Discontinued Operations

9 Months Ended

Sep. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

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, other customary closing conditions and covenants, including the requirement that all of the representations and warranties be true and correct as of the closing date except, as would not, in the case of certain representations and warranties, be reasonably expected to have a material adverse effect on Gill Ranch. The agreement is currently subject to termination by either party if the transaction has not closed by December 20, 2019. The parties are considering an extension of this date in the event CPUC approval is not obtained by that time.

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. One of the parties to the settlement agreement, the CPUC's Office of the Safety Advocate, has filed to withdraw from the settlement and currently opposes approval of the application. On October 31, 2019, the CPUC Administrative Law Judge issued a proposed decision approving the transaction, which must be approved by the CPUC to be effective. A CPUC ruling on the proposed decision is expected in late 2019 or early 2020. We continue to strive to close this transaction.

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
	September 30,				December 31,
In thousands	2019		2018		2018
Assets:
Accounts receivable	$	907	$	395	$	390
Inventories	712		661		685
Other current assets	45		107		333
Property, plant, and equipment	12,589		11,241		11,621
Less: Accumulated depreciation	6		7		7
Operating lease right of use asset	118		—		—
Other non-current assets	247		247		247
Total discontinued operations assets - current assets (1)	$	14,612	$	12,644	$	13,269
Liabilities:
Accounts payable	$	1,375	$	751	$	873
Other current liabilities	342		405		307
Operating lease liabilities	114		—		—
Other non-current liabilities	11,568		11,847		11,779
Total discontinued operations liabilities - current liabilities (1)	$	13,399	$	13,003	$	12,959

⁽¹⁾ The total assets and liabilities of Gill Ranch are classified as current as of September 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 September 30,						Nine Months Ended September 30,
In thousands, except per share data	2019			2018			2019			2018
Revenues	$	1,410		$	748		$	4,879		$	2,831
Expenses:
Operations and maintenance	2,113			1,549			6,377			4,139
General taxes	40			(261		)	159			419
Depreciation and amortization	105			106			317			324
Other expenses and interest	233			237			699			371
Total expenses	2,491			1,631			7,552			5,253
Loss from discontinued operations before income taxes	(1,081		)	(883		)	(2,673		)	(2,422		)
Income tax benefit	(286		)	(233		)	(705		)	(639		)
Loss from discontinued operations, net of tax	$	(795	)	$	(650	)	$	(1,968	)	$	(1,783	)
Loss from discontinued operations per share of common stock:
Basic	$	(0.02	)	$	(0.02	)	$	(0.07	)	$	(0.06	)
Diluted	$	(0.02	)	$	(0.02	)	$	(0.07	)	$	(0.06	)

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	September 30, 2018
Assets:
Cash	$	21,079
Accounts receivable	517
Receivables from affiliates	3,791
Inventories	679
Other current assets	161
Property, plant, and equipment	14,732
Less: Accumulated depreciation	221
Other investments	13,654
Goodwill	6,563
Other non-current assets	351
Discontinued operations - current assets	26,227
Discontinued operations - non-current assets	35,079
Total discontinued operations assets	$	61,306
Liabilities:
Accounts payable	$	1,292
Taxes accrued	99
Payables to affiliates	939
Other current liabilities	1,439
Long-term debt	834
Deferred tax liabilities	(14,696		)
Other non-current liabilities	11,932
Discontinued operations - current liabilities	3,769
Discontinued operations - non-current liabilities	(1,930		)
Total discontinued operations liabilities	$	1,839

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 September 30,			Nine Months Ended September 30,
In thousands	2018			2018
Revenues	$	818		$	3,016
Expenses:
Operations and maintenance	1,408			4,151
General taxes, net	(255		)	448
Depreciation and amortization	138			420
Other expenses and interest	232			342
Total expenses	1,523			5,361
Loss from discontinued operations before income taxes	(705		)	(2,345		)
Income tax benefit	(186		)	(622		)
Loss from discontinued operations, net of tax	$	(519	)	$	(1,723	)