Northwest Natural Holding Co (NWN)

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 for the three and six months ended June 30, 2026 and 2025 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 month period are not necessarily indicative of expected fiscal year results. Therefore, this discussion should be read in conjunction with NW Holdings' and NW Natural's 2025 Annual Report on Form 10-K, as applicable (2025 Form 10-K).

NW Natural operates as one reportable business segment on a consolidated basis. Prior to the first quarter of 2026, the reportable business segment NW Natural was represented as NWN Gas Utility and excluded certain gas storage and other business activities that were included in Other. Consistent with the method in which the Chief Operating Decision Maker (CODM) reviews each business, these activities were consolidated into NWN Gas Utility and presented as the reportable business segment NW Natural beginning in the first quarter of 2026. NW Natural is primarily a regulated local gas distribution company serving customers in Oregon and southwest Washington. NW Natural also provides regulated storage services at its Mist underground storage facility. The Mist underground storage facility serves distribution and interstate storage customers, and owns the North Mist gas storage facility, which serves a local electric company. NW Natural also owns NWN Gas Reserves and NW Natural RNG Holding Company, LLC, which procures regulated renewable natural gas for distribution customers. Additionally, NW Natural encompasses interstate storage services, third-party asset management services, and appliance center retail operations.

SiEnergy, which was acquired on January 7, 2025, is a regulated natural gas distribution utility and serves residential and commercial customers in the greater metropolitan areas of Houston, Dallas, and Austin, Texas. SiEnergy also includes a natural gas transmission utility serving customers in the greater metropolitan areas of Dallas and Austin, Texas. SiEnergy activities are reported in the SiEnergy segment.

NWN Water is a regulated water and wastewater utility serving residential and commercial customers in Oregon, Washington, Idaho, Texas, and Arizona. The activities of NWN Water are reported in the NWN Water segment, which also includes non-regulated water and wastewater services businesses in Oregon, Washington and Idaho, and an equity method investment in Avion Water Company, Inc. In addition, NWN Water provides water services to communities throughout the Pacific Northwest and California.

Other activities for NW Holdings, aggregated and reported as Other, include NWN Renewables and its non-regulated renewable natural gas activities. See Note 4 for further discussion of our business segments and other, as well as our direct and indirect wholly-owned subsidiaries.

Non-GAAP Financial Measures

In addition to presenting diluted earnings per share for NW Holdings, we present diluted earnings per share for each of our segments (Segment EPS), which is a non-GAAP financial measure. We calculate Segment EPS by dividing the net income of each of our segments calculated in accordance with GAAP by the number of diluted shares outstanding for NW Holdings. We use Segment EPS to analyze our financial performance because we believe it provides useful information to our investors, analysts and creditors in evaluating our financial condition and results of operations of each of our segments. We believe investors find Segment EPS to be a useful indicator of our performance.

Segment EPS should not be considered a substitute for, or superior to, diluted earnings per share or other measures calculated in accordance with GAAP. Moreover, Segment EPS has limitations in that it does not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than how such measures are calculated in this report, limiting the usefulness of those measures for comparative purposes. A reconciliation of Segment EPS to diluted earnings per share is provided below.

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(1)    Total Diluted EPS is equal to the sum of Diluted EPS for NW Natural, SiEnergy, NWN Water and Other.

(2)    Non-GAAP financial measure. See Non-GAAP Financial Measures--Segment Earnings Per Share for definition, reconciliation and additional information.

EXECUTIVE SUMMARY

Key financial highlights for NW Holdings include:

THREE MONTHS ENDED JUNE 30, 2026 COMPARED TO JUNE 30, 2025.

•Consolidated net income increased by $3.1 million or $0.07 per diluted share.

•The increase in net income was primarily driven by new NW Natural rates in Oregon, effective October 31, 2025, organic customer growth, the acquisition of Pines in June 2025, and the implementation of House Bill 4384 in July 2025. These benefits were partially offset by increases from continued investment in our utility systems that resulted in higher interest and depreciation expenses.

SIX MONTHS ENDED JUNE 30, 2026 COMPARED TO JUNE 30, 2025.

•Consolidated net income increased by $12.7 million or $0.22 per diluted share.

•The increase in net income was primarily driven by new NW Natural rates in Oregon, effective October 31, 2025, organic customer growth, the acquisition of Pines in June 2025, and the implementation of House Bill 4384 in July 2025. These benefits were partially offset by increases from continued investment in our utility systems that resulted in higher interest and depreciation expenses.

•Customer growth was 1.9%, driven by organic growth at SiEnergy and NWN Water, and the Pines and Inline acquisitions.

•Capital expenditures were $235.0 million, as we continue to invest in our utility systems to support safety and reliability.

Key financial highlights for NW Natural include:

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THREE MONTHS ENDED JUNE 30, 2026 COMPARED TO JUNE 30, 2025.

•Consolidated net income decreased by $1.0 million.

•Net income decreased as higher margin from new rates in Oregon, which were effective October 31, 2025, were more than offset by higher operations and maintenance expenses and continued investment in the system resulting in higher interest and depreciation expenses.

•Capital expenditures were $87.0 million, due primarily to continued investments to support the safety and reliability of NW Natural.

SIX MONTHS ENDED JUNE 30, 2026 COMPARED TO JUNE 30, 2025.

•Consolidated net income increased by $1.7 million and was primarily driven by new rates for Oregon customers, effective October 31, 2025. This benefit was partially offset by increases from continued investment in the system that resulted in higher interest and depreciation expenses, and higher operations and maintenance expenses.

•Capital expenditures were $166.6 million, due primarily to continued investments to support the safety and reliability of NW Natural.

RESULTS OF SEGMENTS

NW NATURAL SEGMENT RESULTS. NW Natural results were as follows:

(1)    See NW Natural Margin Table below for additional detail.

(2)    Non-GAAP financial measure. See Non-GAAP Financial Measures—Segment Earnings Per Share for definition, reconciliation and additional information.

THREE MONTHS ENDED JUNE 30, 2026 COMPARED TO JUNE 30, 2025. The primary factors contributing to the $1.0 million decrease in NW Natural net income were as follows:

•$3.5 million increase in operations and maintenance expenses due primarily to higher contract labor costs and payroll and benefit costs;

•$3.0 million increase in depreciation expense due to additional capital investments; and

•$2.3 million increase in interest expense due primarily to higher long-term debt from first mortgage bonds issued in December 2025; partially offset by

•$7.4 million increase in margin driven by new rates on October 31, 2025 for Oregon customers. See the NW Natural margin table below for additional margin

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ITEM 7. 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 covers the years ended December 31, 2025, 2024, and 2023 and refers to the consolidated results 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 the Consolidated Financial Statements in Item 8 of this report.

NW Natural's natural gas distribution activities are reported in the NWN Gas Utility segment, which was previously referred to as the natural gas distribution (NGD) segment prior to 2025, serving customers in Oregon and southwest Washington. The NWN Gas Utility segment also includes NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp, the NWN Gas Utility-portion of NW Natural's Mist storage facility in Oregon, and NW Natural RNG Holding Company, LLC, a holding company established to invest in the development and procurement of regulated renewable natural gas for NW Natural.

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SiEnergy Gas Utility, which was acquired on January 7, 2025, is a regulated natural gas distribution utility and serves residential and commercial customers in the greater metropolitan areas of Houston, Dallas, and Austin, Texas. SiEnergy also includes a natural gas transmission utility serving customers in the greater metropolitan areas of Dallas and Austin, Texas. SiEnergy activities are reported in the SiEnergy Gas Utility segment.

NWN Water Utility is a regulated water and wastewater utility serving residential and commercial customers in Oregon, Washington, Idaho, Texas, and Arizona. The activities of NWN Water are reported in the NWN Water segment, which also includes non-regulated water and wastewater services businesses in Oregon, Washington and Idaho, and an equity method investment in Avion Water Company, Inc. In addition, NWN Water provides water services to communities throughout the Pacific Northwest and California.

Other activities for NW Holdings, aggregated and reported as NW Holdings Other, include NWN Renewables and its non-regulated renewable natural gas activities; NW Natural's interstate storage and asset management activities and appliance retail center; and NNG Financial's investment in Kelso-Beaver Pipeline (KB Pipeline), which is accounted for under the equity method.

See Note 4 for further discussion of our business segments and other, as well as our direct and indirect wholly-owned subsidiaries.

Non-GAAP Financial Measures

In addition to presenting diluted earnings per share for NW Holdings, we present diluted earnings per share for each of our segments (Segment EPS), which is a non-GAAP financial measure. We calculate Segment EPS by dividing the net income of each of our segments calculated in accordance with GAAP by the number of diluted shares outstanding for NW Holdings. We use Segment EPS to analyze our financial performance because we believe it provides useful information to our investors, analysts and creditors in evaluating our financial condition and results of operations of each of our segments. We believe investors find Segment EPS to be a useful indicator of our performance.

Segment EPS should not be considered a substitute for, or superior to, diluted earnings per share or other measures calculated in accordance with U.S. GAAP. Moreover, Segment EPS has limitations in it does not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than how such measures are calculated in this report, limiting the usefulness of those measures for comparative purposes. A reconciliation of Segment EPS to diluted earnings per share is provided below.

(1) Total Diluted EPS is equal to the sum of Diluted EPS for NWN Gas Utility, SiEnergy, NWN Water and NW Holdings Other.

(2) Non-GAAP financial measure. See Non-GAAP Financial Measures--Segment Earnings Per Share for definition, reconciliation and additional information.

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EXECUTIVE SUMMARY

NW Holdings' financial results and highlights for the year include:

•For the year ended December 31, 2025, net income increased by $34.4 million or $0.74 per diluted share.

•The increase in net income is primarily driven by new rates at NW Natural in Oregon, effective November 1, 2024 and October 31, 2025. In addition, we acquired SiEnergy in January 2025, and implemented new rates at our largest water utility in Arizona. These benefits were partially offset by an increase in interest expense, operations and maintenance expense, and depreciation expense.

•Customer growth was 11.1%, driven by the Texas gas utility acquisitions and organic water growth.

•Capital expenditures were $466.9 million, as we continue to invest in our utility systems to support safety and reliability.

NW Natural's financial results and highlights for the year include:

•For the year ended December 31, 2025, net income increased by $35.2 million.

•The increase in net income is primarily driven by new rates in Oregon, effective November 1, 2024 and October 31, 2025. This benefit was partially offset by increases in depreciation expense, income tax expense and operations and maintenance expense.

•Capital Expenditures were $355.1 million due primarily to continued investments to support the safety and reliability of the NW Natural Gas Utility.

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RESULTS OF SEGMENTS

NWN GAS UTILITY SEGMENT RESULTS.

NWN Gas Utility 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. In addition to NW Natural's local gas distribution business, the NWN Gas Utility segment also includes the portion of the Mist underground storage facility used to serve NWN Gas Utility customers, the North Mist gas storage operations, NWN Gas Reserves, which is a wholly-owned subsidiary of Energy Corp., and NW Natural RNG Holding Company, LLC.

(1) See NWN Gas Utility Margin Table below for additional detail.

(2)    Non-GAAP financial measure. See Non-GAAP Financial Measures—Segment Earnings Per Share for definition, reconciliation and additional information.

2025 COMPARED TO 2024. The primary factors contributing to the $32.9 million increase in NWN Gas Utility net income were as follows:

•$78.9 million increase in margin driven primarily by new rates on November 1, 2024 and October 31, 2025 for Oregon customers; partially offset by a decrease in the amortization of deferred balances. See the NWN Gas Utility margin table below for additional margin detail.

The increase in margin was partially offset by the following items:

•$19.4 million increase in depreciation expense due to additional capital investments;

•$11.8 million increase in income tax due to higher pre-tax income; and

•$11.0 million increase in operations and maintenance expenses due primarily to higher payroll and benefit costs and an increase in contract labor costs, partially offset by the disallowance of undepreciated line extension costs as ordered in the 2024 Oregon general rate case.

Total natural gas sold and delivered in 2025 decreased 5% over 2024 primarily due to lower usage from residential and commercial sales customers, pulp and paper industrial sales and transportation customers, and 20% warmer than average weather in 2025 compared to 17% warmer than average weather in 2024.

2024 COMPARED TO 2023. The primary factors contributing to the $16.9 million decrease in net income were as follows:

•$18.2 million decrease in other income, net driven by higher pension non-service costs, lower interest income from invested cash, lower regulatory interest income and a decline in the equity portion of AFUDC;

•$13.7 million decrease due to the disallowance of undepreciated line extension costs as ordered in the 2024 Oregon general rate case; and

•$10.1 million increase in depreciation expense due to additional capital investments; partially offset by

•$26.3 million increase in margin primarily due to new rates on November 1, 2024 for Oregon customers; partially offset by lower usage from warmer comparative weather for customers not covered under the weather normalization mechanism. See the NWN Gas Utility margin table below for additional margin detail.

Total natural gas sold and delivered in 2024 decreased 3% over 2023 primarily due to 17% warmer than average weather in 2024 compared to 8% warmer than average weather in 2023.

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

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