NW Natural Shoring Up Hydrogen, RNG Investments as Natural Gas Costs Nearly Double

As Portland, OR-based utility NW Natural continues hydrogen testing, management put the spotlight on investments into renewable natural gas (RNG) during the quarterly earnings update.

Through separate contracts with Archaea Energy Inc., BP Products North America Inc. and Element Markets LLC, NW Natural has procured about 2.1 MMBtu of RNG. When paired with investments to date totaling around $76 million, the utility could purchase or develop enough RNG to support 3% of its Oregon supply, management noted. 

This includes the NW Natural Renewables unit’s partnership with Energy Developments Ltd., and investments into “two RNG facilities and a 20-year RNG supply agreement,” said NW Natural Holding Co. CEO David Anderson. Both facilities are scheduled to be placed into service in early 2023, with the company “pursuing incremental opportunities and putting the final touches on the business plan.”

RNG would play a “critical” part of the utility’s goal of carbon neutrality by 2050, Anderson said. All three of the utility’s planning scenarios achieve more than one-third of greenhouse gas (GHG) savings using RNG. 

On the hydrogen front, the company has partnered with Modern Electron that would use natural gas and air to generate turquoise hydrogen and solid carbon. The pilot is based at the Portland facility and could go live in early 2023, Anderson said. 

In addition, the utility filed with the Oregon Public Utilities Commission in July to approve recovering the cost of a project through a partnership with the Eugene Water and Electric Board and the Bonneville Environmental Foundation. The team is working “on the scoping of a 1 MW power-to-gas facility” that would “blend 5% clean hydrogen into a dedicated section” at the Eugene, OR, distribution service system, which serves about 2,500 customers, Anderson said. 

“If approved, this Eugene project could be Oregon’s first clean hydrogen production facility, serving to demonstrate the applications of this versatile energy source, and the important role it will play in decarbonizing both the gas and electric systems,” hen added. 

NW Natural provides natural gas service to about 2.5 million people via 780,000-plus meters in Oregon and Southwest Washington.

According to the utility’s carbon neutrality plans, hydrogen use could account for 20-58% of GHG emissions saved by 2050, depending on the availability of RNG and energy efficiency savings. 

“We’re committed to preparing our system and employees for any changes and equipment operations and training that working with a blended gas might require,” Anderson said. 

Prepping For ‘Headwinds’

NW Natural saw gains over the quarter compared with the year-ago period, CFO Frank Burkhartsmeyer said, noting “improvement over last year was driven by our gas utilities. Utility margin in the gas distribution segment increased $2.3 million as a result of customer growth and new rates, which collectively contributed $1.7 million.”

NW Natural gained more than 10,200 new customers over the last 12 months, a growth rate of about 1.3%, Anderson noted during the call. 

Utility operations and management (O&M) expenses increased $3 million, or 6%, “reflecting higher contractor costs for safety and reliability projects, professional services and information technology costs,” Burkhartsmeyer said. 

Speaking to inflationary pressures on O&M moving into 2023, Burkhartsmeyer told analysts the utility is “being more proactive, we’re extending our orders out, we’re building up our inventories and such, as you might expect.”

While the utility is currently “not seeing any tremendous disruptions at this point just from inflation,” Burkhartsmeyer said. “We will, over time…see more of that as our local contracts and our labor agreements and all of those reprice over time, we will see some of that inflation come through, but I think it’s over a manageable structure.”

With interest rates rising, there are some “headwinds,” however, NW Natural “put in place some cost-control measures that have allowed us to get a head start on that and not overreact,” Burkhartsmeyer said. “So we feel like we’ve got a really good…program in place there to manage through this year on that.”

Also in the face of growth stood a 94% increase in the cost of gas to more than $79.7 million in 2Q2022, compared with almost $41.2 million for the year-ago period. 

For 2Q2022, NW Natural reported net income of $1.7 million (5 cents/share), up from the year-ago period net loss of $700,000 (minus 2 cents). 

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