NWN earnings call transcript, November 5, 2026

Good morning and welcome, everyone. I'm pleased to report another quarter of strong financial results. Earnings per share for both the quarter and year to date exceeded our expectations, driven by disciplined cost. management, solid operational execution, and continued customer growth. Given the strength of our business through the first nine months and our visibility into the remainder of 2026, we are raising our annual earnings guidance. With the heating season still budget. We are confident in our position today and the momentum we are building into 2027. Importantly, we achieved these results while prioritizing customer affordability at a time when inflation and energy costs are top of. Our objective is to invest prudently in growth, reliability, and the safety of our systems while carefully managing costs on behalf of our customers. That mindset is embedded across our organization. A central tenet of our long-term strategy is collaborating with regulators to align customer needs with utility investment requirements. Across our service territories, we continue to find that timely recovery of investments is important for both customers and utilities. We have long been proponents of multi-year rate making and its benefits. Customers benefit from more gradual and predictable rate adjustments, and utilities gain greater visibility and certainty. to invest in critical infrastructure. With this in mind, let me provide an update on our regulatory dockets. Starting in Texas, we settled our sea energy rate case in September, the first under our ownership. The settlement provides

an $8.6 million revenue requirement increase, a 9.8% authorized ROE, and a nearly 60% equity ratio. We also received the factors necessary to file for the Gas Reliability Infrastructure Program, or GRIP. which provides accelerated recovery of capex between rate cases. We expect new rates to take effect in November, subject to commission approval. Even after the rate changes, we still expect C-Energy's customer- bills to remain competitive with other Texas gas utilities. C-Energy is laying the foundation for future investment recovery through both GRIP and the established benefits provided under HB 4384. However, these mechanisms help reduce regulatory lag, support ongoing infrastructure investment, and contribute to more gradual customer bill impacts over time. Turning to Northwest Natural Water, Foothills, our largest water utility, C-Energy. 00830. Okay. Continues to make progress on its Arizona rate proceeding, including its request for formula rates. We believe formula rate structures can provide a more efficient path for recovering investments while maintaining transparency and regulatory oversight. We have four additional water. Rate cases underway, which we expect to conclude in early 2027. We also continue to advance our rate consolidation strategy across our water utilities. We've made progress in Idaho and Washington and are pursuing further consolidation in Oregon, Arizona.

And Texas, with the goal of simplifying regulatory administration and reducing costs for stakeholders. Turning to Northwest Naturals regulatory updates. As we mentioned last quarter, new rates in Washington became effective August 1st following approval of our Multi-Year Rate Plan settlement. In October, we received the final order for our Alternative Rate Mechanism, or ARM, in Oregon and are pleased with the outcome. The order provides for a $13 million increase in revenue requirement compared to the original ask of $15.6 million. New rates were effective on October 31st. We also received approval for our Annual Purchased Gas Adjustments or PGAs in both Oregon and Washington. Even after taking into account the arm in Oregon, the recent Washington rate case, and gas costs from the PGA, the average Northwest Natural Road. Our residential customer continues to pay about the same today for their natural gas service as they did 20 years ago. Over that same period, comparable electricity rates have more than doubled in our region. Entering the heating seat season, our gas supply and system readiness position us well to meet customer demand. This includes the addition of two new compressors at our missed storage facility, helping to support reliability during peak winter conditions. In Oregon, we continue to engage constructively with stakeholders as the state advances the framework for multiyear rate making. Phase two is now underway, with conversations occurring across several work streams. While these discussions progress, our priority remains

the same, finding solutions that support customer affordability while ensuring utilities can continue to make the investments necessary to maintain safe and reliable service. Under the Oregon Commission's current schedule, we expect to file our first multiyear rate case in 2028 with new rates effective in 2029. Before our first multiyear rates go into effect, we are closely examining additional options such as a general rate case to ensure timely recovery of our investments and costs. By 2029, once multiyear rates are in place in Oregon, we expect over 95% of our overall rate base to have some form of forward looking rate plan. or mechanism. These mechanisms support more timely recovery of investments, help to smooth out customer rate impacts and provide longer term visibility into our financial results. With that, let me spend a few minutes on our major growth initiatives. Starting with Sea Energy. Customer growth remains strong, up approximately 13% for the 12 months ended September 30, 2026. Elevated mortgage rates have begun to moderate housing activity from peak. levels in Texas. While Sea Energy is not immune to these trends, we are still bullish on the Texas housing market long term and are still seeing healthy double digit customer growth and a robust development pipeline. Underscoring our confidence in the future. Our backlog continues to grow and sits at nearly 265,000 lots as of quarter end. Since acquiring Sea Energy less than two years ago, we have added approximately 110,000 new lots to the backlog, which is quite a test.

to the strength of Sea Energy's reputation and development team. Sea Energy continues to be one of the fastest growing gas LDCs in the country, and the combination of continued customer growth, a constructive regulatory framework, and recovery. Recovery mechanisms in Texas support our confidence in Sea Energy's long-term EPS growth. For our water utilities, we are making great progress on centralizing and consolidating the business. Our objective is to build a platform. Designed to scale efficiently over time. Customer growth at Northwest Natural Water was just over 2% for the 12 months ended September 30. Similar to Sea Energy, we are seeing a modest slowdown in housing activity in some of our markets due to higher mortgage rates. Over the coming years, we are still confident in our long-term 2-3% customer growth target. Our teams are making significant progress on capital projects at our Foothills utilities, including tank projects that support anticipation. And we are excited to highlight that we recently began construction on the first community. In Texas, where we are serving gas, water, and wastewater through both sea energy and Northwest Natural Water. The ability to offer multiple utility services through a single company is a differentiated value proposition for developers. And we see opportunities to expand this model in the years ahead. Finally, moving to MX3. As a reminder, MX3 is a $300 million FERC-regulated gas storage expansion project.

That will add 4 to 5 BCF of capacity in our region. The project is fully contracted with 25-year agreements upon notice to proceed. A 12.5% ROE and a 50% equity layer. We continue to work through the permitting process and remain on track to receive notice to proceed by the end of 2027. As discussed last quarter, we received unanimous approval of our Conditional Use Permit from the Columbia County Board of Commissioners. As expected, an appeal was filed with the Land Use Board of Appeals or LUBA. That process is underway and our timeline for notice to proceed remains unchanged. MX3 represents an important opportunity. To enhance energy reliability across the Pacific Northwest and, upon receiving notice to proceed, would support increasing our long-term earnings growth target to 5 to 7 percent. In summary, the strategic work we have done over the past few years is starting to produce tangible results. We serve growing service territories, are advancing key regulatory initiatives, and investing in critical infrastructure, all while controlling costs and maintaining financial strength. Given our year to date results and expectations for the balance of the year, we are raising our 2026 earnings guidance and remain confident in our long term growth. Additionally, we recently announced our largest dividend increase since 2012, which reflects that same confidence. The dividend remains an important component of our shareholder value proposition, and the increase highlights both the strength of our underlying business.

And our expectation that we will continue to drive sustainable earnings and dividend growth over time. That confidence is grounded in our well-established track record. For more than 167 years, Northwest Natural has successfully navigated a variety of economic environments, including periods of elevated inflation and higher interest rates. Throughout our history, we have consistently adapted to those conditions and delivered value to shareholders while staying committed to affordability and serving customers safely. With that, I'll turn it over to Ray for a more detail.

These items were partially offset by higher O&M expenses at Northwest Natural Water. At Northwest Natural Gas, year-to-date net income was up $1.6 million, but EPS was down roughly two cents. Results were driven by new rates and continued cost discipline. At Sea Energy, year-to-date net income was up $4.4 million, or 10 cents per share, reflecting customer growth and a full period of contribution from the Pines acquisition. At Northwest Natural Water, year-to-date net income was down $1.7 million, or 4 cents per share, reflecting higher O&M from continued operational centralization and higher depreciation from several key infrastructure projects. Finally, our other segments year-to-date net loss improved by $8.5 million, driven by lower O&M, partially offset by higher financing costs. Overall, we are pleased with our operational execution and believe the guidance increase of appropriately reflects the strength of our year-to-date performance while maintaining a prudent outlook as we start the 2026-2027 heating season. Turning now to shareholder returns. Last month, we announced an increase in our indicated annual dividend of 3 cents, bringing it to $2 per share. This marks our largest dividend increase since 2012 and extends our track record to 71 consecutive years of dividend growth. I am very pleased with the significant progress we've made over the past two years. to bring the payout ratio down to our long-term target range of 55 to 65 percent. Our dividend increase reflects the strength and stability of our underlying business. We continue to have strong organic growth opportunities.

across our regulated businesses and remain committed to investing in essential utility infrastructure and driving sustainable earnings growth while maintaining a solid balance sheet and returning capital to shareholders. As we have said previously, we expect. Dividend growth to be higher than it has been historically and supported by continued earnings growth. Beginning in 2027, we will announce updates to our dividend approach in connection with our annual guidance updates on our fourth quarter earnings call in February. Before turning to questions, I wanted to briefly discuss how we are thinking about financing in the current environment. Given the recent interest rate volatility and broader inflation, we remain focused on a financing strategy that preserves flexibility and supports long-term value creation. On the debt side, we are looking forward to investing in the current environment. We have intentionally maintained a diversified maturity profile and avoided concentrations of refinancing risks. Approximately 75% of our debt is at our regulated businesses, where financing costs are generally recovered through rates. Northwest Natural Gas, which represents the largest portion of our financing needs, benefits from a predictable capital program that generally requires only modest debt financing each year. That allows us to remain flexible and opportunistic as we access capital markets. Across the company, we have maintained very limited exposure to floating rate debt. Our target remains 10% or less, which helps reduce earnings volatility and provides greater predictability for customers and shareholders.

For 2026, we have completed debt financings for the year. On the equity side, we believe the ATM provides sufficient flexibilities to support our anticipated equity needs. We continue to expect to need $40 to $50 million in total for the whole year. And we've already issued $26 million. While equity needs may vary from year to year, depending on our CapEx profile, we believe our current plan can be supported by our ATM. Stepping back, I want to emphasize the flexibility of our financing plan. With multiple levers to execute our capital program and navigate changing market conditions. Combined with our regulatory strategy and disciplined approach to capital allocation, we believe we are well positioned to continue delivering value for both customers and shareholders.

Your first question comes from Konstantin Lednev with Wells Fargo. Please go ahead.

Bancorp BTIG. Please go ahead.