Good morning, and welcome to the NW Natural Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nikki Sparley. Please go ahead.

Thank you, Emily. Good morning, and welcome to our third quarter 2020 earnings call. As a reminder, some of the things that will be said this morning contain forward-looking statements. They are based on management's assumptions, which may or may not occur. In addition, some of our comments today, reference non-GAAP adjusted measures. For a complete reconciliation of these measures and other cautionary statements, please refer to the language and reconciliation at the end of our press release. We expect to file our 10-Q later today. As mentioned, this teleconference is being recorded and will be available on our website following the call. Please note these calls are designed for the financial community. If you are an investor and have additional questions after the call, you may contact me directly at (503) 721-2530. News media may contact Melissa Moore at (503) 220-2436. Speaking this morning are David Anderson, President and Chief Executive Officer; and Frank Burkhartsmeyer, Senior Vice President and Chief Financial Officer. David and Frank have prepared remarks and then will be available, along with other members of our executive team, to answer your questions. With that, I will turn it over to David.

Thanks, Nikki, and good morning and welcome. I hope that this call finds you safe and well. Like all of you, we continue to navigate these unusual times. In addition to COVID in September. Oregon dealt with wildfires. Our gas system was resilient and minimally impacted, but as with any event, we took proactive steps to ensure the safety of our customers and coordinated closely with fire commanders. I personally want to thank all of our employees for their hard work here and, of course, the first responders for all of their efforts during those unusual times. Moving to a few economic updates. It is important to remember where we stood in February before the pandemic started. At that time, we had a fundamentally sound, sustainable growing economy with record low unemployment, both nationally and in our service territories. As discussed in previous earnings calls, COVID impacts affected the Northwest like the rest of the country, but we've seen some economic improvement in recent months. For example, Oregon's unemployment rate was 8% in September, essentially matching the national rate. That's down from a 14.9% high in April. Job growth in Oregon bounced back to positive territory in the second quarter of this year and has sustained an upward climb through September. In the Portland metro region, year-to-date closed home sales were up 3.1% from 2019 with stronger year-over-year price growth of about 10%. New single-family permits issued this year are close to where we were in 2019. That's much better than what was generally expected this spring. As a result, we have connected over 13,800 meters during the last 12 months ended September 30 and that's 300 more meters than we added this time last year. Our overall customer growth rate is 1.9% for the 12 months ended September and…

Thank you, David, and good morning, everyone. I will begin by discussing the financial impacts of COVID-19 and the highlights of the third quarter and year-to-date results and conclude with guidance for 2020. As David noted, the Oregon Commission recently approved a COVID-19 term sheet that outlines the types of revenues and costs that may be recovered. These include PPE, bad debt expense, financing costs associated with additional liquidity and certain lost revenues. Direct expense reduction, such as lower travel and meals and entertainment are to be netted against the deferral. Prudency review and recovery of the deferral accounts will be determined at a future proceeding. While our business model is resilient, we are experiencing some financial impacts related to the pandemic. Through September 30, we have incurred an estimated $7 million of incremental cost and lower revenue. In the third quarter, we recognized a $3.1 million regulatory asset for Oregon costs incurred to date. Utilities are also allowed to recover late fee revenue that has not been charged to customers since the suspension of normal collection processes. However, this revenue will be recognized in the future period when we begin to recover the foregone fees through rates. At the end of September, this revenue totaled approximately $1 million. In summary, of the $7 million of total financial impact as of September 30, we expect to recover $4.4 million through rates under these orders with $3.1 million deferred in the third quarter. In addition to these deferrals, in order to further mitigate the financial effects of the pandemic, we initiated temporary cost-savings measures, which provided approximately $2 million of savings for the third quarter and year-to-date. Switching now to our detailed financial results. I'll describe earnings drivers on an after-tax basis using the statutory tax rate of 26.5%. The return…

Thanks, Frank. While the year has held many challenges, we persevered and accomplished many important things in terms of customer service, safety and mitigating the pandemic effects. At the same time, we're also advancing key long-term objectives that includes aggressively pursuing a renewable future and a carbon-neutral vision for our gas utility by 2050. Today, with no cast iron or bare steel, we have one of the tightest systems in the country. We use that tight system to deliver more energy in Oregon than any other utility each year. In fact, the existing gas system has provided nearly twice as much energy on a peak heating day as the electric system, and yet the use of natural gas in our customers' homes and businesses accounts for just 6% of Oregon's greenhouse gas emissions annually. That's a very efficient delivery of a lot of energy, but we know we can do better, which is why we established a voluntary carbon savings goal of 30% by 2035 for emissions from our own operations and our sales customers' usage. 2 years in, I'm pleased to report we're on track to meet or exceed this goal. In 2019, we achieved 21% of the savings needed to meet this goal. That's equivalent to removing over 60,000 cars from the road. So far savings from -- have come from 3 main areas. First, energy efficiency is the fastest and cheapest way to reduce emissions and a long-standing priority for Northwest Natural. Back in 2002, we were one of the first gas utilities in the country to obtain a decoupling mechanism, which supports the energy efficiency move. Second, our carbon offset program also plays a vital role and was a strong contributor to the savings. In 2007, Northwest Natural was the first stand-alone gas facility in the…

[Operator Instructions] Our first question comes from Richard Ciciarelli at Bank of America.

This is actually Harry on for Richard. So starting off, you talked about higher earnings from your water utilities in 3Q contributing to the quarter. Your other segment increased $0.08 year-over-year. Can you provide some more details around the earnings composition of that other segment? And as it pertains to your water utilities, over the longer term, do you think we could see the water utility potentially growing faster than the gas, obviously, business?

Thanks, Richie -- or Harry, sorry. It's Frank here. Yes, of course, we don't yet break out the water utility segment as a stand-alone and you have some of the optimization and holding company costs in there, but the primary driver quarter-over-quarter was the acquisition of the additional Washington and Texas assets that we announced earlier. So that was the driver. I think that's where -- we haven't announced any more acquisitions from that point. So what you're seeing there year-to-date is pretty good representation of what's going on. Third quarter is a good quarter for the water business. It's a high usage period. So the year-to-date number in there is representative, I think. There has been a little bit of softening year-over-year on some of the optimization as well. And we always -- because business development costs kind of can go up and down depending on the level of activities, you'll see a little bit of volatility in there.

Harry, the only thing I'll add to that is one of the things that the thesis on our water is proving out is that once we've acquired these assets, we are finding, number one, a lot of them do have a good solid growth underlying; and number two, is we are seeing additional investment opportunity and we've kind of laid that in our IR deck. So the rate base growth is proving to be beneficial. So to your point about earnings growth going forward, we're seeing it being a very nice match to our underlying gas utility that continues to have good investment opportunity overall. So the thesis is playing out as we had hoped along that front.

Got it. That's nice to hear. I guess turning back to your gas utility thing about a month or so into 4Q, how are things trending into the peak winter heating season in the face of COVID here of being a critical quarter for you guys, obviously, to execute guidance? So any update on trends heading into winter heating season will be helpful.

Yes. I mean, obviously, like all the country we're experiencing the COVID effects. And so there are some businesses and customers are having trouble and that's the good news of the commission working through the various term sheets on how we get back to normal over a period of time, which most of that will occur in the first quarter. So we continue to watch things closely, but we are getting into the winter heating season for us, which is important. The good news is the right cases done, our PGA is done so that all of that is in place, which is a driver for some of those results and, of course, weather will be -- even though we're weather normalized in most of our territory, there is still an impact from weather usage there. So it seems to be -- again, we've seen some impacts from COVID. I think more will have to watch very carefully, but it also -- I think it's real critical to see what happens at the national level, whether we have a stimulus program that comes out of Congress like we did with the first one that greatly helped businesses and individuals. But we've really -- Harry, it's kind of going along to what we've seen on plan that we've seen some customers obviously having trouble. But as we continue and we're still seeing in the housing market being, frankly, fairly strong, it's just interesting. So I don't know that directly answers your question, but I think we're about as well prepared as we possibly can be.

Got it. That makes sense. I mean if I could sneak in one more. You touched on the RNG, RFP that you issued, just any update there and how discussions are trending? And does this relate to the renewable hydrogen project you talked about in the press release this morning?

Let me have Kim tackle that -- Kim Heiting, one of our Senior VPs, tackle the hydrogen. And then Justin Palfreyman is on the phone. I'll have him give a little bit of an update on the RNG, RFP. Kim?

Yes. So we recently announced our Eugene project with Eugene Water and Electric Board and Bonneville Environmental Foundation, as David mentioned. This is really an exciting demonstration project. We're hoping it can be up to a 10-megawatt project. The plan is to use excess renewables from the U.S portfolio and our portion of the project would be to use waste CO2 from some local industrials to methanoate that renewable hydrogen and then flow it into our system. We're viewing this is an important part of our evolution around hydrogen. We're still seeking partners, but we have a site selected. We've put together a technical team. They're starting on their plan for the project. In parallel to that, we have a team out at our training center doing some pure hydrogen blending work, blending up to 5% into sort of an isolated system that we've created. We're really pleased with the testing so far. Going into this year, we're going to be testing the 5% blend on some end-user equipment at that facility. So between the Eugene project and some of our own hydrogen blending testing, we're very excited about where all of this is evolving and we're watching what's going on in Europe and Canada very closely. So I'll turn it over to Justin to maybe touch on the status of the RFP.

Yes. Thanks, Harry. The RFP was -- we received a robust response to our proposed -- our RFP back in September, and it's a little too early to announce exactly where that's going to head as we continue to conduct due diligence on some of the responses we received and negotiate agreements. But we do expect that it will result in some contracts that we execute for renewable natural gas. And in parallel with that, we continue to evaluate investment opportunities through SB98 to invest directly in renewable natural gas projects. So we expect over time, we'll end up with a portfolio of some renewable gas purchase agreements and then some direct investments that we make into renewable natural gas. And I think your question around whether or not the hydrogen project was separate or related to our RNG, RFP, it is. They are 2 separate projects. They are related only in that. They both will have a meaningful impact on our carbon savings goal, but they are 2 separate projects and workstreams within the company.

Well, it looks like there's no more questions in the queue, Emily. So we'll go ahead and shut it down here. I know everybody is really busy and watching election results and getting ready for other conferences. I really want to thank you for joining us today. If you do have follow-up questions, please reach out to Nikki as she indicated. She will be happy to go into additional details to help you understand the quarter and the year-to-date. So with that, Emily, we will close the call down. Everybody, please be safe, and again thank you for your time today.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.