Segment Information

9 Months Ended

Sep. 30, 2019

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.

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, including certain business development activities.

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 segment and other of continuing operations. See Note 18 for information regarding discontinued operations for NW Holdings and NW Natural.



	Three Months Ended September 30,
In thousands	NGD			Other (NW Natural)		NW Natural			Other (NW Holdings)			NW Holdings
2019
Operating revenues	$	83,063		$	4,529	$	87,592		$	2,725		$	90,317
Depreciation and amortization	22,830			244		23,074			301			23,375
Income (loss) from operations	(11,580		)	2,761		(8,819		)	(815		)	(9,634		)
Net income (loss) from continuing operations	(19,570		)	1,982		(17,588		)	(918		)	(18,506		)
Capital expenditures	60,596			644		61,240			606			61,846
2018
Operating revenues	$	85,077		$	6,150	$	91,227		$	12		91,239
Depreciation and amortization	21,127			327		21,454			31			21,485
Income (loss) from operations	(9,780		)	3,499		(6,281		)	170			(6,111		)
Net income (loss) from continuing operations	(11,983		)	708		(11,275		)	131			(11,144		)
Capital expenditures	55,914			511		56,425			—			56,425



	Nine Months Ended September 30,
In thousands	NGD		Other (NW Natural)		NW Natural		Other (NW Holdings)			NW Holdings
2019
Operating revenues	$	480,088	$	14,592	$	494,680	$	4,428		$	499,108
Depreciation and amortization	66,071		750		66,821		513			67,334
Income (loss) from operations	75,975		9,090		85,065		(2,556		)	82,509
Net income (loss) from continuing operations	22,848		6,513		29,361		(2,398		)	26,963
Capital expenditures	151,114		801		151,915		1,078			152,993
Total assets at September 30, 2019⁽¹⁾	3,101,372		48,269		3,149,641		87,365			3,237,006
2018
Operating revenues	$	461,525	$	17,900	$	479,425	$	16		$	479,441
Depreciation and amortization	62,436		976		63,412		95			63,507
Income from operations	59,521		10,341		69,862		47			69,909
Net income from continuing operations	24,930		5,538		30,468		60			30,528
Capital expenditures	156,609		2,186		158,795		—			158,795
Total assets at September 30, 2018⁽¹⁾	2,972,395		51,886		3,024,281		44,482			3,068,763
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 $14.6 million, $12.6 million, and $13.3 million as of September 30, 2019, September 30, 2018, and December 31, 2018, respectively. Total assets for NW Natural exclude assets related to discontinued operations of $61.3 million as of September 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 when applicable. This is offset by environmental remediation expense presented 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 September 30,				Nine Months Ended September 30,
In thousands	2019		2018		2019		2018
NGD margin calculation:
NGD distribution revenues	$	77,916	$	84,965	$	472,691	$	461,306
Other regulated services	5,147		112		7,397		219
Total NGD operating revenues	83,063		85,077		480,088		461,525
Less: NGD cost of gas	22,659		25,593		163,335		175,864
Environmental remediation	967		1,022		7,258		7,528
Revenue taxes	3,534		3,522		19,956		20,731
NGD margin	$	55,903	$	54,940	$	289,539	$	257,402