; and creating a limit of 5% of a utility's revenue requirement that can be used to cover the incremental cost of RNG to protect utilities and ratepayers from excessive costs as the RNG market develops.

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The bill was signed into law by the governor in July 2019. The OPUC and Oregon gas utilities will participate in a rulemaking process for the bill, which is expected to conclude with the OPUC adopting rules by July 31, 2020.

Business Segment - Natural Gas Distribution (NGD)

NGD margin results are primarily affected by customer growth, revenues from rate-base additions, and, to a certain extent, by changes in delivered volumes due to weather and customers’ gas usage patterns because a significant portion of NGD margin is derived from natural gas sales to residential and commercial customers. In Oregon, NW Natural has a conservation tariff (also called the decoupling mechanism), which adjusts margin up or down each month through a deferred regulatory accounting adjustment designed to offset changes resulting from increases or decreases in average use by residential and commercial customers. NW Natural also has a weather normalization tariff in Oregon, WARM, which adjusts customer bills up or down to offset changes in margin resulting from above- or below-average temperatures during the winter heating season. Both mechanisms are designed to reduce, but not eliminate, the volatility of customer bills and natural gas distribution earnings. For additional information, see Part II, Item 7 "Results of Operations—Regulatory Matters—Rate Mechanisms" in NW Natural's 2018 Form 10-K. In addition to NW Natural's local gas distribution business, the NGD segment also includes the portion of the Mist underground storage facility used to serve NGD customers, the North Mist gas storage expansion in Oregon, and NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp.

The NGD business is primarily seasonal in nature due to higher gas usage by residential and commercial customers during the cold winter heating months. Other categories of customers experience seasonality in their usage but to a lesser extent. Seasonality affects the comparability of the results of operations of the NGD business across quarters but not across years.

NGD segment highlights include:



	Three Months Ended June 30,					Six Months Ended June 30,				QTD Change			YTD Change
In thousands, except EPS data	2019		2018			2019		2018		QTD Change			YTD Change
NGD net income	$	1,212	$	(2,970	)	$	42,418	$	36,913	$	4,182		$	5,505
EPS - NGD segment	$	0.04	$	(0.10	)	$	1.45	$	1.28	$	0.14		$	0.17
Gas sold and delivered (in therms)	214,047		217,393			661,785		624,346		(3,346		)	37,439
NGD margin⁽¹⁾	$	80,981	$	69,746		$	233,636	$	202,462	$	11,235		$	31,174

⁽¹⁾See Natural Gas Distribution Margin Table below for additional detail

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. The primary factors contributing to the $4.2 million, or $0.14 per share, increase in NGD net income were as follows:


•	a $11.2 million increase in NGD margin primarily due to:


•	a $5.0 million increase due to new Oregon customer rates from the 2018 Oregon rate case;


•	a $1.3 million increase from customer growth;


•	a $4.4 million increase due to the reversal of a first quarter 2019 estimated reserve for environmental cost sharing;


•	a $2.1 million increase from lease revenue generated from NW Natural's North Mist storage contract which commenced service in May 2019; partially offset by


•	a decrease due to comparatively warmer weather in the current period compared to the prior period;


•	the increase in NGD margin was partially offset by:


•	a $2.6 million decrease in other income (expense), net driven by higher pension costs (non-service cost component) as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion to the pension balancing account, and lower AFUDC equity interest;


•	a $1.7 million increase in interest expense driven by a $0.7 million increase in commercial paper expense and a $0.6 million decrease in AFUDC debt interest; and


•	a $1.2 million increase in depreciation expense due to NGD plant additions.

For the three months ended June 30, 2019, total NGD volumes sold and delivered decreased 2% over the same period in 2018.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. The primary factors contributing to the $5.5 million, or $0.17 per share, increase in NGD net income were as follows:


•	a $31.2 million increase in NGD margin due to:


•	a $15.3 million increase due to new Oregon customer rates from the 2018 Oregon rate case;


•	a $3.7 million increase from customer growth;


•	a $7.1 million increase due to revenues recognized in association with recoveries of NW Natural's pension balancing account, which are entirely offset by pension expenses within operations and maintenance and other income (expense), net;


•	a $4.2 million increase driven by colder than average weather in the first quarter of 2019 coupled with higher fee revenues from interruptible customers as a result of system restrictions; and


•	a $2.1 million increase from lease revenue generated from NW Natural's North Mist storage contract which commenced service in May 2019


•	a $5.5 million decrease in income tax expense driven by the return of deferred TCJA benefits to customers through rates.

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•	the increases were partially offset by:


•	pension expenses of $12.5 million recognized in operations and maintenance expenses and other income (expense), net from recoveries of NW Natural's pension balancing account, which are primarily offset within NGD margin and tax expense;


•	a $10.5 million regulatory disallowance of NW Natural's pension balancing account reflected within operations and maintenance expenses and other income (expense), net;


•	a $2.6 million increase in interest expense driven by $1.8 million in commercial paper interest and $0.4 million in lower AFUDC debt interest;


•	a $1.9 million increase in depreciation expense due to NGD plant additions; and


•	a $1.6 million decrease in AFUDC equity interest.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above and Note 10 for more information regarding the pension balancing account.

For the six months ended June 30, 2019, total NGD volumes sold and delivered increased 6% over the same period in 2018.

In May 2019, the Office and Professional Employees International Union, Local 11 (OPEIU) filed a notification of intent to negotiate its current collective bargaining agreement with NW Natural. The current agreement expires November 30, 2019. Negotiations between the OPEIU and NW Natural commenced during the second quarter of 2019.

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NATURAL GAS DISTRIBUTION MARGIN TABLE. The following table summarizes the composition of NGD gas volumes, revenues, and cost of sales:



	Three Months Ended June 30,						Six Months Ended June 30,						Favorable/ (Unfavorable)
In thousands, except degree day and customer data	2019			2018			2019			2018			QTD Change			YTD Change
NGD volumes (therms):
Residential and commercial sales	102,457			103,637			420,560			381,656			(1,180		)	38,904
Industrial sales and transportation	111,590			113,756			241,225			242,690			(2,166		)	(1,465		)
Total NGD volumes sold and delivered	214,047			217,393			661,785			624,346			(3,346		)	37,439
Operating Revenues
Residential and commercial sales	$	103,178		$	106,526		$	354,296		$	352,110		$	(3,348	)	$	2,186
Industrial sales and transportation	12,210			13,403			28,231			30,792			(1,193		)	(2,561		)
Other distribution revenues	404			(1,494		)	12,248			(6,561		)	1,898			18,809
Other regulated services	2,192			80			2,250			107			2,112			2,143
Total operating revenues	117,984			118,515			397,025			376,448			(531		)	20,577
Less: Cost of gas	35,163			42,107			140,676			150,271			6,944			9,595
Less: Environmental remediation expense	(2,656		)	1,882			6,291			6,506			4,538			215
Less: Revenue taxes	4,496			4,780			16,422			17,209			284			787
NGD margin	$	80,981		$	69,746		$	233,636		$	202,462		$	11,235		$	31,174

Margin:⁽¹⁾
Residential and commercial sales	$	70,875		$	64,036		$	203,821		$	192,490		$	6,839		$	11,331
Industrial sales and transportation	7,623			7,038			16,179			15,342			585			837
Miscellaneous revenues	525			1,079			3,891			2,437			(554		)	1,454
Gain (loss) from gas cost incentive sharing	(77		)	128			(846		)	1,008			(205		)	(1,854		)
Other margin adjustments⁽²⁾	(154		)	(2,615		)	8,344			(8,922		)	2,461			17,266
Distribution margin	$	78,792		$	69,666		$	231,389		$	202,355		$	9,126		$	29,034
Other regulated services	2,189			80			2,247			107			2,109			2,140
NGD Margin	$	80,981		$	69,746		$	233,636		$	202,462		$	11,235		$	31,174

Degree days⁽³⁾
Average⁽⁴⁾	308			311			1,637			1,627			(3		)	10
Actual	160			193			1,610			1,449			(17		)%	11		%
Percent colder (warmer) than average weather	(48		)%	(38		)%	(2		)%	(11		)%

	As of June 30,
NGD Meters - end of period:	2019			2018			Change			Growth
Residential meters	684,862			673,479			11,383			1.7%
Commercial meters	69,329			68,160			1,169			1.7%
Industrial meters	915			1,028			(113		)	(11.0)%
Total number of meters	755,106			742,667			12,439			1.7%


⁽¹⁾	Amounts reported as margin for each category of meters are operating revenues, which are net of revenue taxes, less cost of gas and environmental remediation expense, subject to earnings test considerations, as applicable.


⁽²⁾	Other margin adjustments include net revenue deferrals of $0.2 million and $2.8 million for the quarters ended June 30, 2019 and June 30, 2018, respectively, and net revenue recoveries of $6.4 million and revenue deferrals of $9.2 million for the six months ended June 30, 2019 and June 30, 2018, respectively, associated with the decline of the U.S. federal corporate income tax rate.


⁽³⁾	Heating degree days are units of measure reflecting temperature-sensitive consumption of natural gas, calculated by subtracting the average of a day's high and low temperatures from 59 degrees Fahrenheit.


⁽⁴⁾	Average weather represents the 25-year average of heating degree days. Through October 31, 2018, average weather is calculated over the period 1986 - 2010, as determined in NW Natural's 2012 Oregon general rate case. Beginning November 1, 2018, average weather is calculated over the period May 31, 1992 through May 30, 2017, as determined in NW Natural's 2018 Oregon general rate case.

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Residential and Commercial Sales

Residential and commercial sales highlights include:



	Three Months Ended June 30,						Six Months Ended June 30,						QTD Change			YTD Change
In thousands	2019			2018			2019			2018			QTD Change			YTD Change
Volumes (therms):
Residential sales	59,467			60,914			263,018			238,885			(1,447		)	24,133
Commercial sales	42,990			42,723			157,542			142,771			267			14,771
Total volumes	102,457			103,637			420,560			381,656			(1,180		)	38,904
Operating revenues:
Residential sales	$	69,626		$	69,644		$	243,443		$	236,231		$	(18	)	$	7,212
Commercial sales	33,552			36,882			110,853			115,879			(3,330		)	(5,026		)
Total operating revenues	$	103,178		$	106,526		$	354,296		$	352,110		$	(3,348	)	$	2,186
NGD margin:
Residential:
Sales	$	46,251		$	41,607		$	151,264		$	132,136		$	4,644		$	19,128
Alternative revenue:
Weather normalization	3,322			1,142			(3,459		)	2,985			2,180			(6,444		)
Decoupling	1,251			1,259			(1,026		)	(1,150		)	(8		)	124
Amortization of alternative revenue	310			268			1,373			1,051			42			322
Total residential NGD margin	51,134			44,276			148,152			135,022			6,858			13,130
Commercial:
Sales	20,890			18,766			66,076			57,063			2,124			9,013
Alternative revenue:
Weather normalization	1,029			411			(1,192		)	1,004			618			(2,196		)
Decoupling	(431		)	2,123			(2,458		)	4,717			(2,554		)	(7,175		)
Amortization of alternative revenue	(1,747		)	(1,540		)	(6,757		)	(5,316		)	(207		)	(1,441		)
Total commercial NGD margin	19,741			19,760			55,669			57,468			(19		)	(1,799		)
Total NGD margin	$	70,875		$	64,036		$	203,821		$	192,490		$	6,839		$	11,331

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Residential and commercial margin increased $6.8 million. The majority of the increase was due to the reversal of a first quarter 2019 estimated reserve for environmental cost sharing as compliance with certain remediation requirements delayed an environmental project to 2020, of which $4.1 million of the reversal related to residential and commercial customers. See "Regulatory Matters - Rate Mechanisms - Environmental Cost Deferral and SRRM" above. The remaining increase was driven by new Oregon customer rates from the 2018 Oregon rate case and customer growth, partially offset by lower residential volumes due to warmer weather in the current period compared to the prior period.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Residential and commercial margin increased $11.3 million. The increase was driven by new Oregon customer rates from the 2018 Oregon rate case, customer growth, and higher residential volumes due to colder weather in the current period compared to the prior period.

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Industrial Sales and Transportation

Industrial sales and transportation highlights include:



	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change			YTD Change
In thousands	2019		2018		2019		2018		QTD Change			YTD Change
Volumes (therms):
Industrial - firm sales	7,454		7,858		17,346		17,866		(404		)	(520		)
Industrial - firm transportation	40,189		38,368		90,555		83,744		1,821			6,811
Industrial - interruptible sales	11,233		12,375		25,017		27,980		(1,142		)	(2,963		)
Industrial - interruptible transportation	52,714		55,155		108,307		113,100		(2,441		)	(4,793		)
Total volumes	111,590		113,756		241,225		242,690		(2,166		)	(1,465		)
NGD margin:
Industrial - firm and interruptible sales	$	2,960	$	2,468	$	6,076	$	5,705	$	492		$	371
Industrial - firm and interruptible transportation	4,663		4,570		10,103		9,637		93			466
Industrial - sales and transportation	$	7,623	$	7,038	$	16,179	$	15,342	$	585		$	837

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Sales and transportation margin increased $0.6 million driven by new Oregon customer rates from the 2018 Oregon rate case, partially offset by a decrease in volumes of 2.2 million therms, or 2% driven by interruptible customer switching from industrial to commercial rate schedules.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Industrial sales and transportation margin increased $0.8 million driven by new Oregon customer rates from the 2018 Oregon rate case, partially offset by a decrease in volumes of 1.5 million therms, or 1% driven by interruptible customer switching from industrial to commercial rate schedules.

Cost of Gas

Cost of gas highlights include:



	Three Months Ended June 30,					Six Months Ended June 30,					QTD Change			YTD Change
In thousands	2019			2018		2019			2018		QTD Change			YTD Change
Cost of gas	$	35,163		$	42,107	$	140,676		$	150,271	$	(6,944	)	$	(9,595	)
Volumes sold (therms)⁽¹⁾	121,144			123,870		462,923			427,502		(2,726		)	35,421
Average cost of gas (cents per therm)	$	0.29		$	0.34	$	0.30		$	0.35	$	(0.05	)	$	(0.05	)
Gain (loss) from gas cost incentive sharing⁽²⁾	$	(77	)	$	128	$	(846	)	$	1,008	$	(205	)	$	(1,854	)


⁽¹⁾	This calculation excludes volumes delivered to industrial transportation customers.


⁽²⁾	For additional information regarding NW Natural's gas cost incentive sharing mechanism, see Part II, Item 7 "Results of Operations—Regulatory Matters—Rate Mechanisms—Gas Reserves" in NW Natural's 2018 Form 10-K.

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Cost of gas decreased $6.9 million, or 16%, primarily due to a 15% decrease in average cost of gas due to lower natural gas prices and a 2% decrease in volumes sold associated with warmer weather in the current period compared to the prior period.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Cost of gas decreased $9.6 million, or 6%, primarily due to a 14% decrease in average cost of gas from lower gas costs within the PGA, partially offset by an 8% increase in volumes sold driven by customer growth and colder weather in 2019 compared to the prior period.

Other Regulated Services

Other regulated services highlights include:



	Three Months Ended June 30,				Six Months Ended June 30,				QTD Change			YTD Change
In thousands	2019		2018		2019		2018		QTD Change			YTD Change
North Mist storage services	$	2,133	$	—	$	2,133	$	—	$	2,133		$	2,133
Other services	56		80		114		107		(24		)	7
Total other regulated services	$	2,189	$	80	$	2,247	$	107	$	2,109		$	2,140

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THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Other regulated services margin increased $2.1 million due to the commencement of storage services at the North Mist expansion facility in May 2019. See Note 7 for information regarding North Mist expansion lease accounting.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Other regulated services margin increased $2.1 million due to the commencement of storage services at the North Mist expansion facility in May 2019. See Note 7 for information regarding North Mist expansion lease accounting.

Other

Other activities aggregated and reported as other at NW Natural include the non-NGD storage activity at Mist as well as asset management services and the appliance retail center operations. Other activities aggregated and reported as other at NW Holdings include NWN Energy's equity investment in Trail West Holding, LLC (TWH), which is pursuing the development of a proposed natural gas pipeline through its wholly-owned subsidiary, Trail West Pipeline, LLC (TWP); NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline); and NWN Water, which owns and continues to pursue investments in the water sector. See Note 4 for further discussion of our business segment and other, as well as our direct and indirect wholly-owned subsidiaries, and Note 13 for further details on our investment in TWH.

The following table presents the results of activities aggregated and reported as other for both NW Holdings and NW Natural:



	Three Months Ended June 30,						Six Months Ended June 30,						QTD Change			YTD Change
In thousands, except EPS data	2019			2018			2019			2018			QTD Change			YTD Change
NW Natural other - net income	$	1,842		$	2,699		$	4,531		$	4,830		$	(857	)	$	(299	)
Other NW Holdings activity	(1,003		)	(68		)	(1,480		)	(71		)	(935		)	(1,409		)
NW Holdings other - net income	$	839		$	2,631		$	3,051		$	4,759		$	(1,792	)	$	(1,708	)
EPS - NW Holdings - other	$	0.03		$	0.09		$	0.11		$	0.17		$	(0.06	)	$	(0.06	)

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Other net income decreased by $1.8 million at NW Holdings and decreased by $0.9 million at NW Natural. The decrease at NW Holdings was primarily due to increases in professional service costs and expenses associated with developing the water business.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Other net income decreased by $1.7 million at NW Holdings and decreased by $0.3 million at NW Natural. The decrease at NW Holdings was primarily due to increases in professional service costs and expenses associated with developing the water business.

See Note 4 and Note 14 for further details on other activities and the investment in TWH, respectively.

Consolidated Operations

Operations and Maintenance

Operations and maintenance highlights include:



	Three Months Ended June 30,				Six Months Ended June 30,				QTD			YTD
In thousands	2019		2018		2019		2018		Change			Change
NW Natural	$	37,292	$	37,899	$	87,726	$	77,399	$	(607	)	$	10,327
Other NW Holdings operations and maintenance	2,194		129		3,242		152		2,065			3,090
NW Holdings	$	39,486	$	38,028	$	90,968	$	77,551	$	1,458		$	13,417

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Operations and maintenance expense increased by $1.5 million at NW Holdings and decreased by $0.6 million at NW Natural. The increase at NW Holdings was primarily due to increases in professional service costs and expenses associated with developing the water business, partially offset by a decrease in general operations and maintenance costs at NW Natural.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Operations and maintenance expense increased by $13.4 million and $10.3 million at NW Holdings and NW Natural, respectively, primarily due to the following:

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•	a $4.6 million increase in pension expenses (service cost component) due to recovery of amounts in NW Natural's pension balancing account, which was primarily offset within NGD margin and income tax benefits;


•	a $3.9 million regulatory pension disallowance (service cost component) as a result of the March 2019 OPUC order in the Oregon general rate case; and


•	a $1.9 million increase from higher pension costs (non-service cost component) as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion to the pension balancing account.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above and Note 10 for more information regarding the pension balancing account.

Depreciation and Amortization

Depreciation and amortization highlights include:



	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	2019		2018		2019		2018		Change		Change
NW Natural	$	22,243	$	21,090	$	43,747	$	41,958	$	1,153	$	1,789
Other NW Holdings depreciation and amortization	$	144	$	57	212		64		87		148
NW Holdings	$	22,387	$	21,147	$	43,959	$	42,022	$	1,240	$	1,937

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Depreciation and amortization expense increased $1.2 million at both NW Holdings and NW Natural primarily due to NGD plant additions.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Depreciation and amortization expense increased $1.9 million and $1.8 million at NW Holdings and NW Natural, respectively, primarily due to NGD plant additions.

Other Income (Expense), Net

Other income (expense), net highlights include:



	Three Months Ended June 30,						Six Months Ended June 30,						QTD			YTD
In thousands	2019			2018			2019			2018			Change			Change
NW Natural other income (expense), net	$	(2,814	)	$	(33	)	$	(16,582	)	$	(848	)	$	(2,781	)	$	(15,734	)
Other NW Holdings activity	46			40			67			21			6			46
NW Holdings other income (expense), net	$	(2,768	)	$	7		$	(16,515	)	$	(827	)	$	(2,775	)	$	(15,688	)

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Other income (expense), net decreased $2.8 million at both NW Holdings and NW Natural. The decrease was primarily due to the following factors:


•	a $2.8 million decrease from higher pension costs (non-service cost component) as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion to the pension balancing account; and


•	a $0.9 million decrease from lower NGD AFUDC equity interest income primarily driven by placing the North Mist expansion project into service in May 2019; partially offset by


•	a $0.8 million increase in regulatory interest income, of which $0.6 million is related to the realization of the equity interest component of financing costs accrued on the pension balancing account as recovery of the deferral began in March 2019.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Other income (expense), net decreased $15.7 million at both NW Holdings and NW Natural. The decrease was primarily due to the following factors:


•	a $7.9 million decrease from higher pension costs (non-service cost component) related to the recovery of NW Natural's pension balancing account, which is largely offset within NGD margin and tax expense;


•	a $6.6 million regulatory pension disallowance (non-service cost component) as a result of the March 2019 OPUC order in the Oregon general rate case;


•	a $4.9 million decrease from higher pension costs (non-service cost component) as NW Natural began collecting costs through customer rates on November 1, 2018 rather than deferring a portion to the pension balancing account; and


•	a $1.6 million decrease in NGD AFUDC equity interest income primarily driven by placing the North Mist expansion project into service in May 2019; partially offset by


•	a $4.8 million increase in regulatory interest income, of which $4.2 million is related to the realization of the equity interest component of financing costs accrued on the pension balancing account as recovery of the deferral began in March 2019.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above and Note 10 for more information regarding the pension balancing account.

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Interest Expense, Net

Interest expense, net highlights include:



	Three Months Ended June 30,				Six Months Ended June 30,				QTD		YTD
In thousands	2019		2018		2019		2018		Change		Change
NW Natural	$	10,387	$	8,771	$	20,520	$	18,045	$	1,616	$	2,475
Other NW Holdings interest expense, net	$	267	$	—	339		—		267		339
NW Holdings	$	10,654	$	8,771	$	20,859	$	18,045	$	1,883	$	2,814

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Interest expense, net increased $1.9 million and $1.6 million at NW Holdings and NW Natural, respectively, primarily due to an increase of $0.7 million in NGD commercial paper interest expense from higher short-term debt balances and a $0.6 million decrease in the debt portion of AFUDC due to the placement of the North Mist expansion project into service in May 2019.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Interest expense, net increased $2.8 million and $2.5 million at NW Holdings and NW Natural, respectively, primarily due to an increase of $1.8 million in NGD commercial paper interest expense from higher short-term debt balances and a $0.4 million decrease in the debt portion of AFUDC due to the placement of the North Mist expansion project into service in May 2019.

Income Tax Expense

Income tax expense highlights include:



	Three Months Ended June 30,					Six Months Ended June 30,				QTD		YTD
In thousands	2019		2018			2019		2018		Change		Change
NW Holdings income tax expense	$	625	$	(156	)	$	9,300	$	15,476	$	781	$	(6,176	)
NW Natural income tax expense	$	985	$	(128	)	$	9,833	$	15,507	$	1,113	$	(5,674	)

THREE MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Income tax expense increased $0.8 million and $1.1 million at NW Holdings and NW Natural, respectively, due to pretax income for the quarter in 2019 compared to a pretax loss in the prior year.

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Income tax expense decreased $6.2 million and $5.7 million at NW Holdings and NW Natural, respectively. The decrease was primarily related to the income tax implications of the March 2019 OPUC order, including commencement of the return of deferred TCJA benefits to customers and the regulatory pension disallowance.

See "Results of Operations - Regulatory Matters - Regulatory Proceeding Updates" above, Note 10, and Note 11 for information regarding the application of excess deferred income tax benefits.

Pending sale of Gill Ranch Storage

On June 20, 2018, NWN Gas Storage, a wholly owned subsidiary of NW Holdings, entered into a Purchase and Sale Agreement (the Sale Agreement) that provides for the sale by NWN Gas Storage of all of its membership interests in Gill Ranch. Gill Ranch owns a 75% interest in the natural gas storage facility located near Fresno, California known as the Gill Ranch Gas Storage Facility. PG&E owns the remaining 25% interest in the Gill Ranch Facility.

In the Sale Agreement, NWN Gas Storage makes representations and warranties concerning, among other things, Gill Ranch, the Gill Ranch Facility and Gill Ranch’s business and contractual relationships, and agrees to cause Gill Ranch to conduct its business and maintain its properties in the ordinary course, consistent with material agreements and past practice.

The Sale Agreement provides for an initial cash purchase price of $25.0 million (subject to a working capital adjustment), plus potential additional payments to NWN Gas Storage of up to $26.5 million in the aggregate if Gill Ranch achieves certain economic performance levels for the first three full gas storage years (April 1 of one year through March 31 of the following year) occurring after the closing and the remaining portion of the gas storage year during which the closing occurs.

The closing of the transaction is subject to approval by the CPUC, other customary closing conditions and covenants, including the requirement that all of the representations and warranties be true and correct as of the closing date except, as would not, in the case of certain representations and warranties, be reasonably expected to have a material adverse effect on Gill Ranch. The agreement is subject to termination by either party if the transaction has not closed by June 20, 2019, subject to automatic extension for six months if the CPUC has not issued an order approving the transaction by that date.

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In July 2018, Gill Ranch filed an application with the CPUC for approval of this transaction. On February 14, 2019, the active parties to the CPUC proceeding filed a settlement agreement with the CPUC. On July 23, 2019, one of the parties to the settlement agreement, the CPUC’s Office of Safety Advocates (OSA), filed a motion with the CPUC to withdraw from the settlement agreement and requested a new pre-hearing conference. On July 29, 2019, Gill Ranch and the proposed purchaser filed motions with the CPUC to strike the OSA’s motion of withdrawal together with a request to supplement the evidentiary record with materials which the applicants believe demonstrate that the issues raised by the OSA are not relevant to the CPUC proceeding. We continue to strive to close this transaction by the end of 2019.

On January 29, 2019, PG&E filed voluntary petitions for relief under chapter 11 bankruptcy. Although we do not currently anticipate that the PG&E filing will affect the sale of Gill Ranch, we cannot fully predict the course of the bankruptcy proceedings or the impact on the sale and will continue to monitor the situation closely.

The results of Gill Ranch Storage have been determined to be discontinued operations and are presented separately, net of tax, from the results of continuing operations of NW Holdings for all periods presented. See Note 18 for more information on the Sale Agreement and the results of our discontinued operations.

The CPUC regulates Gill Ranch under a market-based rate model which allows for the price of storage services to be set by the marketplace. The CPUC also regulates the issuance of securities, system of accounts, and regulates intrastate storage services. The California Department of Oil Gas and Geothermal Resources (DOGGR) regulations for gas storage wells were finalized in June 2018, and the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) proposed new federal regulations for underground natural gas storage facilities, which are expected to be finalized during 2019 and increase costs for all storage providers. NW Holdings will continue to monitor and assess the new regulations until the sale is complete.

Short-term liquidity for Gill Ranch is supported by cash balances, internal cash flow from operations, equity contributions from its parent company, and, if necessary, additional external financing.

FINANCIAL CONDITION

Capital Structure

One of our long-term goals is to maintain a strong consolidated capital structure with a long-term target utility capital structure of 50% common stock and 50% long-term debt at NW Natural. When additional capital is required, debt or equity securities are issued depending on both the target capital structure and market conditions. These sources of capital are also used to fund long-term debt retirements and short-term commercial paper maturities. See "Liquidity and Capital Resources" below and Note 9.

Achieving the target capital structure and maintaining sufficient liquidity to meet operating requirements are necessary to maintain attractive credit ratings and provide access to capital markets at reasonable costs.

NW Holdings' consolidated capital structure was as follows:



	June 30,				December 31,
	2019		2018		2018
Common stock equity	48.5	%	48.5	%	44.4	%
Long-term debt	44.6		43.7		41.1
Short-term debt, including current maturities of long-term debt	6.9		7.8		14.5
Total	100.0	%	100.0	%	100.0	%

NW Natural's consolidated capital structure was as follows:



	June 30,				December 31,
	2019		2018		2018
Common stock equity	48.7	%	48.5	%	42.9	%
Long-term debt	45.1		43.7		42.2
Short-term debt, including current maturities of long-term debt	6.2		7.8		14.9
Total	100.0	%	100.0	%	100.0	%

Liquidity and Capital Resources

At June 30, 2019 and June 30, 2018, NW Holdings had approximately $60.9 million and $8.8 million, and NW Natural had approximately $57.9 million and $8.3 million of cash and cash equivalents, respectively. In order to maintain sufficient liquidity during periods when capital markets are volatile, NW Holdings and NW Natural may elect to maintain higher cash balances and add short-term borrowing capacity. NW Holdings and NW Natural may also pre-fund their respective capital expenditures when long-term fixed rate environments are attractive.

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NW Holdings

For NW Holdings, short-term liquidity is primarily provided by cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities. NW Holdings also has a universal shelf registration statement filed with the SEC for the issuance of debt and equity securities. NW Holdings' long-term debt, if any, and equity issuances are primarily used to provide equity contributions to NW Holdings’ operating subsidiaries for operating and capital expenditures and other corporate purposes. NW Holdings' issuance of securities is not subject to regulation by state public utility commissions, but the dividends from NW Natural to NW Holdings are subject to regulatory ring-fencing provisions.

As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW Natural may not pay dividends or make distributions to NW Holdings if NW Natural’s credit ratings and common equity ratio fall below specified levels. If NW Natural’s long term secured credit ratings are below A- for S&P and A3 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 45% or more. If NW Natural’s long term secured credit ratings are below BBB for S&P and Baa2 for Moody’s, dividends may be issued so long as NW Natural’s common equity ratio is 46% or more. Dividends may not be issued if NW Natural’s long-term secured credit ratings are BB+ or below for S&P or Ba1 or below for Moody’s, or if NW Natural’s common equity ratio is below 44%. In each case, common equity ratios are determined based on a preceding or projected 13-month average. In addition, there are certain OPUC notice requirements for dividends in excess of 5% of NW Natural’s retained earnings.

Additionally, if NW Natural’s common equity (excluding goodwill and equity associated with non-regulated assets), on a preceding or projected 13-month average basis, is less than 46% of NW Natural’s capital structure (common equity and long-term debt excluding imputed debt or debt-like lease obligations), NW Natural is required to notify the OPUC, and if the common equity ratio falls below 44%, file a plan with the OPUC to restore its equity ratio to 44%. This condition is designed to ensure NW Natural continues to be adequately capitalized under the holding company structure. Under the WUTC order, the average common equity ratio must not exceed 56%.

At June 30, 2019, NW Natural satisfied the ring-fencing provisions described above.

NW HOLDINGS DIVIDEND POLICY. Quarterly dividends have been paid on common stock each year since NW Holdings’ predecessor’s stock was first issued to the public in 1951. Annual common stock dividend payments per share, adjusted for stock splits, have increased each year since 1956. The declarations and amount of future dividends to shareholders will depend upon earnings, cash flows, financial condition, NW Natural’s ability to pay dividends to NW Holdings and other factors. The amount and timing of dividends payable on common stock is at the sole discretion of the NW Holdings' Board of Directors.

Based on several factors, including current cash reserves, committed credit facilities, its ability to receive dividends from its operating subsidiaries, in particular NW Natural, and an expected ability to issue long-term debt and equity securities in the capital markets, NW Holdings believes its liquidity is sufficient to meet anticipated near-term cash requirements, including all contractual obligations, investing, and financing activities as discussed in "Contractual Obligations" and "Cash Flows" below.

NW Natural

For the NGD business segment, short-term borrowing requirements typically peak during colder winter months when the NGD business borrows money to cover the lag between natural gas purchases and bill collections from customers. Short-term liquidity for the NGD business is primarily provided by cash balances, internal cash flow from operations, proceeds from the sale of commercial paper notes, as well as available cash from multi-year credit facilities, short-term credit facilities, company-owned life insurance policies, the sale of long-term debt, and equity contributions from NW Holdings. NW Natural's long-term debt and contributions from NW Holdings are primarily used to finance NGD capital expenditures, refinance maturing debt, and provide temporary funding for other general corporate purposes of the NGD business.

Based on NW Natural's current debt ratings (see "Credit Ratings" below), it has been able to issue commercial paper and long-term debt at attractive rates and has not needed to borrow or issue letters of credit from its back-up credit facility. In the event NW Natural is not able to issue new debt due to adverse market conditions or other reasons, NW Natural expects that near-term liquidity needs can be met using internal cash flows, issuing commercial paper, receiving equity contributions from NW Holdings, or, for the NGD segment, drawing upon a committed credit facility. NW Natural also has a universal shelf registration statement filed with the SEC for the issuance of secured and unsecured debt securities.

In the event senior unsecured long-term debt ratings are downgraded, or outstanding derivative positions exceed a certain credit threshold, counterparties under derivative contracts could require NW Natural to post cash, a letter of credit, or other forms of collateral, which could expose NW Natural to additional cash requirements and may trigger increases in short-term borrowings while in a net loss position. NW Natural was not required to post collateral at June 30, 2019. If the credit risk-related contingent features underlying these contracts were triggered on June 30, 2019, assuming NW Natural's long-term debt ratings dropped to non-investment grade levels, it could have been required to post $2.2 million in collateral with counterparties. See "Credit Ratings" below and Note 16.

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Other items that may have a significant impact on NW Natural's liquidity and capital resources include pension contribution requirements and environmental expenditures. For additional information, see Part II, Item 7 "Financial Condition" in the 2018 Form 10-K.

SHORT-TERM DEBT. The primary source of short-term liquidity for NW Holdings is cash balances, dividends from its operating subsidiaries, in particular NW Natural, available cash from a multi-year credit facility, and short-term credit facilities it may enter into from time to time.

The primary source of short-term liquidity for NW Natural is from the sale of commercial paper and bank loans. NW Holdings and NW Natural have separate bank facilities, and NW Natural has a commercial paper program. In addition to issuing commercial paper or bank loans to meet working capital requirements, including seasonal requirements to finance gas purchases and accounts receivable, short-term debt may also be used to temporarily fund capital requirements. For NW Natural, commercial paper and bank loans are periodically refinanced through the sale of long-term debt or equity contributions from NW Holdings. Commercial paper, when outstanding, is sold through two commercial banks under an issuing and paying agency agreement and is supported by one or more unsecured revolving credit facilities. See “Credit Agreements” below.

At June 30, 2019 and 2018, NW Holdings had short-term debt outstanding of $20.1 million and $47.1 million, respectively. NW Natural had no short-term debt outstanding at June 30, 2019 and $47.1 million outstanding at June 30, 2018. The weighted average interest rate on short-term debt outstanding at June 30, 2019 was 3.5%.

Credit Agreements

NW Holdings

NW Holdings has a $100.0 million credit agreement, with a feature that allows it to request increases in the total commitment amount up to a maximum of $150.0 million. The maturity date of the agreement is October 2, 2023.

All lenders under the agreement are major financial institutions with committed balances and investment grade credit ratings as of June 30, 2019 as follows:



In millions
Lender rating, by category	Loan Commitment
AA/Aa	$	100
A/A1	—
Total	$	100

Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Holdings if the lender defaulted due to lack of funds or insolvency; however, NW Holdings does not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings.

The credit agreement permits the issuance of letters of credit in an aggregate amount of up to $40.0 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. The credit agreement requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at June 30, 2019, with a consolidated indebtedness to total capitalization ratio of 51.5%.

The agreement also requires NW Holdings to maintain debt ratings (which are defined by a formula using NW Natural's credit ratings in the event NW Holdings does not have a credit rating) with Standard & Poor's (S&P) and Moody's Investors Service, Inc. (Moody’s) and notify the lenders of any change in its senior unsecured debt ratings or senior secured debt ratings, as applicable, by such rating agencies. A change in NW Holdings' debt ratings by S&P or Moody’s is not an event of default, nor is the maintenance of a specific minimum level of debt rating a condition of drawing upon the credit agreement. Rather, interest rates on any loans outstanding under the credit agreements are tied to debt ratings and therefore, a change in the debt rating would increase or decrease the cost of any loans under the credit agreements when ratings are changed. NW Holdings does not currently maintain ratings with S&P or Moody's.

NW Natural

NW Natural has a $300.0 million credit agreement, with a feature that allows it to request increases in the total commitment amount up to a maximum of $450.0 million. The maturity date of the agreement is October 2, 2023.

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All lenders under the agreement are major financial institutions with committed balances and investment grade credit ratings as of June 30, 2019 as follows:



In millions
Lender rating, by category	Loan Commitment
AA/Aa	$	300
A/A1	—
Total	$	300

Based on credit market conditions, it is possible one or more lending commitments could be unavailable to NW Natural if the lender defaulted due to lack of funds or insolvency; however, NW Natural does not believe this risk to be imminent due to the lenders' strong investment-grade credit ratings.

The NW Natural credit agreement permits the issuance of letters of credit in an aggregate amount of up to $60.0 million. The principal amount of borrowings under the credit agreement is due and payable on the maturity date. There were no outstanding balances under this credit agreement or the prior credit agreement at June 30, 2019 or 2018. The credit agreement requires NW Natural to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Natural was in compliance with this covenant at June 30, 2019 and 2018, with consolidated indebtedness to total capitalization ratios of 51.3% and 51.5%, respectively.

The agreement also requires NW Natural to maintain credit ratings with S&P and Moody’s and notify the lenders of any change in NW Natural's senior unsecured debt ratings or senior secured debt ratings, as applicable, by such rating agencies. A change in NW Natural's debt ratings by S&P or Moody’s is not an event of default, nor is the maintenance of a specific minimum level of debt rating a condition of drawing upon the credit agreement. Rather, interest rates on any loans outstanding under the agreement are tied to debt ratings and therefore, a change in the debt rating would increase or decrease the cost of any loans under the credit agreement when ratings are changed. See "Credit Ratings" below.

CREDIT RATINGS. NW Holdings does not currently maintain ratings with S&P or Moody's. NW Natural's credit ratings are a factor of liquidity, potentially affecting access to the capital markets including the commercial paper market. NW Natural's credit ratings also have an impact on the cost of funds and the need to post collateral under derivative contracts. The following table summarizes NW Natural's current credit ratings:



	S&P	Moody's
Commercial paper (short-term debt)	A-1	P-2
Senior secured (long-term debt)	AA-	A2
Senior unsecured (long-term debt)	n/a	Baa1
Corporate credit rating	A+	n/a
Ratings outlook	Stable	Stable

In May 2019, Moody's revised NW Natural's ratings outlook from negative to stable. In addition, the senior secured (long-term debt) rating changed from A1 to A2 and the senior unsecured (long-term debt) rating was revised from A3 to Baa1.

The above credit ratings and ratings outlook are dependent upon a number of factors, both qualitative and quantitative, and are subject to change at any time. The disclosure of or reference to these credit ratings is not a recommendation to buy, sell or hold NW Holdings or NW Natural securities. Each rating should be evaluated independently of any other rating.

As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW Holdings and NW Natural are required to maintain separate credit ratings, long-term debt ratings, and preferred stock ratings, if any.

LONG-TERM DEBT. In June 2019, NW Natural Water, a wholly-owned subsidiary of NW Holdings, entered into a new two-year term loan agreement for $35.0 million. The loan carries an interest rate based upon the three-month LIBOR rate, which at June 30, 2019 was 2.86%. The loan is guaranteed by NW Holdings and requires NW Holdings to maintain a consolidated indebtedness to total capitalization ratio of 70% or less. Failure to comply with this covenant would entitle the lenders to terminate their lending commitments and accelerate the maturity of all amounts outstanding. NW Holdings was in compliance with this covenant at June 30, 2019, with a consolidated indebtedness to total capitalization ratio of 51.5%.

In June 2019, NW Natural issued $50 million and $90 million of first mortgage bonds (FMBs) with interest rates of 3.141% and 3.869%, respectively. No other long-term debt was retired or issued during the six months ended June 30, 2019. Over the next twelve months, $10.0 million of FMBs with an interest rate of 8.310% will mature in September 2019, $20.0 million of FMBs with an interest rate rate of 7.630% will mature in December 2019 and $75.0 million of FMBs with an interest rate of 5.370% will mature in February 2020.

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See Part II, Item 7, "Financial Condition—Contractual Obligations" in the 2018 Form 10-K for long-term debt maturing over the next five years.

BANKRUPTCY RING-FENCING RESTRICTIONS. As part of the ring-fencing conditions agreed upon with the OPUC and WUTC in connection with the holding company reorganization, NW Natural is required to have one director who is independent from NW Natural management and from NW Holdings and to issue one share of NW Natural preferred stock to an independent third party. NW Natural was in compliance with both of these ring-fencing provisions as of June 30, 2019. NW Natural may file a voluntary petition for bankruptcy only if approved unanimously by the Board of Directors of NW Natural, including the independent director, and by the holder of the preferred share.

Cash Flows

Operating Activities

Changes in operating cash flows are primarily affected by net income or loss, changes in working capital requirements, and other cash and non-cash adjustments to operating results.

Operating activity highlights include:



	Six Months Ended June 30,
In thousands	2019		2018		YTD Change
NW Holdings cash provided by operating activities	$	155,109	$	162,652	$	(7,543	)
NW Natural cash provided by operating activities	$	156,136	$	162,582	$	(6,446	)

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. The significant factors contributing to the $7.5 million and $6.4 million decrease in cash flows provided by operating activities at NW Holdings and NW Natural, respectively, were as follows:


•	a decrease of $49.6 million in cash flow benefits from changes in deferred gas cost balances primarily due to higher gas costs than in the PGA in 2019 compared to lower gas costs than in the PGA in the prior year; partially offset by


•	an increase of $19.4 million due to income tax refunds received of $6.1 million in the current period compared to payments of $13.3 million in the prior period;


•	an increase of approximately $5.4 million in cash receipts from increased collections of both current and deferred pension expenses as a result of NW Natural's Oregon rate case;


•	an increase of $4.0 million from collections from customers to be returned through the next year's PGA as part of NW Natural's decoupling mechanism; and


•	other increases due to several factors, including increased collections in rates for depreciation and other non-cash expenses as a result of NW Natural's Oregon rate case, and increases in cash receipts driven by colder than average weather in the first quarter of 2019 coupled with higher fee revenues from interruptible customers as a result of system restrictions.

During the six months ended June 30, 2019, NW Natural contributed $4.7 million to the NGD segment's qualified defined benefit pension plan, compared to $5.6 million for the same period in 2018. The amount and timing of future contributions will depend on market interest rates and investment returns on the plans' assets. For additional information, see Note 10.

NW Holdings and NW Natural have lease and purchase commitments relating to their operating activities that are financed with cash flows from operations. For additional information, see Part II, Item 7 "Financial Condition—Contractual Obligations" and Note 16 in the 2018 Form 10-K.

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Investing Activities

Investing activity highlights include:



	Six Months Ended June 30,
In thousands	2019			2018			YTD Change
NW Holdings cash used in investing activities	$	(153,397	)	$	(102,458	)	$	(50,939	)
NW Holdings capital expenditures supporting continuing operations	(91,147		)	(102,370		)	11,223
NW Natural cash used in investing activities	$	(96,064	)	$	(102,459	)	$	6,395
NW Natural capital expenditures supporting continuing operations	(90,675		)	(102,370		)	11,695

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Cash used in investing activities increased $50.9 million at NW Holdings and decreased $6.4 million at NW Natural. The decrease at NW Natural was primarily due to lower expenditures related to the North Mist expansion project in 2019, partially offset by increases in capital expenditures for system reinforcement and customer growth. The increase at NW Holdings was primarily due to $55.8 million in expenditures for acquisitions, net of cash acquired, partially offset by the decrease at NW Natural.

NW Holdings' largest subsidiary, NW Natural, expects to make a significant level of investments in its NGD segment in 2019 and through 2023. Over the five-year period from 2019 to 2023, the NGD segment is expected to invest $820 million to $910 million in capital expenditures to support system reliability, customer growth, and operate effective technology for the business. In 2019, NW Natural anticipates several significant projects for the NGD segment, including completing the replacement of end of life equipment at the Mist gas storage facility, and renovating several resource facilities across NW Natural's service territory. Remaining projects in 2019 include leasehold improvements and technology for the new headquarters in Portland, Oregon and other system reliability and improvement projects, mainly around Mist.

NW Holdings' wholly-owned water subsidiaries expect to invest in their facilities to support growth and upgrade their systems with $30 to $40 million expected to be invested from 2019 to 2023. NW Holdings expects an immaterial amount of non-NGD capital investments for Gill Ranch and other activities in 2019 and through 2023.

Investments in our infrastructure during and after 2019 beyond the amounts provided below will depend largely on additional regulations, growth, and expansion opportunities.

For 2019, capital expenditures are estimated, on an accrual basis, to be as follows:



	One-Year Outlook
	2019
In millions	Low		High
NGD
Core capital expenditures	$	150	$	165
Significant projects:
Growth & reliability	15		25
Facilities & technology	42		57
North Mist expansion	18		18
Total projects	75		100
Total NGD	225		265

Other	5		5

Total	$	230	$	270

Required funds for the investments are expected to be internally generated and/or financed with long-term debt or equity, as appropriate.

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Financing Activities

Financing activity highlights include:



	Six Months Ended June 30,
In thousands	2019			2018			YTD Change
NW Holdings cash provided by (used in) financing activities	$	46,540		$	(54,911	)	$	101,451
NW Holdings proceeds from common stock issued	93,182			—			93,182
NW Holdings change in short-term debt	(197,540		)	(7,100		)	(190,440		)
NW Holdings change in long-term debt	175,000			(22,000		)	197,000
NW Natural cash provided by (used in) financing activities	$	(10,155	)	$	(54,911	)	$	44,756
NW Natural capital contribution from parent	93,182			—			93,182
NW Natural change in short-term debt	(217,500		)	(7,100		)	(210,400		)
NW Natural change in long-term debt	140,000			(22,000		)	162,000

SIX MONTHS ENDED JUNE 30, 2019 COMPARED TO JUNE 30, 2018. Cash provided by (used in) financing activities increased $101.5 million and $44.8 million at NW Holdings and NW Natural, respectively.

The decrease in cash used in financing activities at NW Natural was primarily driven by the June 2019 issuance of $140.0 million in FMBs compared to repayments of $22.0 million in FMBs in the prior period and a capital contribution from NW Holdings to NW Natural of $93.2 million, partially offset by $210.4 million in higher repayments of short-term debt compared to the prior period.

The increase at NW Holdings was primarily due to the NW Natural long-term debt activity described above and the issuance of an additional $35.0 million of debt at NW Natural Water, as well as proceeds of $93.2 million from the June 2019 issuance of NW Holdings common stock. These increases were partially offset by higher repayments of short-term debt of $190.4 million, which primarily consists of higher repayments of $210.4 million of short-term debt at NW Natural, partially offset by increases in short-term debt at the holding company.

Contingent Liabilities

Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable in accordance with accounting standards for contingencies. See “Application of Critical Accounting Policies and Estimates” in the 2018 Form 10-K. At June 30, 2019, NW Natural's total estimated liability related to environmental sites is $120.6 million. See "Results of Operations—Regulatory Matters—Rate Mechanisms—Environmental Costs" in the 2018 Form 10-K and Note 17.

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APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing financial statements in accordance with U.S. GAAP, management exercises judgment in the selection and application of accounting principles, including making estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses, and related disclosures in the financial statements. Management considers critical accounting policies to be those which are most important to the representation of financial condition and results of operations and which require management’s most difficult and subjective or complex judgments, including accounting estimates that could result in materially different amounts if reported under different conditions or if they used different assumptions. Our most critical estimates and judgments for both NW Holdings and NW Natural include accounting for:


•	regulatory accounting;


•	revenue recognition;


•	derivative instruments and hedging activities;


•	pensions and postretirement benefits;


•	income taxes;


•	environmental contingencies; and


•	impairment of long-lived assets and goodwill.

There have been no material changes to the information provided in the 2018 Form 10-K with respect to the application of critical accounting policies and estimates. See Part II, Item 7, "Application of Critical Accounting Policies and Estimates," in the 2018 Form 10-K.

Management has discussed its current estimates and judgments used in the application of critical accounting policies with the Audit Committees of the Boards of NW Holdings and NW Natural. Within the context of critical accounting policies and estimates, management is not aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. For a description of recent accounting pronouncements that could have an impact on financial condition, results of operations or cash flows, see Note 2.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NW Holdings and NW Natural are exposed to various forms of market risk including commodity supply risk, commodity price risk, interest rate risk, foreign currency risk, credit risk and weather risk. This section describes NW Holdings' and NW Natural's exposure to these risks, as applicable. Management monitors and manages these financial exposures as an integral part of NW Holdings' and NW Natural's overall risk management program. No material changes have occurred related to disclosures about market risk for the six months ended June 30, 2019. For additional information, see Part II, Item 1A, “Risk Factors” in this report and Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” in the 2018 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

NW Holdings and NW Natural management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the design and operation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer of each registrant have concluded that, as of the end of the period covered by this report, disclosure controls and procedures were effective to ensure that information required to be disclosed by each such registrant and included in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission (SEC) rules and forms and that such information is accumulated and communicated to management of each registrant, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

NW Holdings and NW Natural management are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).

There have been no changes in NW Natural's or NW Holdings' internal control over financial reporting that occurred during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting for NW Holdings and NW Natural. The statements contained in Exhibit 31a., Exhibit 31b., Exhibit 31c. and Exhibit 31d. should be considered in light of, and read together with, the information set forth in this Item 4(b).

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other than the proceedings disclosed in Note 17 and those proceedings disclosed and incorporated by reference in Part I, Item 3, “Legal Proceedings” in the 2018 Form 10-K, we have only routine nonmaterial litigation that occurs in the ordinary course of our business.

ITEM 1A. RISK FACTORS

There were no material changes from the risk factors discussed in Part I, Item 1A, "Risk Factors” in the 2018 Form 10-K. In addition to the other information set forth in this report, you should carefully consider those risk factors, which could materially affect our business, financial condition, or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information about purchases of NW Holdings' equity securities that are registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended June 30, 2019:



Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
Balance forward				2,124,528	$	16,732,648
04/01/19-04/30/19	—	$	—	—	—
05/01/19-05/31/19	2,302	68.25		—	—
06/01/19-06/30/19	—	—		—	—
Total	2,302	68.25		2,124,528	$	16,732,648

⁽¹⁾

During the quarter ended June 30, 2019, no shares of common stock were purchased on the open market to meet the requirements of NW Holdings' Dividend Reinvestment and Direct Stock Purchase Plan. However, 2,302 shares of NW Holdings common stock were purchased on the open market to meet the requirements of share-based compensation programs. During the quarter ended June 30, 2019, no shares of NW Holdings common stock were accepted as payment for stock option exercises pursuant to the NW Natural Restated Stock Option Plan.

⁽²⁾

During the quarter ended June 30, 2019, no shares of NW Holdings common stock were repurchased pursuant to the Board-Approved share repurchase program. In May 2019, we received NW Holdings Board Approval to extend the repurchase program through May 2022. For more information on this program, refer to Note 5 in the 2018 Form 10-K, and the Form 8-K filed by NW Holdings and NW Natural on May 30, 2019.

ITEM 6. EXHIBITS

See Exhibit Index below, which is incorporated by reference herein.

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NORTHWEST NATURAL GAS COMPANY

NORTHWEST NATURAL HOLDING COMPANY

Exhibit Index to Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2019



Exhibit Index
Exhibit Number	Document
3.1	Amended and Restated Bylaws of Northwest Natural Holding Company (incorporated by reference to Exhibit 3.1 to the Form 8-K filed May 30, 2019, File No. 1-38681).

3.2	Amended and Restated Bylaws of Northwest Natural Gas Company (incorporated by reference to Exhibit 3.2 to the Form 8-K filed May 30, 2019, File No. 1-15973).

4.1	Credit Agreement, dated as of June 27, 2019, among NW Natural Water Company, LLC, Northwest Natural Holding Company, the lenders party thereto, and Bank of Montreal, as administrative agent.

10.1	Supplemental Executive Retirement Plan of Northwest Natural Gas Company, 2018 Restatement, as amended July 25, 2019

31.1	Certification of Principal Executive Officer of Northwest Natural Gas Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Principal Financial Officer of Northwest Natural Gas Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

31.3	Certification of Principal Executive Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

31.4	Certification of Principal Financial Officer of Northwest Natural Holding Company Pursuant to Rule 13a-14(a)/15-d-14(a), Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Principal Executive Officer and Principal Financial Officer of Northwest Natural Gas Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Principal Executive Officer and Principal Financial Officer of Northwest Natural Holding Company Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.	The following materials formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Statements of Income; (ii) Consolidated Balance Sheets; (iii) Consolidated Statements of Cash Flows; and (iv) Related notes. The instance document does not appear in the interactive data file because XBRL tags are embedded within the Inline XBRL document.

104.	The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company and its subsidiaries.

NORTHWEST NATURAL GAS COMPANY

(Registrant)



Dated:	August 6, 2019
		/s/ Brody J. Wilson
		Brody J. Wilson
		Principal Accounting Officer Vice President, Treasurer, Chief Accounting Officer and Controller

NORTHWEST NATURAL HOLDING COMPANY

(Registrant)



Dated:	August 6, 2019
		/s/ Brody J. Wilson
		Brody J. Wilson
		Principal Accounting Officer Vice President, Treasurer, Chief Accounting Officer and Controller

Exhibit 4.1

CREDIT AGREEMENT

dated as of

June 27, 2019

among

NW NATURAL WATER COMPANY, LLC, as Borrower

NORTHWEST NATURAL HOLDING COMPANY, as Guarantor

The Lenders Party Hereto

BANK OF MONTREAL,
as Administrative Agent

_______________________________

BMO CAPITAL MARKETS,
as Bookrunner and Lead Arranger

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Page



ARTICLE I	Definitions	1
SECTION 1.01	Defined Terms	1
SECTION 1.02	Classification of Loans and Borrowings	14
SECTION 1.03	Terms Generally	14
SECTION 1.04	Accounting Terms; GAAP; Pro Forma Calculations	14
SECTION 1.05	Interest Rates	15
ARTICLE II	The Credits	15
SECTION 2.01	Commitments	15
SECTION 2.02	Loans and Borrowings	16
SECTION 2.03	Requests for Borrowings	16
SECTION 2.04	Intentionally Omitted	16
SECTION 2.05	Intentionally Omitted	16
SECTION 2.06	Intentionally Omitted	16
SECTION 2.07	Funding of Borrowings	16
SECTION 2.08	Interest Elections	17
SECTION 2.09	Termination of Commitments	18
SECTION 2.10	Repayment of Loans; Evidence of Debt	18
SECTION 2.11	Prepayment of Loans	18
SECTION 2.12	Fees	18
SECTION 2.13	Interest	19
SECTION 2.14	Alternate Rate of Interest	19
SECTION 2.15	Increased Costs	20
SECTION 2.16	Break Funding Payments	21
SECTION 2.17	Withholding of Taxes; Gross-Up	22
SECTION 2.18	Payments Generally; Pro Rata Treatment; Sharing of Set-offs	25
SECTION 2.19	Mitigation Obligations; Replacement of Lenders	26
ARTICLE III	Representations and Warranties	27
SECTION 3.01	Corporate Existence; Authorization	27
SECTION 3.02	Enforceability	27
SECTION 3.03	Financial Condition; No Material Adverse Change	27
SECTION 3.04	Compliance with Laws and Material Contractual Obligations	28
SECTION 3.05	No Material Litigation	28
SECTION 3.06	Ownership of Property	28
SECTION 3.07	Taxes	28
SECTION 3.08	Subsidiaries	28
SECTION 3.09	Investment Company Act; No Consents	28
SECTION 3.10	ERISA	29
SECTION 3.11	Environmental	29
SECTION 3.12	Margin Regulations	29
SECTION 3.13	Disclosure	29
SECTION 3.14	Anti-Corruption Laws and Sanctions	30
SECTION 3.15	EEA Financial Institutions	30
SECTION 3.16	Plan Assets; Prohibited Transactions	30

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Page



ARTICLE IV	Conditions	30
SECTION 4.01	Effective Date	30
ARTICLE V	Affirmative Covenants	32
SECTION 5.01	Financial Statements and Other Information	32
SECTION 5.02	Certificates; Other Information	32
SECTION 5.03	Payment of Taxes	33
SECTION 5.04	Conduct of Business	33
SECTION 5.05	Maintenance of Property; Insurance	33
SECTION 5.06	Inspection of Property; Books and Records; Discussions	33
SECTION 5.07	Notices	33
SECTION 5.08	Use of Proceeds	34
SECTION 5.09	Debt Rating	34
ARTICLE VI	Negative Covenants	34
SECTION 6.01	Fundamental Changes	34
SECTION 6.02	Financial Covenants	35
ARTICLE VII	Events of Default	35
SECTION 7.01	Events of Default	35
SECTION 7.02	Application of Payments	36
ARTICLE VIII	The Administrative Agent	37
SECTION 8.01	Authorization and Action	37
SECTION 8.02	Administrative Agent’s Reliance, Indemnification, Etc	39
SECTION 8.03	Posting of Communications	40
SECTION 8.04	The Administrative Agent Individually	41
SECTION 8.05	Successor Administrative Agent	41
SECTION 8.06	Acknowledgments of Lenders	42
SECTION 8.07	Certain ERISA Matters	42
ARTICLE IX	Miscellaneous	43
SECTION 9.01	Notices	43
SECTION 9.02	Waivers; Amendments	44
SECTION 9.03	Expenses; Indemnity; Damage Waiver	45
SECTION 9.04	Successors and Assigns	47
SECTION 9.05	Survival	50
SECTION 9.06	Counterparts; Integration; Effectiveness; Electronic Execution	50
SECTION 9.07	Severability	51
SECTION 9.08	Right of Setoff	51
SECTION 9.09	Governing Law; Jurisdiction; Consent to Service of Process	51
SECTION 9.10	WAIVER OF JURY TRIAL	52
SECTION 9.11	Headings	52
SECTION 9.12	Confidentiality	52
SECTION 9.13	Material Non-Public Information	53
SECTION 9.14	USA PATRIOT Act	53
SECTION 9.15	Intentionally Omitted	53
SECTION 9.16	Interest Rate Limitation	53

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Page



SECTION 9.17	No Fiduciary Duty, etc	54
SECTION 9.18	Acknowledgment and Consent to Bail-In of EEA Financial Institutions	54
ARTICLE X		55
SECTION 10.01	Guaranty	55
SECTION 10.02	Guaranty Unconditional	55
SECTION 10.03	Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances	56
SECTION 10.04	General Waivers	57
SECTION 10.05	Subordination of Subrogation; Subordination of Intercompany Indebtedness	57
SECTION 10.06	Stay of Acceleration Waivers	58
SECTION 10.07	Taxes, Expenses of Enforcement, etc	58
SECTION 10.08	Financial Information	59
SECTION 10.09	Setoff	59
SECTION 10.10	Enforcement of Guaranty	59

iii

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Page

SCHEDULES:

Schedule 2.01 – Commitments

Schedule 3.08 – Subsidiaries

EXHIBITS:

Exhibit A – Form of Assignment and Assumption

Exhibit B – Reserved

Exhibit C – Reserved

Exhibit D – List of Closing Documents

Exhibit E-1 – Form of U.S. Tax Certificate (Foreign Lenders That Are Not Partnerships)

Exhibit E-2 – Form of U.S. Tax Certificate (Foreign Participants That Are Not Partnerships)

Exhibit E-3 – Form of U.S. Tax Certificate (Foreign Participants That Are Partnerships)

Exhibit E-4 – Form of U.S. Tax Certificate (Foreign Lenders That Are Partnerships)

Exhibit F-1 – Form of Borrowing Request

Exhibit F-2 – Form of Interest Election Request

CREDIT AGREEMENT (this “Agreement”) dated as of June 27, 2019 among NW NATURAL WATER COMPANY, LLC, NORTHWEST NATURAL HOLDING COMPANY, the LENDERS from time to time party hereto and BANK OF MONTREAL, as Administrative Agent.

The parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01 Defined Terms. As used in this Agreement, the following terms have the meanings specified below:

“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Alternate Base Rate.

“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

“Administrative Agent” means Bank of Montreal (including its branches and affiliates), in its capacity as administrative agent for the Lenders hereunder, and any successor appointed in accordance with Article VIII.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Agent Indemnitee” has the meaning assigned to such term in Section 9.03(c).

“Aggregate Commitment” means the aggregate of the Commitments of all of the Lenders, as reduced or increased from time to time pursuant to the terms and conditions hereof. As of the Effective Date, the Aggregate Commitment is $35,000,000.

“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the NYFRB Rate in effect on such day plus ½ of 1% and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%, provided that for the purpose of this definition, the Adjusted LIBO Rate for any day shall be based on the LIBO Screen Rate (or if the LIBO Screen Rate is not available for such one month Interest Period, the Interpolated Rate) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 2.14 hereof, then the Alternate Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the Alternate Base Rate as so determined would be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Guarantor or any of its Subsidiaries from time to time concerning or relating to money laundering, bribery or corruption.

“Applicable Party” has the meaning assigned to it in Section 8.03(c).

“Applicable Rate” means (a) with respect to any Eurodollar Loan, a per annum rate equal to 0.55% and (b) with respect to any ABR Loan, a per annum rate equal to 0.00%.

“Approved Electronic Platform” has the meaning assigned to it in Section 8.03(a).

“Approved Fund” has the meaning assigned to such term in Section 9.04(b).

“Arranger” means BMO Capital Markets, in its respective capacities as bookrunner and lead arranger hereunder.

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form (including electronic records generated by the use of an electronic platform) approved by the Administrative Agent.

“Authorized Officer” means the chief executive officer, the president, any vice president, the treasurer or any assistant treasurer of the Borrower or Guarantor, as applicable.

“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a voluntary or involuntary bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment or has had any order for relief in such proceeding entered in respect thereof, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, unless such ownership interest results in or provides such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permits such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.

“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.

“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.

“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code to which Section 4975 of the Code applies, and (c) any Person whose assets include (for purposes of the Plan Asset Regulations or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.

“Borrower” means NW Natural Water Company, LLC, an Oregon limited liability company.

“Borrowing” means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.

“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03, which shall be substantially in the form attached hereto as Exhibit F-1 or any other form approved by the Administrative Agent.

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.

“Change in Control” means that (a)(i) either (x) a person or group (as defined in the Securities Exchange Act of 1934) has acquired more than 50% of the voting stock of the Guarantor or (y) a majority of the board of directors of the Guarantor shall cease to be composed of individuals who were members of such board on the Effective Date (“Existing Directors”) or were approved by a majority of the Existing Directors and previously approved directors; and (ii) at the time of, or at any time during the one-year period following, an event described in the preceding clause (a)(i), the Guarantor either (x) has a rating that is not an Investment Grade Rating from any one of S&P, Fitch or Moody’s or (y) does not have a credit rating from at least one of S&P, Fitch or Moody’s or (b) the Guarantor shall cease to own, directly or indirectly 100% of Equity Interests of the Borrower, free and clear of any lien, pledge, charge or other security interest.

“Change in Law” means the occurrence, after the date of this Agreement (or, with respect to any Lender, such later date on which such Lender becomes a party to this Agreement), of: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority, or (c) compliance by any Lender (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender’s holding company, if any) with any request, rules, guideline, requirement or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements or directives thereunder, or issued in connection therewith or in the implementation thereof, and (y) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted, issued or implemented.

“Charges” has the meaning assigned to it in Section 9.16.

“Code” means the Internal Revenue Code of 1986, as amended.

“Commitment” means, with respect to each Lender, the commitment of such Lender to make Loans hereunder on the Effective Date pursuant to Section 2.01. Each Lender’s Commitment is set forth on Schedule 2.01.

“Communications” has the meaning assigned to such term in Section 8.03(c).

“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are gross receipts or franchise Taxes or branch profits Taxes.

“Consolidated Indebtedness” means, at a particular date, all Indebtedness, calculated for the Guarantor and its Subsidiaries on a consolidated basis.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.

“Credit Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Loans.

“Credit Party” means the Administrative Agent or any other Lender.

“Debt Rating” means the rating assigned by S&P or Moody’s, as applicable, to the Guarantor’s senior, unsecured, non-credit enhanced long-term debt; provided that, (a) if the Guarantor’s senior, unsecured, non-credit enhanced long-term debt is not rated by S&P, “Debt Rating” for S&P shall mean the (i) the corporate credit rating assigned by S&P to the Guarantor; or (ii) if the rating described in clause (a)(i) shall not exist with respect to S&P, the rating for S&P that is one level below the rating assigned by S&P to senior, unsecured, non-credit enhanced long-term debt of NW Natural; or (iii) if the ratings described in clause (a)(i) and (a)(ii) shall not exist with respect to S&P, the rating that is two levels below the rating assigned by S&P to the senior, secured long-term debt of NW Natural; and (b) if the Guarantor’s senior, unsecured, non-credit enhanced long-term debt is not rated by Moody’s, “Debt Rating” for Moody’s shall mean (i) the corporate credit rating assigned by Moody’s to the Guarantor; or (ii) if the rating described in clause (b)(i) shall not exist with respect to Moody’s, the rating for Moody’s that is one level below the rating assigned by Moody’s to senior, unsecured, non-credit enhanced long-term debt of NW Natural; or (iii) if the ratings described in clause (b)(i) and (b)(ii) shall not exist with respect to Moody’s, the rating that is two levels below the rating assigned by Moody’s to the senior, secured long-term debt of NW Natural.

“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“Dollars” or “$” refers to lawful money of the United States of America.

“EEA Financial Institution” means (a) any institution established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

“Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02).

“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.

“Environmental Laws” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to (i) the environment, (ii) preservation or reclamation of natural resources, (iii) the management, release or threatened release of any Hazardous Material or (iv) health and safety matters.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Guarantor or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure

to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest, but excluding any debt securities convertible into any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Guarantor, is treated as a single employer under Section 414(b) or (c) of the Code or Section 4001(b)(1) of ERISA or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

“ERISA Event” means (a) any Reportable Event; (b) the failure to satisfy the “minimum funding standard” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Guarantor or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Guarantor or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Guarantor or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal of the Guarantor or any of its ERISA Affiliates from any Plan or Multiemployer Plan; or (g) the receipt by the Guarantor or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Guarantor or any ERISA Affiliate of any notice, concerning the imposition upon the Guarantor or any of its ERISA Affiliates of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.

“Eurodollar” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bear interest at a rate determined by reference to the Adjusted LIBO Rate.

“Event of Default” has the meaning assigned to such term in Section 7.01.

“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), gross receipts, franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. Federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.19(b)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.17, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender acquired the applicable interest in a Loan or Commitment or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.17(f) and (d) any withholding Taxes imposed under FATCA.

“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.

“Federal Funds Effective Rate” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions, as determined in such manner as the NYFRB shall set forth on its public website from time to time, and published on the next succeeding Business Day by the NYFRB as the effective federal funds rate, provided that, if the Federal Funds Effective Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System of the United States of America.

“Financial Officer” means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower or Guarantor, as applicable.

“Fitch” means Fitch, Inc., doing business as Fitch Ratings.

“Foreign Lender” means (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.

“GAAP” means generally accepted accounting principles in the United States of America in effect from time to time.

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guaranteed Obligations” has the meaning assigned to such term in Section 10.01.

“Guarantor” means Northwest Natural Holding Company, an Oregon corporation.

“Guarantor Materials” has the meaning assigned to such term in Section 5.02.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Hybrid Securities” means debt or equity securities that meet the following requirements: (a) such securities are issued by (i) the Guarantor or (ii) a Subsidiary or an independent trust (a “Hybrid Securities Subsidiary”) that engages in no business other than the issuance of such securities and lending the proceeds thereof to the Guarantor; (b) each of such securities of the Guarantor and the loans, if any, made to the Guarantor by the applicable Hybrid Securities Subsidiary with the proceeds of such securities (i) are subordinated to the payment by the Guarantor of its obligations hereunder in a manner reasonably satisfactory to the Administrative Agent and (ii) require no repayment, prepayment, mandatory redemption or mandatory repurchase prior to the date that is at least 91 days after the scheduled Maturity Date; and (c) such securities are classified as possessing a minimum of at least one of the following: (x) “intermediate equity content” by S&P, (y) “Basket C equity credit” by Moody’s and (z) “50% equity credit” by Fitch.

“Impacted Interest Period” has the meaning assigned to such term in the definition of “LIBO Rate”.

“Indebtedness” of a Person means, at a particular date, the sum (without duplication) at such date of (a) indebtedness for borrowed money or for the deferred purchase price of property, goods or services, excluding (i) trade accounts payable arising in the ordinary course of business, (ii) pension liabilities that are not then due and payable and (iii) obligations in respect of Hybrid Securities that are not then due and payable, (b) obligations of such Person under capitalized leases and synthetic leases, (c) debts of third persons guaranteed by such Person or secured by property of such Person (provided that the amount of Indebtedness secured by property of such Person shall be the lesser of (x) the fair market value of such property as of the date of determination and (y) the amount of the Indebtedness as of the date of determination) and (d) any non-contingent reimbursement obligations of such Person in respect of letters of credit, acceptances or similar obligations issued or created for the account of such Person.

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in clause (a) hereof, Other Taxes.

“Indemnitee” has the meaning assigned to it in Section 9.03(b).

“Ineligible Institution” has the meaning assigned to such term in Section 9.04(b).

“Information” has the meaning assigned to it in Section 9.12.

“Insolvency Event” has the meaning specified in Section 10.05(b).

“Intercompany Indebtedness” has the meaning specified in Section 10.05(b).

“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.08, which shall be substantially in the form attached hereto as Exhibit F-2 or any other form approved by the Administrative Agent.

“Interest Payment Date” means (a) with respect to any ABR Loan, the second Business Day following the last day of each March, June, September and December and the Maturity Date and (b) with respect to any Eurodollar Loan, the last day of each Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Maturity Date.

“Interest Period” means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

“Interpolated Rate” means, at any time, for any Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBO Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from

interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period (for which the LIBO Screen Rate is available for the applicable currency) that is shorter than the Impacted Interest Period and (b) the LIBO Screen Rate for the shortest period (for which that LIBO Screen Rate is available for the applicable currency) that exceeds the Impacted Interest Period, in each case, at such time.

“Investment Grade Rating” means, for S&P, Fitch or Moody’s, as applicable, (a) if such rating agency has a rating assigned to the Guarantor’s senior, unsecured, non-credit enhanced long-term debt of BBB- or higher by S&P or Fitch and Baa3 or higher by Moody’s; and (b) if such rating agency does not have a rating assigned to the Guarantor’s senior, unsecured, non-credit enhanced long-term debt but has a rating assigned to the Guarantor’s senior, secured long-term debt, BBB or higher by S&P or Fitch and Baa2 or higher by Moody’s.

“IRS” means the United States Internal Revenue Service.

“Lenders” means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption or otherwise, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption or otherwise.

“LIBO Rate” means, with respect to any Eurodollar Borrowing and for any applicable Interest Period, the LIBO Screen Rate at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period; provided that, if the LIBO Screen Rate shall not be available at such time for such Interest Period (the “Impacted Interest Period”), then the LIBO Rate for such Interest Period shall be the Interpolated Rate. It is understood and agreed that all of the terms and conditions of this definition of “LIBO Rate” shall be subject to Section 2.14.

“LIBO Screen Rate” means, for any day and time, with respect to any Eurodollar Borrowing and for any Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for Dollars for a period equal in length to such Interest Period as displayed on such day and time on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion); provided that if the LIBO Screen Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.

“Loan Documents” means this Agreement, including schedules and exhibits hereto, and any agreements entered into in connection herewith by the Borrower or the Guarantor with or in favor of the Administrative Agent and/or the Lenders, including any promissory notes issued pursuant to Section 2.10(e), any amendments, modifications or supplements thereto or waivers thereof, UCC filings, letter of credit applications and any agreements between the Borrower and any other documents instruments or certificates delivered by the Borrower or Guarantor pursuant to the terms of any other Loan Document. Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to this Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative.

“Loans” means the loans made by the Lenders to the Borrower pursuant to this Agreement.

“Margin Stock” means margin stock within the meaning of Regulations T, U and X, as applicable.

“Material Adverse Effect” means a material adverse effect on (a) the operations, the business or financial condition of the Guarantor and its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform any of its Obligations or the Guarantor to perform any of the Guaranteed Obligations or (c) the validity or enforceability of this Agreement or any and all other Loan Documents or the rights or remedies of the Administrative Agent and the Lenders thereunder.

“Maturity Date” means June 27, 2021.

“Maximum Rate” has the meaning assigned to it in Section 9.16.

“Moody’s” means Moody’s Investors Service, Inc.

“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“NW Natural” means Northwest Natural Gas Company, an Oregon corporation.

“NYFRB” means the Federal Reserve Bank of New York.

“NYFRB Rate” means, for any day, the greater of (a) the Federal Funds Effective Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m. on such day received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided, further, that if any of the aforesaid rates as so determined would be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.

“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, the Borrower and its Subsidiaries arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against the Borrower or any Affiliate thereof of any proceeding under any debtor relief laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed or allowable claims in such proceeding. Without limiting the foregoing, the Obligations include (a) the obligation to pay principal, interest, charges, expenses, fees, indemnities and other amounts payable by the Borrower under any Loan Document and (b) the obligation of the Borrower to reimburse any amount in respect of any of the foregoing that the Administrative Agent or any Lender, in each case in its sole discretion, may elect to pay or advance on behalf of the Borrower.

“Obligor” has the meaning assigned to such term in Section 10.05(b).

“OFAC” means the Office of Foreign Assets Control of the U.S. Department of the Treasury.

“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19).

“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds and overnight Eurodollar borrowings by U.S.–managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB as set forth on its public website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate.

“Participant” has the meaning assigned to such term in Section 9.04(c).

“Participant Register” has the meaning assigned to such term in Section 9.04(c).

“Patriot Act” has the meaning assigned to such term in Section 9.14.

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Guarantor or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Plan Asset Regulations” means 29 CFR § 2510.3-101 et seq., as modified by Section 3(42) of ERISA.

“Platform” has the meaning assigned to such term in Section 5.02.

“Prime Rate” means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent). Each change in the Prime Rate shall be effective from and including the date such change is publicly announced or quoted as being effective.

“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.

“Public Lender” has the meaning assigned to such term in Section 5.02.

“Recipient” means (a) the Administrative Agent and (b) any Lender, as applicable.

“Register” has the meaning assigned to such term in Section 9.04(b).

“Regulation D” means Regulation D of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.

“Regulation T” means Regulation T of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.

“Regulation U” means Regulation U of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.

“Regulation X” means Regulation X of the Federal Reserve Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.

“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents, advisors and representatives of such Person and such Person’s Affiliates.

“Reportable Event” means a reportable event, as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding any event as to which the PBGC by regulation waived the requirements of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code and of

Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(c) of the Code.

“Required Lenders” means, at any time, Lenders having Credit Exposures and representing more than 50% of the sum of the Total Credit Exposure.

“Requirement of Law” means, as to any Person, the certificate of incorporation and bylaws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or order or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Responsible Officer” means the chief executive officer, the president, any senior vice president, the chief financial officer, the chief accounting officer, the treasurer or the general counsel of the Borrower or Guarantor, as applicable.

“S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business.

“Sanctioned Country” means, at any time, a country, region or territory (other than the United States or any region or territory therein) which is itself the subject or target of any Sanctions (at the time of this Agreement, Crimea, Cuba, Iran, North Korea and Syria).

“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, any European Union member state, Her Majesty’s Treasury of the United Kingdom, or other relevant sanction authority, (b) any Person operating, organized or resident in a Sanctioned Country, (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b) or (d) any Person otherwise the subject of any Sanctions.

“Sanctions” means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State or (b) the United Nations Security Council, the European Union, any European Union member state or Her Majesty’s Treasury of the United Kingdom.

“SEC” means the Securities and Exchange Commission of the United States of America.

“Securities Act” means the United States Securities Act of 1933.

“Significant Subsidiary” means (a) the Borrower and (b) any other Subsidiary that is a “significant subsidiary” as that term is defined in Rule 1-02(w) of Regulation S-X promulgated by the SEC (as in effect on the Effective Date).

“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D). Such reserve percentage shall include those imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, Controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent and/or one or more subsidiaries of the parent.

“Subsidiary” means any subsidiary of the Guarantor.

“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Guarantor or the Subsidiaries shall be a Swap Agreement.

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), value added taxes, or any other goods and services, use or sales taxes, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Total Capitalization” means the sum of Indebtedness, Equity Interests, additional paid-in capital and retained earnings of the Guarantor and its Subsidiaries, taken on a consolidated basis after eliminating all intercompany items.

“Total Credit Exposure” means the sum of the outstanding principal amount of all Lenders’ Loans.

“Transactions” means the execution and delivery by the Borrower and the Guarantor of, and the performance by the Borrower and the Guarantor of its respective obligations under, this Agreement and the other Loan Documents, the borrowing of Loans and other credit extensions, the use of the proceeds thereof.

“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.

“U.S. Person” means a “United States person” within the meaning of Section 7701(a)(30) of the Code.

“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 2.17(f)(ii)(B)(3).

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part 1 of Subtitle E of Title IV of ERISA.

“Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

SECTION 1.02 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g., a “Eurodollar Borrowing” or an “ABR Loan”).

SECTION 1.03 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. The word “law” shall be construed as referring to all statutes, rules, regulations, codes and other laws (including official rulings and interpretations thereunder having the force of law or with which affected Persons customarily comply), and all judgments, orders and decrees, of all Governmental Authorities. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns (subject to any restrictions on assignment set forth herein) and, in the case of any Governmental Authority, any other Governmental Authority that shall have succeeded to any or all functions thereof, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference to any law, rule or regulation herein shall, unless otherwise specified, refer to such law, rule or regulation as amended, modified or supplemented from time to time and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

SECTION 1.04 Accounting Terms; GAAP; Pro Forma Calculations. (a) Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made without giving effect to (i) any election under Financial Accounting Standards Board Accounting Standards Codification 825 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Guarantor or any Subsidiary at “fair value”, as defined therein and (ii) any treatment of Indebtedness in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof.

(b) All pro forma computations required to be made hereunder giving effect to any acquisition or disposition, or issuance, incurrence or assumption of Indebtedness, or other transaction shall in each case be calculated giving pro forma effect thereto (and, in the case of any pro forma computation made hereunder to determine whether such acquisition or disposition, or issuance, incurrence or assumption of Indebtedness, or other transaction is permitted to be consummated hereunder, to any other such transaction consummated since the first day of the period covered by any component of such pro forma computation and on or prior to the date of such computation) as if such transaction had occurred on the first day of the period of four consecutive fiscal quarters ending with the most recent fiscal quarter for which financial statements shall have been delivered pursuant to Section 5.01(a) or 5.01(b) (or, prior to the delivery of any such financial statements, ending with the last fiscal quarter included in the financial statements referred to in Section 3.03(a)), and, to the extent applicable, to the historical earnings and cash flows associated with the assets acquired or disposed of (but without giving effect to any synergies or cost savings) and any related incurrence or reduction of Indebtedness,

all in accordance with Article 11 of Regulation S-X under the Securities Act. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Swap Agreement applicable to such Indebtedness).

(c) Notwithstanding anything to the contrary contained in Section 1.04(a) in the event Accounting Standard Codification 842 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect (and related interpretations)(collectively, “ASC 842”) requires all leases to be capitalized, only those leases (assuming for purposes hereof that such leases were in existence on the date hereof) that would constitute capital leases in conformity with GAAP prior to the effectiveness of ASC 842 shall be considered capital leases, and all calculations and deliverables under this Agreement or any other Loan Document shall be made or delivered, as applicable, in accordance therewith.

SECTION 1.05 Interest Rates. The Administrative Agent does not warrant or accept responsibility for, and shall not have any liability with respect to, the administration, submission or any other matter related to the rates in the definition of “LIBO Rate” or with respect to any comparable or successor rate thereto, or replacement rate therefor.

ARTICLE II

The Credits

SECTION 2.01 Commitments. Subject to the terms and conditions set forth herein, each Lender (severally and not jointly) agrees to make a Loan to the Borrower in Dollars on the Effective Date, in an amount equal to such Lender’s Commitment by making immediately available funds available to the Administrative Agent’s designated account, not later than the time specified by the Administrative Agent. Amounts repaid or prepaid in respect of Loans may not be reborrowed.

SECTION 2.02 Loans and Borrowings. (a) Each Loan shall be made as part of the Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments on the Effective Date. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.

(b) Each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan (and in the case of an Affiliate, the provisions of Sections 2.14, 2.15, 2.16 and 2.17 shall apply to such Affiliate to the same extent as to such Lender); provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.

(c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 thereof. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of ten (10) Eurodollar Borrowings outstanding.

(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.

SECTION 2.03 Requests for the initial Borrowing. To request the initial Borrowing, the Borrower shall notify the Administrative Agent of such request by submitting a Borrowing Request (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three (3) Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 1:00 p.m., New York City time, on the date of the proposed Borrowing. Each such Borrowing Request shall be irrevocable and shall be signed by an Authorized Officer of the Borrower. Each such Borrowing Request shall specify the following information in compliance with Section 2.02:

(i) the aggregate principal amount of the requested Borrowing;

(ii) the date of such Borrowing, which shall be a Business Day;

(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;

(iv) in the case of a Eurodollar Borrower, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and

(v) the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.07.

If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

SECTION 2.04 Intentionally Omitted.

SECTION 2.05 Intentionally Omitted.

SECTION 2.06 Intentionally Omitted.

SECTION 2.07 Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof solely by wire transfer of immediately available funds by 12:00 noon, New York City time (or, with respect to any ABR Borrowing, the Borrowing Request for which shall have been received after 10:00 a.m. but at or before 1:00 p.m., New York City time, by 3:00 p.m., New York City time), to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly making available the funds so received in the aforesaid account of the Administrative Agent by wire transfer of immediately available funds to an account of the Borrower designated by the Borrower in the applicable Borrowing Request.

(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at, (i) in the case of such Lender, the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.

SECTION 2.08 Interest Elections. (a) The initial Borrowing on the Effective Date shall be of the Type specified in the applicable Borrowing Request in accordance with Section 2.03 and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting the initial Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such Interest Election Request shall be irrevocable and shall be signed by an Authorized Officer of the Borrower. Notwithstanding any contrary provision herein, this Section shall not be construed to permit the Borrower to elect an Interest Period for Eurodollar Loans that does not comply with Section 2.02(d).

(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which Interest Period shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.

SECTION 2.09 Termination of Commitments. Unless previously terminated, the Commitments shall terminate at the earlier of (a) upon funding the Loans on the Effective Date and (b) 3:00 p.m., New York City time, on the Effective Date.

SECTION 2.10 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Maturity Date.

(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

(e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form.

SECTION 2.11 Prepayment of Loans. The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with the provisions of this Section 2.11. The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy or electronic mail) of any prepayment hereunder in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three (3) Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one (1) Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by (i) accrued interest to the extent required by Section 2.13 and (ii) break funding payments pursuant to Section 2.16.

SECTION 2.12 Fees.

All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances.

SECTION 2.13 Interest.

(a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate.

(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.

(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal

to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.

(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.

SECTION 2.14 Alternate Rate of Interest.

(a) If prior to the commencement of any Interest Period for a Eurodollar Borrowing:

(i) the Administrative Agent determines (which determination shall be conclusive and binding absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable (including, without limitation, because the LIBO Screen Rate is not available or published on a current basis), for such Interest Period; or

(ii) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;

then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone, telecopy or electronic mail as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and any such Eurodollar Borrowing shall be repaid or converted into an ABR Borrowing on the last day of the then current Interest Period applicable thereto and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.

(b) If at any time the Administrative Agent determines (which determination shall be conclusive absent manifest error) that (i) the circumstances set forth in clause (a)(i) have arisen and such circumstances are unlikely to be temporary or (ii) the circumstances set forth in clause (a)(i) have not arisen but either (w) the supervisor for the administrator of the LIBO Screen Rate has made a public statement that the administrator of the LIBO Screen Rate is insolvent (and there is no successor administrator that will continue publication of the LIBO Screen Rate), (x) the administrator of the LIBO Screen Rate has made a public statement identifying a specific date after which the LIBO Screen Rate will permanently or indefinitely cease to be published by it (and there is no successor administrator that will continue publication of the LIBO Screen Rate), (y) the supervisor for the administrator of the LIBO Screen Rate has made a public statement identifying a specific date after which the LIBO Screen Rate will permanently or indefinitely cease to be published or (z) the supervisor for the administrator of the LIBO Screen Rate or a Governmental Authority having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which the LIBO Screen Rate may no longer be used for determining interest rates for loans, then the Administrative Agent and the Borrower shall endeavor to establish an alternate rate of interest to the LIBO Rate that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time, and shall enter

into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable (but for the avoidance of doubt, such related changes shall not include a reduction of the Applicable Rate); provided that, if such alternate rate of interest as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement. Notwithstanding anything to the contrary in Section 9.02, such amendment shall become effective without any further action or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five Business Days of the date notice of such alternate rate of interest is provided to the Lenders, a written notice from the Required Lenders stating that such Required Lenders object to such amendment. Until an alternate rate of interest shall be determined in accordance with this clause (b) (but, in the case of the circumstances described in clause (ii) of the first sentence of this Section 2.14(b), only to the extent the LIBO Screen Rate for such Interest Period is not available or published at such time on a current basis), (x) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and any such Eurodollar Borrowing shall be repaid or converted into an ABR Borrowing on the last day of the then current Interest Period applicable thereto, and (y) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.

SECTION 2.15 Increased Costs. (a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate);

(ii) impose on any Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or participation therein; or

(iii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;

and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, continuing, converting into or maintaining any Loan or of maintaining its obligation to make any such Loan or to increase the cost to such Lender or such other Recipient of participating in, issuing or maintaining or to reduce the amount of any sum received or receivable by such Lender or such other Recipient hereunder, whether of principal, interest or otherwise, then the Borrower will pay to such Lender or such other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender or such other Recipient, as the case may be, for such additional costs incurred or reduction suffered.

(b) If any Lender determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement or the Loans made by, such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.

(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.

SECTION 2.16 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default or as a result of any prepayment pursuant to Section 2.11), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11 and is revoked in accordance therewith) or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. Such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for deposits in Dollars of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.

SECTION 2.17 Withholding of Taxes; Gross-Up. (a) Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable withholding agent) requires the deduction or withholding of any Tax from any such payment by a withholding agent, then the applicable withholding agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 2.17) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

(b) Payment of Other Taxes by the Borrower. The Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for, Other Taxes.

(c) Evidence of Payments. As soon as practicable after any payment of Taxes by the Borrower to a Governmental Authority pursuant to this Section 2.17, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(d) Indemnification by the Borrower. The Borrower shall indemnify each Recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(e) Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 9.04(c) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).

(f) Status of Lenders. (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.17(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person:

(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), an executed copy of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:

(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, an executed copy of IRS Form W-8BEN-E or IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN-E or IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(2) in the case of a Foreign Lender claiming that its extension of credit will generate U.S. effectively connected income, an executed copy of IRS Form W-8ECI;

(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit E-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) an executed copy of IRS Form W-8BEN-E or IRS Form W-8BEN; or

(4) to the extent a Foreign Lender is not the beneficial owner, an executed copy of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E or IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit E-2 or Exhibit E-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit E-4 on behalf of each such direct and indirect partner;

(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. Federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and

(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.

(g) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.17 (including by the payment of additional amounts pursuant to this Section 2.17), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.17 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

(h) Survival. Each party’s obligations under this Section 2.17 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.

(i) Defined Terms. For purposes of this Section 2.17, the term “applicable law” includes FATCA.

SECTION 2.18 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon, New York City time on the date when due, in immediately available funds, without set-off, recoupment or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices as specified in Section 9.01(a)(ii). The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars.

(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face

value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the NYFRB Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

SECTION 2.19 Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.15, or the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17 or if any Lender does not consent to any proposed amendment, supplement, modification, consent or waiver of any provision of this Agreement or any other Loan Document that requires the consent of each of the Lenders or each of the Lenders affected thereby (so long as the consent of the Required Lenders (with the percentage in such definition being deemed to be 50% for this purpose) has been obtained), then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights (other than its existing rights to payments pursuant to Sections 2.15 or 2.17) and obligations under this Agreement and the other Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances

entitling the Borrower to require such assignment and delegation cease to apply. Each party hereto agrees that (a) an assignment required pursuant to this paragraph may be effected pursuant to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee (or, to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and such parties are participants), and (b) the Lender required to make such assignment need not be a party thereto in order for such assignment to be effective and shall be deemed to have consented to an be bound by the terms thereof; provided that, following the effectiveness of any such assignment, the other parties to such assignment agree to execute and deliver such documents necessary to evidence such assignment as reasonably requested by the applicable Lender, provided that any such documents shall be without recourse to or warranty by the parties thereto.

ARTICLE III

Representations and Warranties

Each of the Guarantor and the Borrower represents and warrants to the Lenders that:

SECTION 3.01 Corporate Existence; Authorization. Each of the Guarantor and Borrower (a) has been duly incorporated and is validly existing as a corporation or limited liability company, as applicable, under the laws of its jurisdiction of incorporation, (b) has the requisite corporate power and authority to consummate the Transactions and (c) has duly taken all necessary corporate action to authorize the Transactions.

SECTION 3.02 Enforceability. This Agreement and each note delivered hereunder has been duly executed and delivered by the Borrower and Guarantor is a legal, valid and binding obligation of the Borrower and Guarantor, enforceable against it in accordance with its terms, and any other instrument or agreement required hereunder, when executed and delivered, will be similarly valid, binding and enforceable, except (in each case) to the extent that the enforcement thereof may be limited by bankruptcy, insolvency, reorganization or similar laws generally affecting creditors’ rights and by general principles of equity.

SECTION 3.03 Financial Condition; No Material Adverse Change. (a) All fiscal year-end financial statements furnished by the Guarantor to the Administrative Agent or any Lender have been prepared in accordance with GAAP consistently applied, except as noted therein, and fairly present the consolidated financial position and the consolidated results of operations of the Guarantor as of the dates and for the periods presented. Financial statements and other information and data furnished to the Administrative Agent or any Lender other than fiscal year-end statements of the Guarantor are in reasonable detail and present fairly the consolidated financial position and consolidated results of operations of the Guarantor as of the dates and for the periods presented, subject to year-end audit adjustments.

(b) As of the Effective Date, there has been no material adverse change in the business or financial condition of the Guarantor and its Subsidiaries, taken as a whole, except as disclosed in the Guarantor’s periodic reports filed with the SEC under the Securities Exchange Act of 1934 on or before the Effective Date.

SECTION 3.04 Compliance with Laws and Material Contractual Obligations. The operations of the Guarantor and its Significant Subsidiaries are in compliance with (i) all Requirements of Law and (ii) its obligations under material agreements to which it is a party, (a) except to the extent that the failure to comply therewith could not, in the aggregate, be reasonably expected to have a Material Adverse Effect or (b) except as disclosed in the Guarantor’s periodic reports filed prior to the date of this Agreement with the SEC under the Securities Exchange Act of 1934. Neither the execution and delivery of this Agreement, nor the consummation of the transactions herein contemplated, will violate (a) any Requirement of Law, (b) violate or result in a default under any indenture or other material agreement or other material instrument binding upon the Guarantor or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any material payment to be made by the Guarantor or any of its Subsidiaries or (c) result in the creation or imposition of, or the requirement to create, any lien or security interest on any asset of the Guarantor or any of its Subsidiaries.

SECTION 3.05 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Guarantor, threatened by or against the Guarantor or any of its Subsidiaries or against any of its or their respective properties or revenues (a)

with respect to this Agreement or any of the transactions contemplated hereby or (b) which could, insofar as the Guarantor may reasonably foresee, have a Material Adverse Effect, except as disclosed in the Guarantor’s periodic reports filed with the SEC prior to the date of this Agreement under the Securities Exchange Act of 1934.

SECTION 3.06 Ownership of Property. Each of the Guarantor and each of its Significant Subsidiaries has title in fee simple to or valid leasehold interests in all its real property material to the operation of its business, and title to or valid leasehold interests in all its other property useful and necessary in its business.

SECTION 3.07 Taxes. Each of the Guarantor and each of its Significant Subsidiaries has filed or caused to be filed all Tax returns which to the knowledge of the Guarantor are required to be filed and has paid all material taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other material Taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than those the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Guarantor or the applicable Subsidiary, as the case may be); and no material Tax liens have been filed and, to the knowledge of the Guarantor, no material claims are being asserted with respect to any such Taxes, fees or other charges.

SECTION 3.08 Subsidiaries. Schedule 3.08 contains an accurate list of all of the presently existing Subsidiaries of the Guarantor, setting forth their respective jurisdictions of incorporation and the percentage of their respective Equity Interests owned by the Guarantor and/or other Subsidiaries. All of the issued and outstanding shares of Equity Interests of such Subsidiaries have been duly authorized and issued and are fully paid and nonassessable.

SECTION 3.09 Investment Company Act; No Consents. Neither the Guarantor nor any Subsidiary is an “Investment Company”, as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended. No authorizations, approvals or consents of, no filings or registrations with, any Governmental Authority are necessary for the consummation of the Transactions or for the validity or enforceability hereof or the notes delivered hereunder.

SECTION 3.10 ERISA. The Guarantor is in compliance in all material respects with all applicable provisions of ERISA. The Guarantor has not violated any provision of any Plan maintained or contributed to by the Guarantor which could, insofar as the Guarantor may reasonably foresee, have a Material Adverse Effect. No Reportable Event has occurred and is continuing with respect to any Plan initiated by the Guarantor. The Guarantor has met its minimum funding requirements under ERISA with respect to each Plan. Each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under GAAP.

SECTION 3.11 Environmental. In the ordinary course of its business, the Guarantor conducts an ongoing review of the effect of Environmental Laws on the business, operations, and properties of the Guarantor, in the course of which it identifies and evaluates associated liabilities and costs (including any capital or operating expenditures required for clean-up or closure of properties presently or previously owned or operated, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of these reviews, the Guarantor has reasonably concluded that Environmental Laws are unlikely to have a Material Adverse Effect. The Guarantor hereby represents and warrants that its business and assets and those of its Subsidiaries are operated, and covenants that its and its Subsidiaries’ business and assets will continue to be operated, in compliance with applicable Environmental Laws and that no enforcement action in respect thereof is threatened or pending that could, in the case of any failure to so comply or any such enforcement action, insofar as the Guarantor may reasonably foresee, have a Material Adverse Effect, except as disclosed in the Guarantor’s periodic reports filed with the SEC on or prior to the date of this Agreement under the Securities Exchange Act of 1934.

SECTION 3.12 Margin Regulations. The Guarantor is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying Margin Stock, or extending credit for the purpose of purchasing or carrying Margin Stock, and no part of the proceeds of any Borrowing hereunder will be used to buy or carry any Margin Stock. Following the application of the proceeds of each Borrowing, not more than 25% of the value of the assets (either of the Guarantor only or of the Guarantor and its Subsidiaries on a consolidated basis) will be Margin Stock.

SECTION 3.13 Disclosure. (a) As of the Effective Date, no reports, financial statements, certificates or other information furnished by or on behalf of the Guarantor or any Subsidiary to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Guarantor represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

(b) As of the Effective Date, to the best knowledge of the Guarantor, the information included in the Beneficial Ownership Certification provided on or prior to the Effective Date to any Lender in connection with this Agreement is true and correct in all respects.

SECTION 3.14 Anti-Corruption Laws and Sanctions. Each of the Borrower and the Guarantor has implemented and maintains in effect policies and procedures designed to ensure compliance by the Guarantor, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Guarantor, its Subsidiaries and their respective officers and directors and to the knowledge of the Guarantor its employees and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Guarantor, any Subsidiary, any of their respective directors or officers, or employees, or (b) to the knowledge of the Guarantor, any agent of the Guarantor or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No Borrowing, use of proceeds or other Transactions will violate any Anti-Corruption Law or applicable Sanctions.

SECTION 3.15 EEA Financial Institutions. Neither the Borrower nor the Guarantor is an EEA Financial Institution.

SECTION 3.16 Plan Assets; Prohibited Transactions. None of the Guarantor or any of its Subsidiaries is an entity deemed to hold “plan assets” (within the meaning of the Plan Asset Regulations), and neither the execution, delivery or performance of the Transactions, including the making of any Loan hereunder, will give rise to a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.

ARTICLE IV

Conditions

SECTION 4.01 Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):

(a) The Administrative Agent (or its counsel) shall have received (i) from each party hereto either (A) a counterpart of this Agreement signed on behalf of such party or (B) written evidence satisfactory to the Administrative Agent (which may include telecopy or electronic transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement and (ii) duly executed copies of the Loan Documents and such other legal opinions, certificates, documents, instruments and agreements as the Administrative Agent shall reasonably request in connection with the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel and as further described in the list of closing documents attached as Exhibit D.

(b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of Stoel Rives LLP, counsel for the Borrower and Guarantor, covering such matters relating to the Borrower and Guarantor, the Loan Documents or the Transactions as the Administrative Agent shall reasonably request. Each of the Borrower and Guarantor hereby requests such counsel to deliver such opinion.

(c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower and Guarantor, the authorization of the Transactions and any other legal matters relating to the Borrower and the Guarantor, the Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel and as further described in the list of closing documents attached as Exhibit D.

(d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by a Responsible Officer of the Borrower and Guarantor, certifying (i) that the representations and warranties contained in Article III are true and correct as of such date and (ii) that no Default or Event of Default has occurred and is continuing as of such date.

(e) The Administrative Agent shall have received evidence satisfactory to it that each credit facility, if any, currently in effect for the Borrower shall have been terminated and cancelled (except for provisions thereof that by their terms survive termination) and all indebtedness thereunder shall have been fully repaid (except to the extent being so repaid with the Loans) and any and all liens thereunder shall have been terminated.

(f) [Reserved].

(g) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder.

(h) The Administrative Agent shall have received (i) satisfactory audited consolidated financial statements of Guarantor for the two most recent fiscal years ended prior to the Effective Date as to which such financial statements are available and (ii) satisfactory unaudited interim consolidated financial statements of Guarantor for each quarterly period ended subsequent to the date of the latest financial statements delivered pursuant to clause (i) as to which such financial statements are available. The parties acknowledge that consolidated financial statements of the Guarantor will reflect the reorganization of the Guarantor into a holding company structure, which was completed October 1, 2018.

(i) (i) The Administrative Agent shall have received, at least five days prior to the Effective Date (or such shorter period agreed to by the Administrative Agent in its sole discretion), all documentation and other information regarding the Borrower and Guarantor requested in connection with applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, to the extent requested in writing of the Borrower or Guarantor at least 10 days prior to the Effective Date and (ii) to the extent the Borrower or Guarantor qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, at least five days prior to the Effective Date, any Lender that has requested, in a written notice to the Borrower at least 10 days prior to the Effective Date, a Beneficial Ownership Certification in relation to the Borrower and Guarantor shall have received such Beneficial Ownership Certification (provided that, upon the execution and delivery by such Lender of its signature page to this Agreement, the condition set forth in this clause (ii) shall be deemed to be satisfied).

(j) [Reserved].

(k) The Administrative Agent shall have received such other documents as the Administrative Agent or the Required Lenders (through the Administrative Agent) may reasonably request.

The Administrative Agent shall notify the Borrower, the Guarantor and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on June 27, 2019 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

ARTICLE V

Affirmative Covenants

Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, each of the Borrower and Guarantor covenants and agrees with the Lenders that:

SECTION 5.01 Financial Statements and Other Information. The Guarantor will furnish to the Administrative Agent and each Lender:

(a) as soon as practicable, but in any event within 120 days after the end of each fiscal year of the Guarantor, a copy of the consolidated balance sheet of the Guarantor and its audited consolidated Subsidiaries as at the end of such year and the related consolidated statements of income, of shareholders’ equity and comprehensive income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, audited by independent certified public accountants of nationally recognized standing (without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Guarantor and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;

(b) as soon as practicable, but in any event not later than 60 days after the end of each of the first three quarterly periods of each fiscal year of the Guarantor (commencing with the fiscal quarter ending June 30, 2019), the Form 10-Q as filed by the Guarantor with the SEC for each such fiscal quarter, certified by an Authorized Officer as being complete and correct (subject to normal year-end audit adjustments); and

(c) together with the financial statements required hereunder, a compliance certificate in form and substance satisfactory to the Administrative Agent signed by its chief financial officer or chief accounting officer showing the calculations necessary to determine compliance with this Agreement, including its calculation of maintenance of Consolidated Indebtedness to Total Capitalization, and stating that no Default exists, or if any Default exists, stating the nature and status thereof.

All such financial statements shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as approved by such accountants or officer, as the case may be, and disclosed therein).

SECTION 5.02 Certificates; Other Information. The Guarantor shall furnish to the Administrative Agent and each Lender as soon as practicable, but in any event within ten days after the same are sent, copies of all financial statements and reports which the Guarantor sends to its shareholders, and within ten days after the same are filed, copies of all financial statements and reports which the Guarantor may make to, or file with, the SEC or any successor or analogous Governmental Authority. Promptly following any request therefor, the Guarantor shall furnish (x) such other information regarding the operations, business affairs and financial condition of the Guarantor or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request and (y) information and documentation reasonably requested by the Administrative Agent or any Lender for purposes of compliance with applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act and the Beneficial Ownership Regulation; and the Guarantor shall furnish to the Administrative Agent and each Lender prompt written notice of any change in the information provided in the Beneficial Ownership Certification delivered to such Lender that would result in a change to the list of beneficial owners identified in such certification. The Guarantor hereby

acknowledges that (a) the Administrative Agent and/or Arranger will make available to the Lenders materials and/or information provided by or on behalf of the Guarantor hereunder (collectively, “Guarantor Materials”) by posting the Guarantor Materials on IntraLinks or another similar electronic system (the “Platform”) and (b) certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Guarantor or its securities) (each, a “Public Lender”). The Guarantor hereby agrees that (w) all Guarantor Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Guarantor Materials “PUBLIC,” the Guarantor shall be deemed to have authorized the Administrative Agent, the Arranger and the Lenders to treat such Guarantor Materials as either publicly available information or not material information (although it may be sensitive and proprietary) with respect to the Guarantor or its securities for purposes of United States Federal and state securities laws; (y) all Guarantor Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (z) the Administrative Agent and the Arranger shall be entitled to treat any Guarantor Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”

SECTION 5.03 Payment of Taxes. The Guarantor shall, and shall cause each of its Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, except when (a) the amount or validity thereof is currently being contested in good faith by appropriate proceedings or (b) reserves in conformity with GAAP with respect thereto have been provided on the books of the Guarantor or such Subsidiary, as the case may be.

SECTION 5.04 Conduct of Business. Each of the Borrower and the Guarantor shall (a) carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and to do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, and (b) comply with all Requirements of Law, except to the extent that failure to comply therewith could not, in the aggregate, have a Material Adverse Effect. The Guarantor will maintain in effect and enforce policies and procedures designed to ensure compliance by the Guarantor, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.

SECTION 5.05 Maintenance of Property; Insurance. The Guarantor shall, and shall cause each of its Subsidiaries to, (a) keep all property useful and necessary in its business in good working order and condition; (b) maintain with financially sound and reputable insurance companies insurance on such property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and (c) furnish to the Administrative Agent or any Lender, upon written request, full information as to the insurance carried.

SECTION 5.06 Inspection of Property; Books and Records; Discussions. The Guarantor shall, and shall cause each of its Subsidiaries that have business operations to, (a) keep proper books of records and accounts in which entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities and (b) permit representatives of the Administrative Agent or any Lender, at such Person’s expense, to visit and inspect any of its properties and examine and make abstracts from any of its books and records upon reasonable notice and during regular working hours, and to discuss the business, operations, properties and financial and other condition of the Guarantor and its Subsidiaries with officers and employees of the Guarantor and its Subsidiaries.

SECTION 5.07 Notices. Each of the Borrower and Guarantor shall promptly give notice to the Administrative Agent and each Lender of (a) the occurrence of any Default; (b) any litigation, investigation or proceeding involving the Guarantor or any of its Subsidiaries which, if not cured or if adversely determined, as the case may be, would have a Material Adverse Effect and (c) of any change in any Debt Rating. Each notice pursuant to this Section 5.07 shall be accompanied by a statement of an Authorized Officer setting forth details of the occurrence referred to therein and stating what action the Guarantor proposes to take with respect thereto.

SECTION 5.08 Use of Proceeds. The proceeds of the Loans will be used by the Borrower to make a distribution to the Guarantor. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the regulations of the Federal Reserve Board, including Regulations T, U and X.

SECTION 5.09 Debt Rating. The Guarantor shall maintain at all times a Debt Rating from both Moody’s and S&P.

ARTICLE VI

Negative Covenants

Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, each of the Guarantor and the Borrower covenants and agrees with the Lenders that it will not:

SECTION 6.01 Fundamental Changes.

(1) With respect to the Guarantor or any Significant Subsidiary, without the consent of the Administrative Agent and the Required Lenders enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve (or suffer any liquidation or dissolution), convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or substantially all of the consolidated assets of the Guarantor and its Subsidiaries, taken as a whole, except (a) for sales, leases or rentals of property or assets in the ordinary course of business, (b) that any consolidated Subsidiary of the Guarantor (other than the Borrower) may be merged or consolidated with or into the Borrower or Guarantor (provided that the Borrower or Guarantor shall be the continuing or surviving corporation) or with any one or more Subsidiaries of the Guarantor (provided that if any such transaction shall be between a Subsidiary and a wholly-owned Subsidiary, the wholly-owned Subsidiary shall be the continuing or surviving corporation), (c) any Subsidiary (other than the Borrower) may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Guarantor or another wholly-owned Subsidiary of the Guarantor and (d) the Borrower or Guarantor may be merged with any other Person if (i) the Borrower or Guarantor is the surviving corporation, (ii) immediately after giving effect to such merger, there shall exist no condition or event which constitutes an Event of Default or which, with the giving of notice or lapse of time or both, would constitute an Event of Default, and (iii) all representations and warranties contained in Article III hereof are true and correct in all material respects (except for any such representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which representation shall be true and correct in all respects) on and as of the date of the consummation of such merger, and after giving effect thereto, as though restated on and as of such date (except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects (except for any such representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which representation shall be true and correct in all respects) as of such earlier date).

(2) With respect to the Guarantor, without the consent of the Administrative Agent and the Required Lenders, cease to own, directly or indirectly, 100% of the Equity Interests of NW Natural (other than a single share of the junior preferred capital stock of NW Natural held by an independent third party), free and clear of any lien, pledge, charge or other security interest.

SECTION 6.02 Financial Covenants.

(a) Maintenance of Consolidated Indebtedness to Total Capitalization. As at the end of any fiscal quarter of the Guarantor, permit Consolidated Indebtedness to be greater than 70% of Total Capitalization.

ARTICLE VII

Events of Default

SECTION 7.01 Events of Default. If any of the following events (“Events of Default”) shall occur:

(a) The Borrower shall fail to pay any principal of the Loans when due in accordance with the terms hereof; or

(b) The Borrower shall fail to pay any interest on the Loans, or any other amount payable by the Borrower hereunder, within five days after any such amount becomes due in accordance with the terms hereof; or

(c) Any representation or warranty made or deemed made by the Borrower or Guarantor herein shall prove to have been incorrect in any material respect on or as of the date made; or

(d) The Borrower or Guarantor shall default in the observance or performance of any covenant described in Sections 5.08, 6.01 or 6.02; or the Borrower or Guarantor shall default in the observance or performance of any other agreement or covenant contained in this Agreement, and such default shall continue unremedied for a period of 30 days after the earlier of (i) the date a Responsible Officer has knowledge of such default or (ii) written notice of such default shall have been given to the Borrower or Guarantor by the Administrative Agent or any Lender; or

(e) The Guarantor or any Subsidiary of the Guarantor shall fail to make any payment in respect of any Indebtedness having singly or in the aggregate an outstanding amount in excess of $50 million when due or within any applicable grace period; or

(f) A final judgment for the payment of money exceeding an aggregate of $15 million shall be rendered or entered against the Guarantor and/or any Significant Subsidiary and the same shall remain undischarged for a period of 60 days during which execution shall not be effectively stayed or contested in good faith; or

(g) An involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Guarantor or any Significant Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Guarantor or any Significant Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; or

(h) The Guarantor or any Significant Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Guarantor or any Significant Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing;

(i) a Change in Control shall occur;

(j) an ERISA Event shall have occurred (other than the NW Natural’s December 22, 2013 withdrawal from the Western States Office and Professional Employees International Union Pension Fund) that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; or

(k) any material provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all Obligations, ceases to be in full force and effect; or the Guarantor or any Subsidiary contests in writing the validity or enforceability of any provision of any Loan Document; or, prior to satisfaction in full of all Obligations, the Borrower or Guarantor denies in writing that it has any or further liability or obligation under any Loan Document, or the Borrower or Guarantor purports in writing to revoke, terminate or rescind any Loan Document other than in compliance with Section 9.02;

then, and in every such event (other than an event with respect to the Guarantor or the Borrower, described in clause (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and Guarantor and (ii) exercise on behalf of itself, the Lenders all rights and remedies available to it, the Lenders under the Loan Documents and applicable law; and in case of any event with respect to the Guarantor or Borrower described in clause (g) or (h) of this Section, the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other Obligations accrued hereunder and under the other Loan Documents, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower and Guarantor. Upon the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and at the request of the Required Lenders shall, exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity.

SECTION 7.02 Application of Payments. Notwithstanding anything herein to the contrary, following the occurrence and during the continuance of an Event of Default, and notice thereof to the Administrative Agent by the Borrower or the Required Lenders, all payments received on account of the Obligations shall be applied by the Administrative Agent as follows:

(i) first, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts payable to the Administrative Agent (including fees and disbursements and other charges of counsel to the Administrative Agent payable under Section 9.03 and amounts pursuant to Section 2.12(a) payable to the Administrative Agent in its capacity as such);

(ii) second, to payment of that portion of the Obligations constituting fees, expenses, indemnities and other amounts payable to the Lenders (including fees and disbursements and other charges of counsel to the Lenders payable under Section 9.03) arising under the Loan Documents, ratably among them in proportion to the respective amounts described in this clause (ii) payable to them;

(iii) third, (A) to payment of that portion of the Obligations constituting unpaid principal of the Loans;

(iv) fourth, to the payment in full of all other Obligations, in each case ratably among the Administrative Agent, the Lenders based upon the respective aggregate amounts of all such Obligations owing to them in accordance with the respective amounts thereof then due and payable; and

(v) finally, the balance, if any, after all Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by law.

ARTICLE VIII

The Administrative Agent

SECTION 8.01 Authorization and Action. (a) Each Lender hereby irrevocably appoints the entity named as Administrative Agent in the heading of this Agreement and its successors and assigns to serve as the administrative agent under the Loan Documents and each Lender authorizes the Administrative Agent to take such actions as agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Administrative Agent under such agreements and to exercise such powers as are reasonably incidental thereto. Without limiting the foregoing, each Lender hereby authorizes the Administrative Agent to execute and deliver, and to perform its obligations under, each of the Loan Documents to which the Administrative Agent is a party, to exercise all rights, powers and remedies that the Administrative Agent may have under such Loan Documents.

(b) As to any matters not expressly provided for herein and in the other Loan Documents (including enforcement or collection), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the written instructions of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, pursuant to the terms in the Loan Documents), and, unless and until revoked in writing, such instructions shall be binding upon each Lender; provided, however, that the Administrative Agent shall not be required to take any action that the Administrative Agent in good faith believes exposes it to liability unless the Administrative Agent receives an indemnification satisfactory to it from the Lenders with respect to such action; provided, further, that the Administrative Agent may seek clarification or direction from the Required Lenders prior to the exercise of any such instructed action and may refrain from acting until such clarification or direction has been provided. Except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Guarantor, any Subsidiary or any Affiliate of any of the foregoing that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity. Nothing in this Agreement shall require the Administrative Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(c) In performing its functions and duties hereunder and under the other Loan Documents, the Administrative Agent is acting solely on behalf of the Lenders (except in limited circumstances expressly provided for herein relating to the maintenance of the Register), and its duties are entirely mechanical and administrative in nature. Without limiting the generality of the foregoing:

(i)

the Administrative Agent does not assume and shall not be deemed to have assumed any obligation or duty or any other relationship as the agent, fiduciary or trustee of or for any Lender or holder of any other obligation other than as expressly set forth herein and in the other Loan Documents, regardless of whether a Default or an Event of Default has occurred and is continuing (and it is understood and agreed that the use of the term “agent” (or any similar term) herein or in any other Loan Document with reference to the Administrative Agent is not intended to connote any fiduciary duty or other implied (or express) obligations arising under agency doctrine of any applicable law, and that such term is used as a matter of market custom and is intended to create or reflect only an administrative relationship between contracting parties); additionally, each Lender agrees that it will not assert any claim against the Administrative Agent based on an alleged breach of fiduciary duty by the Administrative Agent in connection with this Agreement and the transactions contemplated hereby;


(ii)	nothing in this Agreement or any Loan Document shall require the Administrative Agent to account to any Lender for any sum or the profit element of any sum received by the Administrative Agent for its own account;

(d) The Administrative Agent may perform any of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any of their respective duties and exercise their respective rights and powers through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities pursuant to this Agreement. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agent except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agent.

(e) The Arranger shall have no obligations or duties whatsoever in such capacity under this Agreement or any other Loan Document and shall incur no liability hereunder or thereunder in such capacity, but all such Persons shall have the benefit of the indemnities provided for hereunder.

(f) In case of the pendency of any proceeding with respect to the Borrower under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, the Administrative Agent (irrespective of whether the principal of any Loan or any other obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:

(i)

to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim under Sections 2.12, 2.13, 2.15, 2.17 and 9.03) allowed in such judicial proceeding; and


(ii)	to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due to it, in its capacity as the Administrative Agent, under the Loan Documents (including under Section 9.03). Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

(g) The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders, and, except solely to the extent of the Borrower’s rights to consent pursuant to and subject to the conditions set forth in this Article, none of the Guarantor or any Subsidiary, or any of their respective Affiliates, shall have any rights as a third party beneficiary under any such provisions.

SECTION 8.02 Administrative Agent’s Reliance, Indemnification, Etc. (a) Neither the Administrative Agent nor any of its Related Parties shall be (i) liable for any action taken or omitted to be taken by it under or in connection with this Agreement or the other Loan Documents (x) with the consent of or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith to be necessary, under the circumstances as provided in the

Loan Documents) or (y) in the absence of its own gross negligence or willful misconduct (such absence to be presumed unless otherwise determined by a court of competent jurisdiction by a final and nonappealable judgment) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Guarantor or Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the Guarantor or Borrower to perform its obligations hereunder or thereunder.

(b) The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof (stating that it is a “notice of default”) is given to the Administrative Agent by the Borrower, a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document or the occurrence of any Default, (iv) the sufficiency, validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent or satisfaction of any condition that expressly refers to the matters described therein being acceptable or satisfactory to the Administrative Agent.

(c) Without limiting the foregoing, the Administrative Agent (i) may treat the payee of any promissory note as its holder until such promissory note has been assigned in accordance with Section 9.04, (ii) may rely on the Register to the extent set forth in Section 9.04(b), (iii) may consult with legal counsel (including counsel to the Guarantor or Borrower), independent public accountants and other experts selected by it, and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts, (iv) makes no warranty or representation to any Lender and shall not be responsible to any Lender or for any statements, warranties or representations made by or on behalf of the Guarantor or Borrower in connection with this Agreement or any other Loan Document, (v) in determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender sufficiently in advance of the making of such Loan and (vi) shall be entitled to rely on, and shall incur no liability under or in respect of this Agreement or any other Loan Document by acting upon, any notice, consent, certificate or other instrument or writing (which writing may be a fax, any electronic message, Internet or intranet website posting or other distribution) or any statement made to it orally or by telephone and believed by it to be genuine and signed or sent or otherwise authenticated by the proper party or parties (whether or not such Person in fact meets the requirements set forth in the Loan Documents for being the maker thereof).

SECTION 8.03 Posting of Communications. (a) Each of Borrower and Guarantor agrees that the Administrative Agent may, but shall not be obligated to, make any Communications available to the Lenders by posting the Communications on IntraLinks™, DebtDomain, SyndTrak, ClearPar or any other electronic platform chosen by the Administrative Agent to be its electronic transmission system (the “Approved Electronic Platform”).

(b) Although the Approved Electronic Platform and its primary web portal are secured with generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time to time (including, as of the Effective Date, a user ID/password authorization system) and the Approved Electronic Platform is secured through a per-deal authorization method whereby each user may access the Approved Electronic Platform only on a deal-by-deal basis, each of the Lenders and each of Guarantor and Borrower acknowledges and agrees that the distribution of material through an electronic medium is not necessarily secure, that the Administrative Agent is not responsible for approving or vetting the representatives or contacts of any Lender that are added to the Approved Electronic Platform, and that there are confidentiality and other risks associated with such distribution. Each of the Lenders and each of the Guarantor and Borrower hereby

approves distribution of the Communications through the Approved Electronic Platform and understands and assumes the risks of such distribution.

(c) THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS ARE PROVIDED “AS IS” AND “AS AVAILABLE”. THE APPLICABLE PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF THE APPROVED ELECTRONIC PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE APPLICABLE PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE APPROVED ELECTRONIC PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT OR ANY OF ITS RESPECTIVE RELATED PARTIES (COLLECTIVELY, “APPLICABLE PARTIES”) HAVE ANY LIABILITY TO THE GUARANTOR, THE BORROWER, ANY LENDER OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF THE GUARANTOR’S, THE BORROWER’S OR THE ADMINISTRATIVE AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET OR THE APPROVED ELECTRONIC PLATFORM.

“Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Guarantor or Borrower pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender by means of electronic communications pursuant to this Section, including through an Approved Electronic Platform.

(d) Each Lender agrees that notice to it (as provided in the next sentence) specifying that Communications have been posted to the Approved Electronic Platform shall constitute effective delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender agrees (i) to notify the Administrative Agent in writing (which could be in the form of electronic communication) from time to time of such Lender’s (as applicable) email address to which the foregoing notice may be sent by electronic transmission and (ii) that the foregoing notice may be sent to such email address.

(e) Each of the Lenders and the Guarantor and the Borrower agrees that the Administrative Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Communications on the Approved Electronic Platform in accordance with the Administrative Agent’s generally applicable document retention procedures and policies.

(f) Nothing herein shall prejudice the right of the Administrative Agent or any Lender to give any notice or other communication pursuant to any Loan Document in any other manner specified in such Loan Document.

SECTION 8.04 The Administrative Agent Individually. With respect to its Commitment, Loans, the Person serving as the Administrative Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender, as the case may be. The terms “Lenders”, “Required Lenders” and any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity as a Lender or as one of the Required Lenders, as applicable. The Person serving as the Administrative Agent and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of banking, trust or other business with, the Guarantor, any Subsidiary or any Affiliate of any of the foregoing as if such Person was not acting as the Administrative Agent and without any duty to account therefor to the Lenders.

SECTION 8.05 Successor Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent’s resignation hereunder, the provisions of this Article and Section 9.03, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of such retiring Administrative Agent, its sub agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.

SECTION 8.06 Acknowledgments of Lenders. (a) Each Lender represents that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and that it has, independently and without reliance upon the Administrative Agent or any other Lender, or any of the Related Parties of any of the foregoing, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender, or any of the Related Parties of any of the foregoing, and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning the Guarantor and its Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

(b) Each Lender, by delivering its signature page to this Agreement on the Effective Date, or delivering its signature page to an Assignment and Assumption or any other Loan Document pursuant to which it shall become a Lender hereunder, shall be deemed to have acknowledged receipt of, and consented to and approved, each Loan Document and each other document required to be delivered to, or be approved by or satisfactory to, the Administrative Agent or the Lenders on the Effective Date.

SECTION 8.07 Certain ERISA Matters. (a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and its respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower, that at least one of the following is and will be true:

(i) such Lender is not using “plan assets” (within the meaning of the Plan Asset Regulations) of one or more Benefit Plans in connection with the Loans or the Commitments,

(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments and this Agreement, and the conditions for exemptive relief thereunder are and will continue to be satisfied in connection therewith,

(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments and this Agreement, or

(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.

(b) In addition, unless either (1) sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or (2) a Lender has provided another representation, warranty and covenant in accordance with sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of the Borrower or the Guarantor, that the Administrative Agent is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).

(c) The Administrative Agent hereby informs the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Commitments and this Agreement, (ii) may recognize a gain if it extended the Loans or the Commitments for an amount less than the amount being paid for an interest in the Loans or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.

ARTICLE IX

Miscellaneous

SECTION 9.01 Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

(i) if to the Borrower or Guarantor, to it at 220 N.W. Second Avenue, Portland, OR 97209, Attention of Brody J. Wilson, Chief Financial Officer and Treasurer (Telecopy No. (503) 220-2584; Telephone No. (503) 721-2524; Email Address: brody.wilson@nwnatural.com;

(ii) if to the Administrative Agent, to Bank of Montreal, 115 S. LaSalle - 17th Floor West, Chicago, IL 60603, sevan.hagopian@bmo.com; and

(iii) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through Approved Electronic Platforms, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).

(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by using Approved Electronic Platforms pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent, the Guarantor or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgment), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.

(c) Any party hereto may change its address or telecopy number for notices and other communications hereunder by written notice to the other parties hereto.

SECTION 9.02 Waivers; Amendments. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower or Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time.

(b) Subject to Section 2.14(b) and clauses (c) and (d) below, neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower, the Guarantor and the Required Lenders or by the Borrower, the Guarantor and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase or reinstate the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly affected thereby, (iv) change Section 2.18(b) or (d) in a manner that would alter the ratable reduction of Commitments or Loans or pro rata sharing of payments required thereby,

without the written consent of each Lender, (v) change the payment waterfall provisions of 7.02 without the written consent of each Lender or (vi) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent, as the case may be.

(c) Notwithstanding the foregoing, this Agreement and any other Loan Document may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent, the Guarantor and the Borrower (x) to add one or more credit facilities to this Agreement and to permit extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Loans and the accrued interest and fees in respect thereof and (y) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders and Lenders.

(d) If the Administrative Agent, the Guarantor and the Borrower acting together identify any ambiguity, omission, mistake, typographical error or other defect in any provision of this Agreement or any other Loan Document, then the Administrative Agent, the Guarantor and the Borrower shall be permitted to amend, modify or supplement such provision to cure such ambiguity, omission, mistake, typographical error or other defect, and such amendment shall become effective without any further action or consent of any other party to this Agreement.

SECTION 9.03 Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its respective Affiliates, including the reasonable fees, charges and disbursements of counsel and other advisors and professionals for such Persons, in connection with the syndication and distribution (including, without limitation, via the internet or through a service such as Intralinks) of the credit facilities provided for herein, the investigation, preparation, negotiation, documentation, collection and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement and any other Loan Document, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

(b) The Guarantor and Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Guarantor or any of its Subsidiaries, or any Environmental Liability related in any way to the Guarantor or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation, arbitration or proceeding relating to any of the foregoing, whether or not such claim, litigation, investigation, arbitration or proceeding is brought by the Guarantor or its respective equity holders, Affiliates, creditors or any other third Person and whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (A) result from a claim brought by the Guarantor or any of its Subsidiaries against such Indemnitee for material breach of such Indemnitee’s or any of its Related Parties’ obligations under any

Loan Document if the Guarantor or such Subsidiary has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction or (B) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. This Section 9.03(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims or damages arising from any non-Tax claim.

(c) Each Lender severally agrees to pay any amount required to be paid by the Guarantor under paragraph (a) or (b) of this Section 9.03 to the Administrative Agent and each Related Party of any of the foregoing Persons (each, an “Agent Indemnitee”) (to the extent not reimbursed by the Guarantor and without limiting the obligation of the Guarantor to do so), ratably according to their respective Credit Exposure in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Credit Exposure immediately prior to such date), from and against any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against such Agent Indemnitee in any way relating to or arising out of the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent Indemnitee under or in connection with any of the foregoing; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against such Agent Indemnitee in its capacity as such; provided further that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent Indemnitee’s gross negligence or willful misconduct. The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

(d) To the extent permitted by applicable law, (i) neither of the Guarantor or the Borrower shall assert, and each of the Guarantor and Borrower hereby waives, any claim against any Indemnitee for any damages arising from the use by others of information or other materials obtained through telecommunications, electronic or other information transmission systems (including the Internet), and (ii) no party hereto shall assert, and each such party hereby waives, any claim against any other party hereto, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or the use of the proceeds thereof; provided that, nothing in this clause (d)(ii) shall relieve either the Guarantor or the Borrower of any obligation it may have to indemnify an Indemnitee against special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.

(e) All amounts due under this Section shall be payable promptly after written demand therefor.

SECTION 9.04 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) neither the Guarantor or the Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Guarantor or the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Persons (other than an Ineligible Institution) all or a portion of its rights and obligations under this

Agreement (including all or a portion of its Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

(A) the Borrower and Guarantor (provided that the Borrower and Guarantor shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within ten (10) Business Days after having received notice thereof); provided, further, that no consent of the Borrower or Guarantor shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee; and

(B) the Administrative Agent; provided, that no consent of the Administrative Agent shall be required for an assignment of any portion of the Loans to an assignee that is a Lender with a portion of the Loans immediately prior to giving effect to such assignment.

(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Loans, the amount of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower, the Guarantor and the Administrative Agent otherwise consent to a lesser amount, provided that no such consent of the Borrower or Guarantor shall be required if an Event of Default has occurred and is continuing;

(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;

(C) the parties to each assignment shall execute and deliver to the Administrative Agent (x) an Assignment and Assumption or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants, together with a processing and recordation fee of $3,500, such fee to be paid by either the assigning Lender or the assignee Lender or shared between such Lenders; and

(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Guarantor and its Affiliates and their Related Parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws.

For the purposes of this Section 9.04(b), the terms “Approved Fund” and “Ineligible Institution” have the following meanings:

“Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Ineligible Institution” means (a) a natural person, (b) a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof or (c) the Guarantor or any of its Affiliates; provided that, with respect to clause (c), such holding company, investment vehicle or trust shall not constitute an Ineligible Institution if it (x) has not been established for the primary purpose

of acquiring any Loans or Commitments, (y) is managed by a professional advisor, who is not such natural person or a relative thereof, having significant experience in the business of making or purchasing commercial loans, and (z) has assets greater than $25,000,000 and a significant part of its activities consist of making or purchasing commercial loans and similar extensions of credit in the ordinary course of its business.

(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(iv) The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrower and Guarantor, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(v) Upon its receipt of (x) a duly completed Assignment and Assumption executed by an assigning Lender and an assignee or (y) to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to an Approved Electronic Platform as to which the Administrative Agent and the parties to the Assignment and Assumption are participants, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant 2.07(b), 2.18(e) or 9.03(c), the Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(c) Any Lender may, without the consent of, or notice to, the Borrower or the Guarantor, the Administrative Agent, sell participations to one or more banks or other entities (a “Participant”), other than an Ineligible Institution, in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged; (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; and (C) the Borrower, the Guarantor, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Each of the

Borrower and Guarantor agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 (subject to the requirements and limitations therein, including the requirements under Section 2.17(f) (it being understood that the documentation required under Section 2.17(f) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Sections 2.18 and 2.19 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Sections 2.15 or 2.17, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.19(b) with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided that such Participant agrees to be subject to Section 2.18(c) as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower and the Guarantor, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Loans or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Loan or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

SECTION 9.05 Survival. All covenants, agreements, representations and warranties made by the Borrower and Guarantor in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement or any other Loan Document is outstanding and unpaid is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any other Loan Document or any provision hereof or thereof.

SECTION 9.06 Counterparts; Integration; Effectiveness; Electronic Execution. (a) This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which,

when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

(b) Delivery of an executed counterpart of a signature page of this Agreement by telecopy, e-mailed .pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act; provided that nothing herein shall require the Administrative Agent to accept electronic signatures in any form or format without its prior written consent.

SECTION 9.07 Severability. Any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

SECTION 9.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final and in whatever currency denominated) at any time held, and other obligations at any time owing, by such Lender or any such Affiliate, to or for the credit or the account of the Borrower or the Guarantor against any and all of the Obligations now or hereafter existing under this Agreement or any other Loan Document to such Lender or its respective Affiliates, irrespective of whether or not such Lender or Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations may be contingent or unmatured or are owed to a branch office or Affiliate of such Lender different from the branch office or Affiliate holding such deposit or obligated on such indebtedness. The rights of each Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or their respective Affiliates may have. Each Lender agrees to notify the Borrower, the Guarantor and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.

SECTION 9.09 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement and the other Loan Documents shall be construed in accordance with and governed by the law of the State of New York.

(a) Each of the Lenders and the Administrative Agent hereby irrevocably and unconditionally agrees that, notwithstanding the governing law provisions of any applicable Loan Document, any claims brought against the Administrative Agent by any Lender relating to this Agreement, any other Loan Document or the consummation or administration of the transactions contemplated hereby or thereby shall be construed in accordance with and governed by the law of the State of New York.

(b) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the United States District Court for the Southern District of New York sitting in the Borough of Manhattan (or if such court lacks subject matter jurisdiction, the Supreme Court of the State of New York sitting in the Borough of Manhattan), and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions relating hereto or thereto, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may (and any

such claims brought against the Administrative Agent or any of its Related Parties may only) be heard and determined in such Federal (to the extent permitted by law) or New York State court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower, Guarantor or their properties in the courts of any jurisdiction.

(c) Each of the parties hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (c) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

SECTION 9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

SECTION 9.12 Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any Governmental Authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies under this Agreement or any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (1) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (2) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) on a confidential basis to (1) any rating agency in connection with rating the Guarantor or its Subsidiaries or the credit facilities provided for herein or (2) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of identification numbers with respect to the credit facilities provided for herein, (h) with the consent of the Borrower or (i) to the extent such Information (1) becomes publicly available other than as a result of a breach of this Section or (2) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower or Guarantor. For the purposes

of this Section, “Information” means all information received from the Borrower or Guarantor relating to the Borrower, Guarantor or its respective business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower or Guarantor and other than information pertaining to this Agreement routinely provided by arrangers to data service providers, including league table providers, that serve the lending industry; provided that, in the case of information received from the Borrower or Guarantor after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

SECTION 9.13 Material Non-Public Information. (a) EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION 9.12 FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE GUARANTOR, THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.

(a) ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE GUARANTOR, THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE GUARANTOR, THE BORROWER AND ITS RELATED PARTIES OR ITS RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE GUARANTOR, THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.

SECTION 9.14 USA PATRIOT Act. Each Lender that is subject to the requirements of the USA PATRIOT Act of 2001 (the “Patriot Act”) hereby notifies the Borrower and Guarantor that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies the Borrower and Guarantor, which information includes the name and address of the Borrower and the Guarantor and other information that will allow such Lender to identify the Borrower and the Guarantor in accordance with the Patriot Act.

SECTION 9.15 Intentionally Omitted.

SECTION 9.16 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the NYFRB Rate to the date of repayment, shall have been received by such Lender.

SECTION 9.17 No Fiduciary Duty, etc. Each of the Guarantor and the Borrower acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that no Credit Party will have any obligations except those obligations expressly set forth herein and in the other Loan Documents and each Credit Party is acting solely in the capacity of an arm’s length contractual counterparty to the Borrower with respect to the Loan Documents and the transactions contemplated therein and not as a financial advisor or a fiduciary to, or an agent of, the Guarantor, the Borrower or any other person. Each of the Guarantor and the Borrower agrees that it will not assert any claim against any Credit Party based on an alleged breach of fiduciary duty by such Credit Party in connection with this Agreement and the transactions contemplated hereby. Additionally, each of the Guarantor and the Borrower acknowledges and agrees that no Credit Party is advising the Guarantor or the Borrower as to any legal, tax, investment, accounting, regulatory or any other matters in any jurisdiction. Each of the Guarantor and the Borrower shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Credit Parties shall have no responsibility or liability to the Guarantor or the Borrower with respect thereto.

Each of the Guarantor and the Borrower further acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that each Credit Party, together with its Affiliates, is a full service securities or banking firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, any Credit Party may provide investment banking and other financial services to, and/or acquire, hold or sell, for its own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of, the Guarantor or Borrower and other companies with which it may have commercial or other relationships. With respect to any securities and/or financial instruments so held by any Credit Party or any of its customers, all rights in respect of such securities and financial instruments, including any voting rights, will be exercised by the holder of the rights, in its sole discretion.

In addition, each of the Guarantor and the Borrower acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that each Credit Party and its affiliates may be providing debt financing, equity capital or other services (including financial advisory services) to other companies in respect of which the Guarantor or its Subsidiaries may have conflicting interests regarding the transactions described herein and otherwise. No Credit Party will use confidential information obtained from the Borrower or Guarantor by virtue of the transactions contemplated by the Loan Documents or its other relationships with the Borrower in connection with the performance by such Credit Party of services for other companies, and no Credit Party will furnish any such information to other companies. Each of the Guarantor and the Borrower also acknowledges that no Credit Party has any obligation to use in connection with the transactions contemplated by the Loan Documents, or to furnish to the Borrower or the Guarantor, confidential information obtained from other companies.

SECTION 9.18 Acknowledgment and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document may be subject to the Write-Down and Conversion Powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and

(b) the effects of any Bail-In Action on any such liability, including, if applicable:

(i) a reduction in full or in part or cancellation of any such liability;

(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted

by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or

(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.

ARTICLE X

SECTION 10.01 Guaranty. The Guarantor hereby unconditionally guarantees the full and punctual payment when due (whether at stated maturity, upon acceleration or otherwise) of the Obligations, including, without limitation, (i) the principal of and interest on the Loan made to, and each note issued by, the Borrower hereunder and (ii) all other amounts payable by the Borrower or any of its Subsidiaries pursuant to this Agreement and the other Loan Documents (all of the foregoing being referred to collectively as the “Guaranteed Obligations”). Upon the failure by the Borrower, any Subsidiary or any other Person obligated for all or any part of the Obligations to pay punctually any such amount, the Guarantor agrees that it shall forthwith on demand pay such amount at the place and in the manner specified herein or the relevant Loan Document, as the case may be. The Guarantor hereby agrees that this guaranty is an absolute, irrevocable and unconditional guaranty of payment and is not a guaranty of collection.

SECTION 10.02 Guaranty Unconditional. Subject to applicable laws, the obligations of the Guarantor hereunder shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:

(a) except as otherwise provided in Section 10.03, any extension, renewal, settlement, indulgence, compromise, waiver or release of, or with respect to, the Guaranteed Obligations or any part thereof or any agreement relating thereto, or with respect to any obligation of any other guarantor of any of the Guaranteed Obligations, whether (in any such case) by operation of law or otherwise, or any failure or omission to enforce any right, power or remedy with respect to the Guaranteed Obligations or any part thereof or any agreement relating thereto, or with respect to any obligation of any other guarantor of any of the Guaranteed Obligations;

(b) any modification or amendment of or supplement to this Agreement or any other Loan Document, including, without limitation, any such amendment which may increase the amount of the Obligations guaranteed hereby;

(c) except as otherwise provided in Section 10.03, any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any collateral securing the Guaranteed Obligations or any part thereof, any other guaranties with respect to the Guaranteed Obligations or any part thereof, or any other obligation of any person or entity with respect to the Guaranteed Obligations or any part thereof, or any nonperfection or invalidity of any direct or indirect security for the Guaranteed Obligations;

(d) any change in the corporate, partnership, limited liability company or other existence, structure or ownership of the Borrower or any other guarantor of any of the Guaranteed Obligations, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Borrower or any other guarantor of the Guaranteed Obligations, or any of their respective assets or any resulting release or discharge of any obligation of the Borrower or any other guarantor of any of the Guaranteed Obligations;

(e) the existence of any claim, setoff or other rights which the Guarantor may have at any time against the Borrower, any other guarantor of any of the Guaranteed Obligations, the Administrative Agent, any Lender or any other Person, whether in connection herewith or in connection with any unrelated transactions (other than a claim of payment in full of the Guaranteed Obligations), provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;

(f) the enforceability or validity of the Guaranteed Obligations or any part thereof or the genuineness, enforceability or validity of any agreement relating thereto or with respect to any collateral securing

the Guaranteed Obligations or any part thereof, or any other invalidity or unenforceability relating to or against the Borrower or any other guarantor of any of the Guaranteed Obligations, for any reason related to this Agreement or any other Loan Document, or any provision of applicable law, decree, order or regulation purporting to prohibit the payment by the Borrower or any other guarantor of the Guaranteed Obligations of any of the Guaranteed Obligations;

(g) any borrowing or grant of a security interest by the Borrower, as debtor-in-possession, under Section 364 of the Federal Bankruptcy Code;

(h) the disallowance, under Section 502 of the Federal Bankruptcy Code, of all or any portion of the claims of any of the Lenders or the Administrative Agent for repayment of all or any part of the Guaranteed Obligations; or

(i) any other act or omission to act or delay of any kind by the Borrower, any other guarantor of the Guaranteed Obligations, the Administrative Agent, any Lender or any other Person or any other circumstance whatsoever (other than a claim of payment in full of the Guaranteed Obligations), which might, but for the provisions of this Section 10.02, constitute a legal or equitable discharge of the Guarantor’s obligations hereunder or otherwise reduce, release, prejudice or extinguish its liability under this guaranty.

SECTION 10.03 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances. The Guarantor’s obligations hereunder shall remain in full force and effect until all Guaranteed Obligations shall have been paid in full in cash (other than any obligation that is contingent in nature at such time) at which time, subject to all the foregoing conditions, the guarantees made hereunder shall automatically terminate, and this guaranty shall be of no further force and effect as against the Guarantor. If at any time any payment of the principal of or interest on the Loan or any other amount payable by the Borrower or any other party hereunder or under any other Loan Document is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time.

SECTION 10.04 General Waivers. The Guarantor irrevocably waives acceptance hereof, presentment, demand or action on delinquency, protest, the benefit of any statutes of limitations and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by the Borrower, any other guarantor of the Guaranteed Obligations, or any other Person.

SECTION 10.05 Subordination of Subrogation; Subordination of Intercompany Indebtedness.

(a) Until the Guaranteed Obligations have been paid in full in cash (other than any obligation that is contingent in nature at such time), the Guarantor (i) shall have no right of subrogation with respect to such Guaranteed Obligations and (ii) waives any right to enforce any remedy which any of the Lenders or the Administrative Agent now have or may hereafter have against the Borrower, any endorser or any guarantor of all or any part of the Guaranteed Obligations or any other Person, and until such time the Guarantor waives any benefit of, and any right to participate in, any security or collateral given to the Lenders and the Administrative Agent to secure the payment or performance of all or any part of the Guaranteed Obligations or any other liability of the Borrower to the Lenders or the Administrative Agent. Should the Guarantor have the right, notwithstanding the foregoing, to exercise its subrogation rights, the Guarantor hereby expressly and irrevocably (A) subordinates any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification or set off that the Guarantor may have to the payment in full in cash of the Guaranteed Obligations until the Guaranteed Obligations are paid in full in cash (other than any obligation that is contingent in nature at such time) and (B) waives any and all defenses available to a surety, guarantor or accommodation co-obligor until the Guaranteed Obligations are paid in full in cash (other than any obligation that is contingent in nature at such time and that has not yet arisen). The Guarantor acknowledges and agrees that this subordination is intended to benefit the Administrative Agent and the Lenders and shall not limit or otherwise affect the Guarantor’s liability hereunder or the enforceability of this guaranty, and that the Administrative Agent, the Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 10.05(a).

(b) The Guarantor agrees that any and all claims of the Guarantor against the Borrower or any other guarantor (each an “Obligor”) with respect to any “Intercompany Indebtedness” (as hereinafter defined), any endorser, obligor or any other guarantor of all or any part of the Guaranteed Obligations, or against any of its properties shall be subordinate and subject in right of payment to the prior payment, in full and in cash, of all Guaranteed Obligations (other than any obligation that is contingent in nature at such time); provided that, as long as (i) no unmatured Default or Event of Default has occurred and is continuing and (ii) the Administrative Agent has not notified the Guarantor otherwise, the Guarantor may make loans to and receive payments of principal and interest from any Obligor with respect to Intercompany Indebtedness in the ordinary course of business to the extent permitted by the terms of this guaranty and the other Loan Documents. Notwithstanding any right of the Guarantor to ask, demand, sue for, take or receive any payment from any Obligor, all rights, liens and security interests of the Guarantor, whether now or hereafter arising and howsoever existing, in any assets of any other Obligor (whether constituting part of collateral given to any Lender or the Administrative Agent to secure payment of all or any part of the Obligations or otherwise) shall be and are subordinated to the rights of the Lenders and the Agent in those assets. The Guarantor shall not have any right to possession of any such asset or to foreclose upon any such asset, whether by judicial action or otherwise, unless and until (i) all of the Guaranteed Obligations (other than any obligation that is contingent in nature at such time) shall have been fully paid and satisfied (in cash) and all financing arrangements pursuant to any Loan Document among the Borrower and the Lenders have been terminated, or (ii) this guaranty has otherwise terminated with respect to the Guarantor in accordance with Section 10.03. If all or any part of the assets of any Obligor, or the proceeds thereof, are subject to any distribution, division or application to the creditors of such Obligor, whether partial or complete, voluntary or involuntary, and whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding, or if the business of any such Obligor is dissolved or if substantially all of the assets of any such Obligor are sold, then, and in any such event (such events being herein referred to as an “Insolvency Event”), any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to any indebtedness of any Obligor to the Guarantor (“Intercompany Indebtedness”) shall be paid or delivered directly to the Administrative Agent for application on any of the Guaranteed Obligations, due or to become due, until (i) such Guaranteed Obligations (other than any obligation that is contingent in nature at such time) shall have first been fully paid and satisfied (in cash) or (ii) this guaranty has otherwise terminated with respect to the Guarantor in accordance with Section 10.03. Should any payment, distribution, security or instrument or proceeds thereof be received by the Guarantor upon or with respect to the Intercompany Indebtedness after any Insolvency Event and prior to (i) the satisfaction of all of the Guaranteed Obligations (other than any obligation that is contingent in nature at such time) and the termination of all financing arrangements pursuant to any Loan Document among the Borrower and the Lenders, or (ii) any other termination of this guaranty with respect to the Guarantor in accordance with Section 10.03, the Guarantor shall receive and hold the same in trust, as trustee, for the benefit of the Lenders and shall forthwith deliver the same to the Administrative Agent, for the benefit of the Lenders, in precisely the form received (except for the endorsement or assignment of the Guarantor where necessary), for application to any of the Guaranteed Obligations, due or not due, and, until so delivered, the same shall be held in trust by the Guarantor as the property of the Lenders. If the Guarantor fails to make any such endorsement or assignment to the Administrative Agent, the Administrative Agent or any of its officers or employees is irrevocably authorized to make the same. The Guarantor agrees that until (i) the Guaranteed Obligations (other than any obligation that is contingent in nature at such time) have been paid in full (in cash) and satisfied and all financing arrangements pursuant to any Loan Document among the Borrower and the Lenders have been terminated, the Guarantor will not assign or transfer to any Person (other than the Administrative Agent) any claim the Guarantor has or may have against any Obligor.

SECTION 10.06 Stay of Acceleration Waivers. To the fullest extent permitted by law, if acceleration of the time for payment of any amount payable by the Borrower under this Agreement or any other Loan Document is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement or any other Loan Document shall nonetheless be payable by the Guarantor hereunder forthwith on demand by the Administrative Agent.

SECTION 10.07 Taxes, Expenses of Enforcement, etc.

(a) The Guarantor agrees to be bound by the terms and provisions of Section 2.17 (including, without limitation, the promises made and the obligations accepted by the Borrower therein), as if each reference in such Section to a “Borrower” were a reference to the Guarantor.

(b) After the occurrence of an Event of Default, the Required Lenders shall have the right at any time during the continuance thereof to direct the Administrative Agent to commence enforcement proceedings with respect to the Guaranteed Obligations. The Guarantor agrees to reimburse the Administrative Agent and the Lenders for any reasonable costs and reasonable out of pocket expenses (including reasonable attorneys’ fees and expenses for the Administrative Agent and the Lenders; provided that the Guarantor shall have no obligation to pay for fees charges and disbursements for more than one firm of counsel acting for the Administrative Agent in each applicable jurisdiction, and one firm of counsel acting for the Lenders in each applicable jurisdiction and, in the case of an actual or perceived conflict of interest, one additional counsel in each relevant jurisdiction to the affected Lender selected and retained by such Lender) paid or incurred by the Administrative Agent or any Lenders in connection with the collection and enforcement of amounts due under the Loan Documents, including without limitation this guaranty. The Lenders agree that this guaranty may be enforced only by the action of the Administrative Agent acting upon the instructions of the Required Lenders and that no Lender shall have any right individually to seek to enforce or to enforce this guaranty, it being understood and agreed that such rights and remedies may be exercised by the Agent for the benefit of the Lenders under the terms of this Agreement.

SECTION 10.08 Financial Information. The Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of the Borrower and any and all endorsers and/or other guarantors of all or any part of the Guaranteed Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations, or any part thereof, that diligent inquiry would reveal, and the Guarantor hereby agrees that none of the Lenders or the Administrative Agent shall have any duty to advise the Guarantor of information known to any of them regarding such condition or any such circumstances. In the event any Lender or the Administrative Agent, in its sole discretion, undertakes at any time or from time to time to provide any such information to the Guarantor, such Lender or the Administrative Agent shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which such Lender or the Administrative Agent, pursuant to accepted or reasonable commercial finance or banking practices, wishes to maintain confidential or (iii) to make any other or future disclosures of such information or any other information to the Guarantor.

SECTION 10.09 Setoff. In addition to, and without limitation of, any rights of any Lender or the Administrative Agent under applicable law, if any Event of Default occurs and is continuing, any debt from any Lender to the Guarantor (including all account balances, whether provisional or final and whether or not collected or available) may be offset and applied toward the payment of the Guaranteed Obligations owing to such Lender, whether or not the Guaranteed Obligations, or any part thereof, shall then be due.

SECTION 10.10 Enforcement of Guaranty. The Lenders agree that this guaranty may be enforced only by the action of the Administrative Agent acting upon the instructions of the Required Lenders and that no Lender shall have any right individually to seek to enforce or to enforce this guaranty, it being understood and agreed that such rights and remedies may be exercised by the Agent for the benefit of the Lenders under the terms of this Agreement.

SCHEDULE 2.01

COMMITMENTS



LENDER	COMMITMENT

BANK OF MONTREAL, CHICAGO BRANCH	$35,000,000
AGGREGATE COMMITMENT	$35,000,000

[Signature Pages Follow]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective authorized officers as of the day and year first above written.

NW NATURAL WATER COMPANY, LLC
as the Borrower

By /s/ Brody J. Wilson
Name: Brody J. Wilson
Title: Chief Financial Officer and Treasurer

NORTHWEST NATURAL HOLDING COMPANY,
as the Guarantor

By /s/ Brody J. Wilson
Name: Brody J. Wilson
Title: Vice President, Chief Accounting Officer,

Treasurer and Controller

Signature Page to Credit Agreement

(NW Natural Water Company, LLC)

BANK OF MONTREAL, individually as Administrative Agent

By     /s/ Rahul D. Shah
    Name: Rahul D. Shah
    Title: Managing Director

BANK OF MONTREAL, CHICAGO BRANCH, individually as a Lender

By     /s/ Rahul D. Shah
    Name: Rahul D. Shah
    Title: Managing Director

Signature Page to Credit Agreement

(NW Natural Water Company, LLC)

EXHIBIT 10.1

NORTHWEST NATURAL GAS COMPANY

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

2018 RESTATEMENT

(as amended by the Board of Directors)

TABLE OF CONTENTS

Page


1.	Purpose; Effective Date.......................................................................................................................1


2.	Eligibility.............................................................................................................................................1


3.	Years of Participation; Separation from Service.................................................................................1


4.	Normal Retirement Benefit.................................................................................................................1


5.	Early Retirement Benefit....................................................................................................................3


6.	Termination Benefit............................................................................................................................3


7.	Time and Form of Payment to Participant..........................................................................................4


8.	Death Benefit......................................................................................................................................5


9.	Change in Control...............................................................................................................................6


10.	Administration....................................................................................................................................7


11.	Claims Procedure ...............................................................................................................................7


12.	Amendment and Termination of the Plan...........................................................................................7


13.	Miscellaneous.....................................................................................................................................8

INDEX OF TERMS

Term Section Page

Board 1 1

Change in Control Severance Benefit 9(b) 6

Committee 10(a) 7

Company 1 1

Deferred Comp Plan 4(e)(ii) 2

Disability – SERP 6(e) 4

Early Retirement Date 5(a) 3

Effective Date 1 1

Eligibility Date 2 1

ESRIP 1 1

Final Average Pay 4(c) 1

Normal Retirement Date 4(a) 1

Parent 1 1

Participant 2 1

Pension Offset 4(e) 2

Plan – SERP 1 1

Qualified Plan 1 1

Separation from Service 3 1

Short Service Factor 4(d) 2

Tier 1 Participant 2 1

Tier 2 Participant 2 1

Year of Participation 3 1

NORTHWEST NATURAL GAS COMPANY

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

2018 RESTATEMENT

1.Purpose; Effective Date. The Board of Directors (the “Board”) of Northwest Natural Gas Company (the “Company”) adopts this Supplemental Executive Retirement Plan (the “Plan”) in order to attract and retain highly effective executives by providing retirement benefits in excess of those provided by the Northwest Natural Gas Company Retirement Plan for Bargaining Unit and Non-Bargaining Unit Employees (the “Qualified Plan”). The Plan shall not apply to executives already covered by the Company’s Executive Supplemental Retirement Income Plan (the “ESRIP”). The Plan is intended to constitute an unfunded plan maintained for the purpose of providing deferred compensation for a select group of management or highly compensated employees. The Plan was adopted effective as of September 1, 2004 (the “Effective Date”) and previously restated effective December 1, 2006 and January 1, 2010. In order to comply with changes in applicable law and to clarify existing provisions, the Company adopted the 2007 Restatement effective December 20, 2007, except the changes to the second sentence of 3, to 5(b), and to 6(b) were effective September 1, 2004 as though included in the original Plan. The Plan was further amended by the 2011 Restatement on September 22, 2011 with the clarifying changes to 5(b) effective September 1, 2004 as though included in the original Plan. Effective October 1, 2018, the Company became a wholly-owned subsidiary of Northwest Natural Holding Company (“Parent”) and holders of Company common stock became holders of Parent common stock. To make appropriate changes to the Plan in relation to the foregoing corporate transaction, the Company adopts this 2018 Restatement effective October 1, 2018.

2. Eligibility. Each executive officer of the Company or Parent hired into such office after the Effective Date and each other executive employee of the Company or Parent designated by the Organization and Executive Compensation Committee of the Board, in each case on or before July 31, 2019, shall be eligible to participate in the Plan (a “Participant”). After July 31, 2019, the Plan is closed to new Participants. “Eligibility Date” means the first date as of which the Participant became an executive officer of the Company or Parent or the effective date of designation to participate in the Plan, whichever applies. A Participant with an Eligibility Date before December 1, 2006 (a “Tier 1 Participant”) shall be provided full benefits under the Plan and a Participant with an Eligibility Date on or after that date (a “Tier 2 Participant”) shall be provided with Make-Up Benefits as described in 4(f), 5(d), 6(d), 7(d), and 8(d). Participants in the ESRIP shall not be eligible to participate in the Plan.

3. Years of Participation; Separation from Service. Vesting of benefits, accrual of benefits, and eligibility for retirement shall be based on the Participant’s Years of Participation. “Year of Participation” means a 12-month period elapsed between the Participant’s Eligibility Date and Separation from Service, including fractions of a year for any completed one-month periods. If participation is not continuous, whole and fractional months shall be aggregated and any remaining fractional month shall be disregarded. “Separation from Service”, when used in this Plan, shall have the meaning ascribed to such term in Treasury Regulations §1.409A-1(h).

4. Normal Retirement Benefit.

(a) Normal Retirement Date. A Participant’s “Normal Retirement Date” is the first of the month following Separation from Service at or after attainment of age 65 and completion of five Years of Participation.

(b) Amount of Benefit. A Tier 1 Participant’s benefit upon Normal Retirement Date shall be a lump sum equal to six times Final Average Pay (FAP) times the Short Service Factor (SSF) minus the Pension Offset (PO) as follows:

Lump sum = (6 x FAP x SSF) - PO

(c) Final Average Pay. “Final Average Pay” means the annual average determined by taking the sum of the Participant’s Total Compensation for the five (5) consecutive Compensation Years out of the Participant’s final ten (10) Compensation Years with the Company which produce the highest five (5) year total amount, and dividing such sum by five (5).

(i) Total Compensation for any Compensation Year means the sum of (A) plus (B):

(A) The annual salary in effect during the Compensation Year; provided, however, that if a Participant’s salary is changed during a Compensation Year, the salary amount included in Total Compensation for that Compensation Year shall be the total amount of salary the Participant earned for services during that Compensation Year or would have earned for services during that Compensation Year if employment had continued at his or her final salary level for the full Compensation Year.

(B) The annual performance award for the prior calendar year approved by the beginning of the Compensation Year; provided, however, that the amount of the annual performance award included in Total Compensation for any calendar year after 2009 shall not exceed 125% of the Participant’s target award; provided further, however, that if a Participant has a Separation from Service during the last 61 days of any Compensation Year, Total Compensation for each of the Participant’s final ten (10) Compensation Years shall also be calculated as the sum of the salary in effect for such Compensation Year as determined under (A) plus the annual performance award for the calendar year that ended during such Compensation Year, and these alternate Total Compensation calculations shall be used if the resulting Final Average Pay is higher.

(ii) Compensation Year means the twelve (12) month period from March 1 to February 28/29, including any partial portion of such period preceding a Separation from Service.

(d) Short Service Factor. “Short Service Factor” means a percentage calculated by dividing the Tier 1 Participant’s Years of Participation at Separation from Service by 15, not to exceed 100 percent.

(e) Pension Offset. “Pension Offset” means a lump sum amount equal to the combined actuarial equivalent value of the following:

(i) The Tier 1 Participant’s benefit payable at age 65 under the Qualified Plan in the normal form provided by that plan;

(ii) The make-up benefit payable at age 65 provided by any elective nonqualified deferred compensation plan of the Company (a “Deferred Comp Plan”) on account of the reduction in benefits under the Qualified Plan and under Social Security resulting from deferral of compensation under the Deferred Comp Plan; and

(iii) The Tier 1 Participant’s Social Security benefit payable at age 65, as estimated by the Committee based on the Tier 1 Participant’s total compensation in the most recent full calendar year and an assumed rate of increase over a full working career.

(f) Make-Up Benefit. A Tier 2 Participant’s benefit upon Normal Retirement Date shall be equal to the amount, if any, by which the Tier 2 Participant’s benefit under the Qualified Plan would be greater than the actual benefit payable under the Qualified Plan upon Normal Retirement Date in the absence of both the following limits:

(i) The limit provided by Section 401(a)(17) of the Internal Revenue Code on compensation counted under the Qualified Plan.

(ii) The limit provided by Section 415(b) of the Internal Revenue Code on benefits payable under the Qualified Plan.

(g) Deferred Compensation. The Tier 2 Participant’s Qualified Plan benefit calculated without the limits in (f)(i) and (ii) shall treat salary and bonus deferred by the Tier 2 Participant under the Northwest Natural Gas Company Deferred Compensation Plan for Directors and Executives or the predecessor to such plan as though it had been paid to or received by the Tier 2 Participant in the year when the deferral occurred, but only to the extent such salary and bonus is not counted in the calculation of a supplemental retirement benefit payable to the Tier 2 Participant under Section 8 of such plan.

5. Early Retirement Benefit.

(a) Early Retirement Date. A Participant’s “Early Retirement Date” is the first of the month following Separation from Service at or after attainment of age 55 and completion of 15 Years of Participation and before attainment of age 65.

(b) Amount of Benefit. A Tier 1 Participant’s benefit upon Early Retirement Date shall be a lump sum determined under the same formula in 4(b) as the benefit at Normal Retirement Date, with the same defined terms, subject to the following additional detail in the definition of Pension Offset. The value of the Qualified Plan benefit and the make-up benefit provided by the Deferred Comp Plan shall be based on the value at age 65 of the unadjusted normal retirement benefits payable under those plans, even if those benefits start before age 65. The value of the Social Security benefit shall be determined as of the later of the Tier 1 Participant’s Early Retirement Date or the date the Tier 1 Participant will attain age 62 assuming payments commence on that determination date and, if determined as of a future date, based on the assumptions of no earnings after Early Retirement Date and future increases in the national average wage index used to calculate Social Security benefits based on the intermediate assumptions in the most recent report of the Social Security trustees.

(c) Reduction for Commencement Before Age 60. The Tier 1 Participant’s benefit upon Early Retirement Date shall be reduced by five percent for each year by which Early Retirement Date precedes the first of the month following the Tier 1 Participant’s 60th birthday, with interpolation for a partial year based on one-twelfth of the full five percent for each month.

(d) Make-Up Benefit. A Tier 2 Participant’s benefit upon Early Retirement Date shall be the same as the Tier 2 Participant’s benefit upon Normal Retirement Date, except the calculation shall be based on the Qualified Plan benefit as of the Early Retirement Date without the limits described in 4(f)(i) and (ii) and based on deferred salary and bonus as provided in 4(g).

6. Termination Benefit.

(a) Vesting. A Participant shall become vested in benefits under the Plan upon completing five Years of Participation, upon suffering a Disability, or when entitled to a Change in Control Severance Benefit as provided in 9(a). A Participant whose employment with the Company terminates prior to vesting shall forfeit any right to benefits under the Plan, subject to reinstatement of such right upon rehire into a position with the Company eligible to participate in the Plan. A Participant whose Separation from Service with the Company occurs after becoming vested and before qualifying for Early or Normal Retirement Date shall be paid a termination benefit.

(b) Amount of Benefit. A Tier 1 Participant’s termination benefit shall be determined under the same formula in 4(b) as the benefit at Normal Retirement Date, with the same defined terms, subject to the following additional detail in the definition of Pension Offset. The Pension Offset shall be calculated the same as on Early Retirement Date, except the value of Social Security benefits shall be determined as of the date the Tier 1 Participant will attain age 65 assuming that payments commence on that date and based on the assumptions of future earnings continuing at the Participant’s last pay rate with the Company and future cost of living adjustments and increases in the national average wage index used to calculate Social Security benefits based on the intermediate assumptions in the most recent report of the Social Security trustees.

(c) Reduction for Commencement Before Age 60. The Tier 1 Participant’s termination benefit shall be reduced by five percent for each year by which the first of the month following Separation from

Service precedes the first of the month following the Participant’s 60th birthday, with interpolation for a partial year based on one-twelfth of the full five percent for each month. This paragraph (c) shall not reduce the Tier 1 Participant’s benefit below 40 percent of the amount payable at age 60.

(d) Make-Up Benefit. A Tier 2 Participant’s termination benefit shall be the same as the Tier 2 Participant’s benefit upon Normal Retirement Date, except the calculation shall be based on the Qualified Plan benefit, without the limits described in 4(f)(i) and (ii) and based on deferred salary and bonus as provided in 4(g), as of the date the Tier 2 Participant’s benefit commences as provided in 7(d).

(e) Disability. “Disability” means a termination of employment because of absence from duties with the Company for 180 consecutive days as a result of the Participant’s incapacity due to physical or mental illness or injury, unless within 30 days after a written notice of termination is given following such absence the Participant returns to full-time performance of Company duties.

7. Time and Form of Payment to Participant.

(a) Lump Sum. Except as provided in (b), (c), and (f), benefits shall be paid to a Tier 1 Participant in a lump sum of cash within 30 days following the Tier 1 Participant’s Separation from Service.

(b) Optional Annuity Forms. A Tier 1 Participant can receive payment of the Normal Retirement benefit described in Section 4 or the Early Retirement benefit described in Section 5 in any of the standard or optional annuity forms of benefit described in 6.01 and 6.02 of the Qualified Plan, other than a joint and survivor annuity upon marriage or remarriage after the annuity starting date.

(c) Election of Annuity Form. A Tier 1 Participant may elect to receive payment of the benefit amounts described in Sections 4 or 5 in an annuity form of benefit in lieu of a lump sum at any time by delivering written notice of the election to the Committee. The election shall take effect 12 months following the date on which it is delivered to the Committee. If the Tier 1 Participant has a Separation from Service less than 12 months following the date the election is delivered or if the total benefit is no more than the applicable dollar amount under Internal Revenue Code section 402(g)(1)(B) (which is $18,500 in 2018), benefits shall be paid in a lump sum. An election to receive an annuity form of benefit must specify a date for commencement of annuity payments that is at least five years after Separation from Service. However, a Tier 1 Participant may elect no later than December 31, 2008, to receive an annuity form of benefit in lieu of a lump sum commencing with the first month following Separation from Service without a five-year delay in commencement and such election shall be effective immediately without a 12-month delay in effectiveness. A Tier 1 Participant who has elected to receive an annuity form of benefit may choose which of the annuity forms described in (b) will be paid, and to change such choice, at any time at least 30 days before the first day of the month in which annuity payments commence. If the Tier 1 Participant does not make a timely election under this 7(c), the annuity benefit shall be paid in the default annuity form applicable to the Tier 1 Participant under the Qualified Plan.

(d) Make-Up Benefit. Except as provided in (f) and (g), benefits shall be paid to a Tier 2 Participant in one of the standard or optional annuity forms of benefit described in 6.01 and 6.02 of the Qualified Plan, other than a joint and survivor annuity upon marriage or remarriage after the annuity starting date, as selected by the Tier 2 Participant in accordance with the rules of the Qualified Plan, commencing upon a Separation from Service as follows:

(i) If the Tier 2 Participant is eligible to receive normal retirement benefits under the Qualified Plan based on having reached age 62 at the time of Separation from Service, and therefore receives an amount of benefits under this Plan calculated consistently therewith, the annuity shall commence with the first month following the Separation from Service.

(ii) If the Tier 2 Participant is eligible to receive early retirement benefits under the Qualified Plan based on having satisfied the Rule of 70 at the time of Separation from Service, and therefore receives an amount of benefits under this Plan calculated consistently therewith, the annuity shall

commence with the first month following the later of the Tier 2 Participant’s 55^th birthday or the Tier 2 Participant’s Separation from Service.

(iii) If the Tier 2 Participant is not eligible to receive normal retirement benefits or early retirement benefits as referred to in (i) or (ii), but is eligible to receive termination benefits under this Plan, the annuity shall commence with the first month following the Tier 2 Participant’s 62^nd birthday.

(iv) If the Tier 2 Participant’s surviving spouse is eligible to receive death benefits under the Qualified Plan as a result of the Tier 2 Participant’s death before commencement of benefits under this Plan, the annuity shall commence in the month that benefits would have commenced as provided in this 7(d) if the Tier 2 Participant had a Separation from Service on the date of death (or on the Tier 2 Participant’s actual Separation from Service, if earlier) and then survived until benefits had commenced.

(v) If the Tier 2 Participant elects a form of annuity benefit under the Qualified Plan at least 30 days prior to the first day of the month in which the benefit under this 7(d) is required to commence, the annuity benefit shall be paid in the same annuity form as selected under the Qualified Plan. If the Tier 2 Participant does not make a timely election under this 7(d), the annuity benefit shall be paid in the default annuity form applicable to the Tier 2 Participant under the Qualified Plan.

(e) Actuarial Equivalency. The amount payable in any of the annuity forms provided in (b) shall be the actuarial equivalent of the lump sum in (a), or of the amount described in 4(f), 5(d), or 6(d), based on the actuarial assumptions used for determining equivalent benefits under the Qualified Plan at the time of the Participant’s commencement of benefits.

(f) 6-Month Delay for Specified Employees. For a Participant who is a key employee as defined in Section 416(i) of the Internal Revenue Code for the plan year of Separation from Service, payment of a lump sum or commencement of monthly annuity benefits shall be postponed until the first day of the seventh calendar month following the Participant’s Separation from Service. All amounts due before the first day of the seventh calendar month shall be paid to the Participant as soon as practicable after that day together with interest from the date each payment otherwise would have been payable until the date actually paid. Interest for any period will be paid at the same rate applicable for that period under Section 6(f) of the Company’s Deferred Compensation Plan for Directors and Executives.

(g) Small Benefit Cash Out. If the actuarial equivalent lump sum present value of a Tier 2 Participant’s benefits, based on the actuarial assumptions used for determining equivalent benefits under the Qualified Plan at the time of the Participant’s commencement of benefits, is no more than the applicable dollar amount under Internal Revenue Code section 402(g)(1)(B) (which is $18,500 in 2018), the benefit shall be paid as a lump sum in such amount at the time annuity payments would have otherwise commenced under 7(d).

8. Death Benefit.

(a) Beneficiary. If a Tier 1 Participant dies before Separation from Service, a death benefit shall be paid to the Beneficiary designated by the Tier 1 Participant on a written form prescribed by the Committee. A designation made by the Tier 1 Participant shall remain in effect until changed by a subsequent designation. If no Beneficiary has been designated or no person designated by the Tier 1 Participant survives, the Beneficiary shall be the following in order of priority:

(i) The Participant’s surviving spouse.

(ii) The Participant’s surviving children in equal shares.

(iii) The Participant’s estate.

(b) Amount of Benefit. The death benefit shall have a lump sum value equal to 50 percent of the amount determined under the formula in 4(b) for the benefit at Normal Retirement Date, calculated on the basis

of the Tier 1 Participant’s Final Average Pay, Years of Participation, and Pension Offset determined as of the day before death.

(c) Form of Payment. The amount calculated under (b) shall be converted to an actuarial equivalent single life annuity for the life of the Beneficiary commencing on the first of the month following the date of death, except as follows. If the lump sum value is no more than the applicable dollar amount under Internal Revenue Code section 402(g)(1)(B) (which is $18,500 in 2018), the lump sum shall be paid to the Beneficiary within 30 days after the date of death in lieu of a life annuity. Actuarial equivalency shall be based on the actuarial assumptions used for determining equivalent benefits under the Qualified Plan at the time of the Tier 1 Participant’s death.

(d) Make-Up Benefit. If a Tier 2 Participant dies with a surviving spouse entitled to a death benefit under the Qualified Plan, a death benefit shall be payable to the surviving spouse commencing at the date determined under 7(d) equal to the amount, if any, by which the Qualified Plan death benefit would be greater than the actual death benefit calculated as of that date under the Qualified Plan in the absence of the limits in 4(f)(i) and (ii) and based on deferred salary and bonus as provided in 4(g).

9. Change in Control.

(a) Enhancements. Each Participant who becomes entitled to a Change in Control Severance Benefit shall be provided enhanced benefits as follows:

(i) All Participants shall be fully vested in benefits under the Plan, regardless of Years of Participation.

(ii) Tier 1 Participants shall be credited with three additional Years of Participation beyond those the Participant has actually completed.

(iii) The make-up benefit provided for Tier 2 Participants under 4(f), 5(d), 6(d), 7(d), and 8(d) shall be calculated by subtracting the Tier 2 Participant’s Qualified Plan benefit calculated as of the applicable benefit commencement date under 7(d) from a Qualified Plan benefit that is calculated as of the same date without the limits described in 4(f)(i) and (ii), that counts deferred salary and bonus as provided in 4(g), and that is based on the Tier 2 Participant’s actual years of service credited for benefits under the Qualified Plan plus three additional years.

(b) Change in Control Severance Benefit. “Change in Control Severance Benefit” means, for any Participant who is party to a Change in Control Severance Agreement with the Company or Parent, the severance benefit provided for in such agreement; provided, however, that such severance benefit is a “Change in Control Severance Benefit” for purposes of the Plan only if, under the terms of the Participant’s Change in Control Severance Agreement, the Participant becomes entitled to the severance benefit (i) after a change in control of Parent or the Company has occurred, (ii) because the Participant’s employment with the Company or Parent has been terminated by the Participant for good reason in accordance with the terms and conditions of the Change in Control Severance Agreement or by the Company or Parent other than for cause or disability, and (iii) because the Participant has satisfied any other conditions or requirements specified in the Change in Control Severance Agreement and necessary for the Participant to become entitled to receive the severance benefit. Under no circumstances will a Participant who is not party to a Change in Control Severance Agreement be deemed to become entitled to a Change in Control Severance Benefit for purposes of the Plan. For purposes of this Section 9(b), the terms “change in control,” “good reason,” “cause” and “disability” shall have the meanings as may be set forth in the Participant’s Change in Control Severance Agreement, if any.

(c) Possible Benefit Recalculation. With respect to any Participant who is party to a Change in Control Severance Agreement, it may be the case that (i) the Participant’s employment with the Company or

Parent is terminated prior to a “change in control” (as defined in the Participant’s Change in Control Severance Agreement), (ii) a change in control occurs after such termination, and (iii) the Participant then becomes entitled to a Change in Control Severance Benefit. If, after such termination of employment and prior to the time that the Participant becomes entitled to a Change in Control Severance Benefit, benefit payments to the Participant have started under the Plan, then, at such time thereafter as the Participant becomes entitled to a Change in Control Severance Benefit, the benefits payable to the Participant under the Plan shall be retroactively recalculated to reflect the enhancements described in Section 9(a). To the extent that the amount of the benefit payments paid to the Participant prior to such recalculation is less than the amount of such payments as so recalculated, the difference will be paid to the Participant in a cash lump sum (without interest) as soon as practicable after the change in control.

10. Administration.

(a) Committee Duties. This Plan shall be administered by the Organization and Executive Compensation Committee of the Board (the “Committee”). The Committee shall have responsibility for the general administration of the Plan and for carrying out its intent and provisions. The Committee shall interpret the Plan and have such powers and duties as may be necessary to discharge its responsibilities. The Committee may, from time to time, employ other agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company.

(b) Binding Effect of Decisions. The decision or action of the Committee in respect of any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

11. Claims Procedure.

(a) Claim. Any person claiming a benefit, requesting an interpretation or ruling under the Plan, or requesting information under the Plan shall present the request in writing to the Committee, which shall respond in writing as soon as practicable.

(b) Denial of Claim. If the claim or request is denied, the written notice of denial shall state:

(i) The reasons for denial, with specific reference to the Plan provisions on which the denial is based;

(ii) A description of any additional material or information required and an explanation of why it is necessary; and

(iii) An explanation of the Plan’s claim review procedure.

(c) Review of Claim. Any person whose claim or request is denied or who has not received a response within 30 days may request review by notice given in writing to the Committee. The claim or request shall be reviewed by the Committee who may, but shall not be required to, grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing.

(d) Final Decision. The decision on review shall normally be made within 60 days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be 120 days. The decision shall be in writing and shall state the reasons and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned.

12. Amendment and Termination of the Plan.

(a) Amendment. The Board may at any time amend the Plan in whole or in part; provided, however, that no amendment shall without the consent of each affected Participant (i) decrease the Participant’s

benefit accrued under 4 as of the date of amendment, or (ii) accelerate the payment of benefits under the Plan. The Board shall have the right to apply an amendment retroactively, including any amendment necessary to comply with restrictions on nonqualified deferred compensation provided by Section 409A of the Internal Revenue Code.

(b) Partial Termination. The Board may at any time partially terminate the Plan if, in its judgment, the tax, accounting, or other effects of the continuance of the Plan, or potential payments thereunder, would not be in the best interests of the Company. Upon partial termination, no further benefits shall accrue under the Plan, which shall continue for the purpose of paying benefits accrued under the Plan as of the partial termination date as they become payable.

(c) Complete Termination. The Board may completely terminate the Plan, provided such termination is covered by an exception (set forth in regulations or other guidance of the Internal Revenue Service) to the prohibition on acceleration of deferred compensation. In that event, on the effective date of the complete termination, the Plan shall cease to operate and the Company shall determine the lump sum present value of each Participant’s benefit rights under the Plan as of the close of business on such effective date. The Company shall pay out such present value to the Participant in a single lump sum as soon as practicable after such effective date.

13. Miscellaneous.

(a) Unsecured General Creditor. Participants and their beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of the Company, nor shall they be beneficiaries of, or have any rights, claims or interests in any mutual funds, other investment products or the proceeds therefrom owned or which may be acquired by the Company. Except as provided in (b), any and all of the Company’s assets shall be, and remain, the general, unpledged, unrestricted assets of the Company. The Company’s obligation under the Plan shall be that of an unfunded and unsecured promise to pay money in the future, and the rights of Participants and beneficiaries shall be no greater than those of unsecured general creditors of the Company.

(b) Trust Fund. The Company shall be responsible for the payment of all benefits provided under the Plan. The Company shall establish one or more trusts, with such trustees as the Board may approve, for the purpose of providing for the payment of such benefits, but the Company shall have no obligation to contribute to such trusts except as specifically provided in the applicable trust documents. Such trust or trusts shall be irrevocable, but the assets thereof shall be subject to the claims of the Company’s creditors. To the extent any benefits provided under the Plan are actually paid from any such trust, the Company shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by, the Company.

(c) Non-assignability. Neither a Participant nor any other person shall have the right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be non-assignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.

(d) Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company or Parent and any Participant, and the Participants (and their Beneficiaries) shall have no rights against the Company or Parent except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Company or Parent or to interfere with the right of the Company or Parent to discipline or discharge the Participant at any time.

(e) Withholding; Payroll Taxes. The Company shall withhold from payments made hereunder any taxes required to be withheld from such payments under federal, state or local law. When the value of a Participant’s benefits under the Plan becomes subject to FICA tax, as determined by applicable law, the

Participant’s share of FICA shall be withheld from other non-deferred compensation payable to the Participant. Any amount not covered by such withholding shall be paid by the Participant to the Company out of other funds.

(f) Payment to Guardian. If a benefit under the Plan is payable to a minor or a person declared incompetent or to a person incapable of handling the disposition of his property, the Committee may direct payment of such Plan benefit to the guardian, legal representative or person responsible for the care and custody of such minor, incompetent or person. The Committee may require proof of incompetence, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the Plan benefit. Such distribution shall completely discharge the Committee and the Company from all liability with respect to such benefit.

(g) Governing Law. The provisions of this Plan shall be construed and interpreted according to the laws of the State of Oregon, except as preempted by federal law.

(h) Validity. In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provisions had never been inserted herein.

(i) Notice. Any notice or filing required or permitted to be given to the Company or the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the Secretary of the Company. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

(j) Successors. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity. Parent did not acquire all or substantially all of the assets of the Company in the reorganization transaction, and therefore Parent is not a successor.

The foregoing 2018 Restatement was approved by the Board of Directors of Northwest Natural Gas Company effective as of October 1, 2018.

NORTHWEST NATURAL GAS COMPANY

By: /s/ David H. Anderson

David Anderson, President and Chief Executive Officer

Attest: /s/ Shawn M. Filippi

Shawn Filippi, VP, Chief Compliance Officer & Corporate Secretary

Changes to section 2 to close eligibility effective July 31, 2019 were approved by the Board of Directors at a meeting held on July 25, 2019.

EXHIBIT 31.1

CERTIFICATION

I, David H. Anderson, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2019 of Northwest Natural Gas Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2019

/s/ David H. Anderson

David H. Anderson

President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Frank H. Burkhartsmeyer, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2019 of Northwest Natural Gas Company;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2019

/s/ Frank H. Burkhartsmeyer

Frank H. Burkhartsmeyer

Senior Vice President and Chief Financial Officer

EXHIBIT 31.3

CERTIFICATION

I, David H. Anderson, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2019 of Northwest Natural Holding Company;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2019

/s/ David H. Anderson

David H. Anderson

President and Chief Executive Officer

EXHIBIT 31.4

CERTIFICATION

I, Frank H. Burkhartsmeyer, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2019 of Northwest Natural Holding Company;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2019

/s/ Frank H. Burkhartsmeyer

Frank H. Burkhartsmeyer

Senior Vice President and Chief Financial Officer

EXHIBIT 32.1

NORTHWEST NATURAL GAS COMPANY

Certificate Pursuant to Section 906

of Sarbanes – Oxley Act of 2002

Each of the undersigned, DAVID H. ANDERSON, Chief Executive Officer, and FRANK H. BURKHARTSMEYER, the Chief Financial Officer, of NORTHWEST NATURAL GAS COMPANY (the Company), DOES HEREBY CERTIFY that:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 (the Report) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, each of the undersigned has caused this instrument to be executed this 6th day of August 2019.

/s/ David H. Anderson

David H. Anderson

President and Chief Executive Officer

/s/ Frank H. Burkhartsmeyer

Frank H. Burkhartsmeyer

Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Northwest Natural Gas Company and will be retained by Northwest Natural Gas Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

NORTHWEST NATURAL HOLDING COMPANY

Certificate Pursuant to Section 906

of Sarbanes – Oxley Act of 2002

Each of the undersigned, DAVID H. ANDERSON, Chief Executive Officer, and FRANK H. BURKHARTSMEYER, the Chief Financial Officer, of NORTHWEST NATURAL HOLDING COMPANY (the Company), DOES HEREBY CERTIFY that:

2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, each of the undersigned has caused this instrument to be executed this 6th day of August 2019.

/s/ David H. Anderson

David H. Anderson

President and Chief Executive Officer

/s/ Frank H. Burkhartsmeyer

Frank H. Burkhartsmeyer

Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Northwest Natural Holding Company and will be retained by Northwest Natural Holding Company and furnished to the Securities and Exchange Commission or its staff upon request.