Discontinued Operations

6 Months Ended

Jun. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

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

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	)

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	)

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	)