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 our 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 NGD, which are aggregated and reported as other and described below for each entity.

No individual customer accounts for over 10% of NW Holdings' or NW Natural's operating revenues.

Natural Gas Distribution

The NGD 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. With regulated utility operations, NW Natural is responsible for building and maintaining a safe and reliable pipeline distribution system, purchasing sufficient gas supplies from producers and marketers, contracting for firm and interruptible transportation of gas over interstate pipelines to bring gas from the supply basins into its service territory, and re-selling the gas to customers subject to rates, terms, and conditions approved by the OPUC or WUTC. NGD also includes taking customer-owned gas and transporting it from interstate pipeline connections, or city gates, to the customers’ end-use facilities for a fee, which is approved by the OPUC or WUTC. Approximately 89% of NGD customers are located in Oregon and 11% in Washington. On an annual basis, residential and commercial customers typically account for around 60% of total NGD volumes delivered and around 90% of NGD margin. Industrial customers largely account for the remaining volumes and NGD margin. A small amount of the margin is also derived from miscellaneous services, gains or losses from an incentive gas cost sharing mechanism, and other service fees.

Industrial sectors served by NW Natural include: pulp, paper, and other forest products; the manufacture of electronic, electrochemical and electrometallurgical products; the processing of farm and food products; the production of various mineral products; metal fabrication and casting; the production of machine tools, machinery, and textiles; the manufacture of asphalt, concrete, and rubber; printing and publishing; nurseries; and government and educational institutions.

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 activities included in Other includes 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. Historically, under the Oregon sharing mechanism, NW Natural retained 80% of the pre-tax income from these services when the costs of the capacity were not included in NGD rates, or 33% of the pre-tax income when the costs have been included in these rates. The remaining 20% and 67%, respectively, were recorded to a deferred regulatory account for crediting back to NGD customers. After November 1, 2018 NW Natural retains 10% of the pre-tax income when the costs have been included in these rates, and the remaining 90% is recorded to a deferred regulatory account for crediting back to NGD customers.

NW Holdings

NW Holdings' activities included in Other includes all remaining activities not associated with NW Natural, specifically NWN Water, which consolidates the water operations and is pursuing other investments in the water sector itself and through its 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 13. 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 continued operations. See Note 18 for information regarding discontinued operations for NW Holdings and NW Natural.



In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)			NW Holdings
2018
Operating revenues	$	680,648	$	24,923	$	705,571	$	572		$	706,143
Depreciation and amortization	83,732		1,254		84,986		170			85,156
Income (loss) from operations	118,095		15,004		133,099		(937		)	132,162
Net income (loss) from continuing operations	57,491		10,558		68,049		(738		)	67,311
Capital expenditures	212,323		2,005		214,328		308			214,636
Total assets at December 31, 2018⁽²⁾	3,141,969		50,767		3,192,736		36,657			3,229,393
2017
Operating revenues	$	732,942	$	22,096	$	755,038	$	—		$	755,038
Depreciation and amortization	79,734		1,290		81,024		29			81,053
Income (loss) from operations	138,450		12,472		150,922		(20		)	150,902
Net income from continuing operations⁽¹⁾	60,509		11,211		71,720		353			72,073
Capital expenditures	211,672		1,653		213,325		—			213,325
Total assets at December 31, 2017⁽²⁾	2,961,326		50,471		3,011,797		14,075			3,025,872
2016
Operating revenues	$	650,477	$	17,472	$	667,949	$	224		$	668,173
Depreciation and amortization	76,289		1,286		77,575		29			77,604
Income (loss) from operations	137,178		14,109		151,287		(570		)	150,717
Net income (loss) from continuing operations⁽³⁾	54,567		8,268		62,835		(416		)	62,419
Capital expenditures	138,074		283		138,357		—			138,357
Total assets at December 31, 2016⁽²⁾	2,806,627		48,719		2,855,346		14,040			2,869,386


⁽¹⁾	Includes $1.0 million of tax expense in NGD, $4.0 million of tax benefit in Other (NW Natural), and $0.4 million of tax benefit in Other (NW Holdings) from the TCJA remeasurement for the year ended December 31, 2017.


⁽²⁾	Total assets for NW Holdings exclude assets related to discontinued operations of $13.3 million, $13.9 million and $210.4 million as of December 31, 2018, 2017, and 2016, respectively. Total assets for NW Natural exclude assets related to discontinued operations of $31.9 million and $226.1 million as of December 31, 2017, and 2016, respectively.


⁽³⁾	Includes $2.0 million in 2016 of after-tax regulatory environmental disallowance charges in NGD.

Natural Gas Distribution Margin

NGD margin is a financial measure used by the CODM, consisting of NGD operating revenues, reduced by the associated cost of gas, environmental recovery revenues, 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 recovery revenues represent collections received from customers through the environmental recovery mechanism in Oregon. These collections are offset by the amortization of environmental liabilities, which is presented as environmental remediation expense 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:



In thousands	2018		2017		2016
NGD margin calculation:
NGD operating revenues	$	680,648	$	732,942	$	650,477
Less: NGD cost of gas	255,743		325,019		260,588
Environmental remediation expense	11,127		15,291		13,298
Revenue taxes⁽¹⁾	30,082		—		—
NGD margin	$	383,696	$	392,632	$	376,591


⁽¹⁾	The change in presentation of revenue taxes was a result of the adoption of ASU 2014-09 "Revenue From Contracts with Customers" and all related amendments on January 1, 2018. This change had no impact on NGD margin results as revenue taxes were previously presented net in NGD operating revenue. For additional information, see Note 2.