Leasing revenue primarily consists of NW Natural's North Mist natural gas storage agreement with Portland General Electric (PGE) which is billed under an OPUC-approved rate schedule and includes an initial 30-year term with options to extend, totaling up to an additional 50 years upon mutual agreement of the parties. Under U.S. GAAP, this agreement is classified as a sales-type lease and qualifies for regulatory accounting deferral treatment. The investment in the storage facility is included in rate base under a separately established cost-of-service tariff, with revenues recognized according to the tariff schedule. As

such, the selling profit that was calculated upon commencement as part of the sale-type lease recognition was deferred and will be amortized over the lease term. Billing rates under the cost-of-service tariff will be updated annually to reflect current information including depreciable asset levels, forecasted operating expenses, and the results of regulatory proceedings, as applicable, and revenue received under this agreement is recognized as operating revenue on the consolidated statements of comprehensive income. There are no variable payments or residual value guarantees. The lease does not contain an option to purchase the underlying assets.

NW Natural also maintains a sales-type lease for specialized compressor facilities to provide high pressure compressed natural gas (CNG) services. Lease payments are outlined in an OPUC-approved rate schedule over a 10-year term. There are no variable payments or residual value guarantees. The selling profit computed upon lease commencement was not significant.

Our lessor portfolio also contains small leases of property owned by NW Natural to third parties. These transactions are accounted for as operating leases and the revenue is recognized over the term of the lease agreement.



In thousands	Operating		Sales-Type		Total
Remainder of 2020	$	56	$	13,603	$	13,659
2021	49		17,518		17,567
2022	45		17,026		17,071
2023	45		16,557		16,602
2024	45		15,867		15,912
Thereafter	94		266,563		266,657
Total lease revenue	$	334	$	347,134	$	347,468
Less: imputed interest			199,041
Total leases receivable			$	148,093

The total leases receivable above is reported under the NGD segment and the short- and long-term portions are included within other current assets and assets under sales-type leases on the consolidated balance sheets, respectively. The total amount of unguaranteed residual assets was $4.1 million and $4.0 million at March 31, 2020 and December 31, 2019, respectively, and is included in assets under sales-type leases on the consolidated balance sheets. Additionally, under regulatory accounting, the revenues and expenses associated with these agreements are presented on the consolidated statements of comprehensive income such that their presentation aligns with similar regulated activities at NW Natural.

We have operating leases for land, buildings and equipment. Our primary lease is for NW Natural's corporate operations center. Our leases have remaining lease terms of less than one year to 20 years. Many of our lease agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Short-term leases with a term of 12 months or less are not recorded on the balance sheet. As most of our leases do not provide an implicit rate and are entered into by NW Natural, we use an estimated discount rate representing the rate we would have incurred to finance the funds necessary to purchase the leased asset and is based on information available at the lease commencement date in determining the present value of lease payments.



	Three Months Ended March 31,
In thousands	2020		2019
NW Natural:
Operating lease expense	$	1,202	1,142
Short-term lease expense	198		160

Other (NW Holdings):
Operating lease expense	$	52	46
Short-term lease expense	—		—

NW Holdings:
Operating lease expense	$	1,254	1,188
Short-term lease expense	198		160



In thousands	March 31,				December 31,
	2020		2019		2019
NW Natural:
Operating lease right of use asset	$	79,383	$	5,903	$	2,760

Operating lease liabilities - current liabilities	$	984	$	4,477	$	1,979
Operating lease liabilities - non-current liabilities	79,052		1,413		772
Total operating lease liabilities	$	80,036	$	5,890	$	2,751

Other (NW Holdings):
Operating lease right of use asset	$	139	$	260	$	190

Operating lease liabilities - current liabilities	$	87	$	179	$	122
Operating lease liabilities - non-current liabilities	53		82		69
Total operating lease liabilities	$	140	$	261	$	191

NW Holdings:
Operating lease right of use asset	$	79,522	$	6,163	$	2,950

Operating lease liabilities - current liabilities	$	1,071	$	4,656	$	2,101
Operating lease liabilities - non-current liabilities	79,105		1,495		841
Total operating lease liabilities	$	80,176	$	6,151	$	2,942

In October 2017, NW Natural entered into a 20-year operating lease agreement for a new corporate operations center in Portland, Oregon in anticipation of the expiration of the current corporate operations center lease in 2020. The lease

commenced in March 2020 upon substantial completion of the landlord's work. Total estimated base rent payments over the life of the lease are $159.3 million. There is an option to extend the term of the lease for two additional periods of seven years.

There is a material timing difference between the minimum lease payments and expense recognition as calculated under operating lease accounting rules. OPUC issued an order allowing us to align our expense recognition with cash payments for ratemaking purposes. We recorded the difference between the minimum lease payments and the aggregate of the imputed interest on the finance lease obligation and amortization of the right-of-use asset as a deferred regulatory asset on our balance sheet. The balance of the regulatory asset as of March 31, 2020 was $0.6 million.



In thousands	NW Natural		Other (NW Holdings)		NW Holdings
Remainder of 2020	$	3,117	$	74	$	3,191
2021	6,726		52		6,778
2022	6,848		18		6,866
2023	6,983		—		6,983
2024	7,146		—		7,146
Thereafter	130,935		—		130,935
Total lease payments	161,755		144		161,899
Less: imputed interest	81,719		4		81,723
Total lease obligations	80,036		140		80,176
Less: current obligations	984		87		1,071
Long-term lease obligations	$	79,052	$	53	$	79,105

Supplemental cash flow information related to leases was as follows:



	Three Months Ended March 31,
In thousands	2020		2019
NW Natural:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,196	$	1,091
Finance cash flows from finance leases	155		—
Right of use assets obtained in exchange for lease obligations
Operating leases	$	77,988	$	6,987
Finance leases	233		—

Other (NW Holdings):
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	52	$	43
Right of use assets obtained in exchange for lease obligations
Operating leases	$	—	$	304

NW Holdings:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,248	$	1,134
Finance cash flows from finance leases	155		—
Right of use assets obtained in exchange for lease obligations
Operating leases	$	77,988	$	7,291
Finance leases	233		—