Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Q2 2023 Earnings Presentation
54 slides from Northwestern Energy's earnings presentation, Jul 26, 2023
Slide 1: 2023 Second Quarter Earnings Webcast
Beethoven Wind, South Dakota 2023 Second Quarter Earnings Webcast July 26, 2023 8-K July 24, 2023
Slide 2: Presenting Today / Forward Looking Statements
Presenting Today Brian Bird Crystal Lail President & CEO Vice President & CFO Forward Looking Statements During the course of this presentation, there will be forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forwar
Slide 3: Second Quarter
Second Quarter Regulatory execution • Filed South Dakota electric rate review • Reached constructive multi-party settlement in Montana rate review (currently pending commission approval) Yellowstone County Generating Station • Legislative and judicial support for construction. After initial paus
Slide 4: Second Quarter 2023 Financial Results
Second Quarter 2023 Financial Results Second Quarter Net Income vs Prior Period •GAAP: ↓ $10.7 Million (or 35.9%) •Non-GAAP*: ↓ $9.7 Million (or 32.2%) •Non-GAAP Pro Forma: ↓ $0.8 Million (or 2.7%) (Impact if MT Rate Review Settlement approved as filed) Second Quarter EPS vs Prior Period •GAAP: ↓ $0
Slide 5: Year-to-Date 2023 Financial Results
Year-to-Date 2023 Financial Results Year-to-Date Net Income vs Prior Period •GAAP: ↓ $7.3 Million (or 8.2%) •Non-GAAP*: ↓ $6.3 Million (or 7.0%) •Non-GAAP Pro Forma: ↑ $14.3 Million (or 15.9%) (Impact if MT Rate Review Settlement approved as filed) Year-to-Date EPS vs Prior Period •GAAP: ↓ $0.25 (or
Slide 6: Second Quarter Financial Results
Second Quarter Financial Results (1) (2) (1) Decrease in revenues is primarily related to pass-through supply costs and non-cash regulatory amortizations. (2) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. 6
Slide 7: Second Quarter EPS Bridge
Second Quarter EPS Bridge After-tax Earnings Per Share Improvement in Utility Margin offset by higher expenses and share count dilution. See slide 10 and “Non-GAAP Financial Measures” slide in Change in Items impacting the appendix for additional Net Income detail on this measure. 7
Slide 8: Second Quarter Utility Margin Bridge
Second Quarter Utility Margin Bridge Pre-tax Millions $2.9 Million or 1.3% increase in Utility Margin NOTE: Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility due to items that impact Net Income. Margin” for additional disclosure. 8
Slide 9: Second Quarter OA&G Bridge
Second Quarter OA&G Bridge Pre-tax Millions $7.2 Million or 8.9% increase in OA&G Expense NOTE: Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility due to items that impact Net Income. Margin” for additional disclosure. 9
Slide 10: Second Quarter Non-GAAP Earnings
Second Quarter Non-GAAP Earnings Three Months Ended June 30, Non-GAAP Adjustments Non-GAAP Adjustments Non Non-GAAP Non GAAP GAAP GAAP Variance GAAP The adjusted Community Renewable Energy Project (1) (1) non-GAAP measures Move Pension Expense to OG&A Move Pension Expense to OG&A (disaggregated with
Slide 11: Cash Flow
Cash Flow Cash from Operating Activities increased by $61 million driven by a $62.1 million increase in collection of energy supply costs from customers. Funds from Operations decreased by $10.3 million over prior period. Net Under-Collected Supply Costs (in millions) Beginning Ending Inflow (Jan. 1
Slide 12: Financial Outlook
Financial Outlook 2023 earnings guidance is expected to Rowe Dam at Mystic Lake, Montana be provided following an outcome in our pending Montana rate review Anticipate constructive and collaborative process with commission and staff in the South Dakota review $510 million capital plan for 2023 (i
Slide 13: Montana Rate Review
Montana Rate Review Interim Rates Settlement Reached Anticipated Next Steps The MPSC approved the On April 3rd, NWE and the primary intervenors • Post-hearing briefing concluded recommendations of the staff for reached a Settlement Agreement for electric and in June 2023. interim rates, subject to r
Slide 14: South Dakota Rate Review
South Dakota Rate Review Request to update our rates to reflect the current cost to provide safe and reliable service to our customers • First rate review since 2015. Seeking recovery of nearly 30 percent of rate base that is not included in South Dakota electric rates today. • Requested base rate i
Slide 15: Capital Investment
Capital Investment ($millions, unless stated otherwise) 5 Year History of Capital Investment 5 Year Forecast of Capital Investment Yellowstone County Generating Station Over $2.1 Billion investment* over last 5 years $2.4 billion of forecasted low-risk capital investment opportunity… • Capital inves
Slide 16: Conclusion
Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects 16
Slide 17: Appendix
CT Appendix 17
Slide 18: Regulated Utility Five-Year Capital Forecast
Appendix Regulated Utility Five-Year Capital Forecast Electric Supply Resource Plans - Our energy resource plans identify portfolio resource requirements including potential investments. Included within our projections is approximately $120.0 million (in 2023 and 2024) of capital to complete constru
Slide 19: Rate Base & Authorized Return Summary
Appendix Rate Base & Authorized Return Summary (1) The revenue requirement associated with the FERC regulated portion of Montana electric transmission and ancillary services are included as revenue credits to our MPSC jurisdictional customers. Therefore, we do not separately reflect FERC authorized
Slide 20: South Dakota & Montana Rate Review
Appendix South Dakota & Montana Rate Review 20
Slide 21: South Dakota Rate Review
Appendix South Dakota Rate Review Infrastructure investment drives nearly 99%* of the requested base rate adjustment 21 * $19.0 million Cost of Capital plus $17.2 million Infrastructure Investment as a percent of $36.6 million Total Change in Cost of Service.
Slide 22: South Dakota Rate Review: Electric
Appendix South Dakota Rate Review Electric $19.14 Per month Increase for an average residential electric customer that uses 750 kWh if our requested rate increase is approved. 22
Slide 23: South Dakota Rate Review
Appendix South Dakota Rate Review Since our last rate adjustment, NorthWestern’s typical residential electric customer bills have maintained a pace well below inflation. This request, if granted in full, would still result in customer bills in line with inflation. 23
Slide 24: Montana Rate Review
Appendix Montana Rate Review Approximately 42% of the requested total electric and natural gas revenue increase is driven by flow-through costs including market power purchases and property taxes. 49% is driven by 24 capital investment to ensure the safety and reliability of the energy system.
Slide 25: Colstrip Transfer
Appendix Colstrip Transfer 25
Slide 26: Colstrip Transaction Overview
Appendix Colstrip Transaction Overview NorthWestern Energy executed an agreement with Avista Corporation (Exit Agreement) for the transfer of Avista’s ownership interests in Colstrip Units 3 and 4. • Effective date of transfer: December 31, 2025 • Generating capacity: 222 MW (bringing our total owne
Slide 27: Facility Ownership Overview
Appendix Facility Ownership Overview NorthWestern is actively working with the other owners to resolve outstanding issues, including the associated pending legal proceedings. Additionally, the owners intend to pursue a mutually beneficial reallocation (swap) of megawatts between the two units that w
Slide 28: Why Colstrip?
Appendix Why Colstrip? Reliable Existing resource, ready to serve our Montana customers. Avoids NorthWestern Energy executed lengthy planning, permitting and construction of a new facility that would an agreement with Avista stretch in-service beyond 2026. Corporation for the transfer of Reduces
Slide 29: Why Colstrip?
Appendix Why Colstrip? Reduces Risk We are in a supply capacity crisis due to lack of resource adequacy, with approx. 40% of our customers’ peak needs on the market. This transaction will reduce our need to import expensive capacity during critical times. Establishes clarity regarding operations
Slide 30: December 2022 Polar Vortex
Appendix December 2022 Polar Vortex The chart illustrates the actual resource specific contribution of energy, the capacity deficit we faced, and the market price of power during the late December 2022 multi-day cold weather event in Montana. As a result of our capacity deficit, we were reliant upon
Slide 31: Our Net-Zero Vision
Appendix Our Net-Zero Vision Over the past 100 years, NorthWestern Energy has maintained our commitment to provide customers with reliable and affordable electric and natural gas service while also being good stewards of the environment. We have responded to climate change, its implications and risk
Slide 32: Second Quarter and Year-to-Date Financial Information
Appendix Second Quarter and Year-to-Date Financial Information 32
Slide 33: Utility Margin (2nd Quarter)
Appendix Utility Margin (2nd Quarter) (dollars in millions) Three Months Ended June 30, 2023 2022 Variance Electric $ 186.9 $ 185.7 $ 1.2 0.6% Natural Gas 36.0 42.3 (6.3) (14.9)% (1) Total Utility Margin $ 222.9 $ 228.0 $ (5.1) (2.2)% Decrease in utility margin due to the following factors: $ 7.1 Mo
Slide 34: Operating Expenses (2nd Quarter)
Appendix Operating Expenses (2nd Quarter) (dollars in millions) (1) In order to present Three Months Ended June 30, the total change in labor and benefits, we 2023 2022 Variance have included the change in the non- service cost component Operating & maintenance $ 54.8 $ 53.3 $ 1.5 2.8% of our pensio
Slide 35: Operating to Net Income (2nd Quarter)
Appendix Operating to Net Income (2nd Quarter) (dollars in millions) Three Months Ended June 30, 2023 2022 Variance Operating Income $ 45.6 $ 52.4 $ (6.8) (13.0)% Interest expense (28.4) (24.0) (4.4) (18.3)% Other income, net 4.1 2.9 1.2 41.4% Income Before Taxes 21.3 31.2 (9.9) (31.7)% Income tax e
Slide 36: Tax Reconciliation (2nd Quarter)
Appendix Tax Reconciliation (2nd Quarter) 36
Slide 37: Segment Results (2nd Quarter)
Appendix Segment Results (2nd Quarter) (1) (1) 37 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 38: Weather / Hydro Conditions
Appendix Weather / Hydro Conditions (2nd Quarter) We estimated a $1.8 million pre-tax detriment as compared to normal and a $4.7 million detriment as compared to Q2 2022. Real-Time Streamflows versus 30-Year Normal Snow water equivalents generally in line with the 30-year medians. (Missouri, Madison
Slide 39: Electric Segment (2nd Quarter)
Appendix Electric Segment (2nd Quarter) (1) 39 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 40: Natural Gas Segment (2nd Quarter)
Appendix Natural Gas Segment (2nd Quarter) (1) 40 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 41: Utility Margin (YTD thru 2nd Quarter)
Appendix Utility Margin (YTD thru 2nd Quarter) (dollars in millions) Six Months Ended June 30, 2023 2022 Variance Electric $ 404.1 $ 379.8 $ 24.3 6.4% Natural Gas 107.9 107.5 0.4 0.4% (1) Total Utility Margin $ 512.0 $ 487.3 $ 24.7 5.1% Increase in utility margin due to the following factors: $ 15.6
Slide 42: Operating Expenses (YTD thru 2nd Quarter)
Appendix Operating Expenses (YTD thru 2nd Quarter) (dollars in millions) (1) In order to present Six Months Ended June 30, the total change in labor and benefits, we 2023 2022 Variance have included the change in the non- service cost component Operating & maintenance $ 110.7 $ 106.1 $ 4.6 4.3% of o
Slide 43: Operating to Net Income (YTD thru 2nd Quarter)
Appendix Operating to Net Income (YTD thru 2nd Quarter) (dollars in millions) Six Months Ended June 30, 2023 2022 Variance Operating Income $ 141.6 $ 131.5 $ 10.1 7.7% Interest expense (56.4) (47.7) (8.7) (18.2)% Other income, net 8.8 7.6 1.2 15.8% Income Before Taxes 94.0 91.4 2.6 2.8% Income tax e
Slide 44: Tax Reconciliation (YTD thru 2nd Quarter)
Appendix Tax Reconciliation (YTD thru 2nd Quarter) 44
Slide 45: Year-to-Date Non-GAAP Earnings
Appendix Year-to-Date Non-GAAP Earnings (YTD thru 2nd Quarter) The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that are non- recurring or a variance from normal weather, however they should not be considered a substitute for financial results and me
Slide 46: Electric Segment (YTD thru 2nd Quarter)
Appendix Electric Segment (YTD thru 2nd Quarter) (1) 46 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 47: Natural Gas Segment (YTD thru 2nd Quarter)
Appendix Natural Gas Segment (YTD thru 2nd Quarter) (1) 47 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 48: Quarterly PCCAM Impacts
Appendix Quarterly PCCAM Impacts Pre-tax Millions Q1 Q2 Q3 Q4 Full Year '17/'18 Tracker First full year recorded in Q3 $3.3 $3.3 '18/'19 Tracker ($5.1) $0.3 (4.8) In 2017, the Montana legislature 2018 (Expense) Benefit $0.0 $0.0 ($1.8) $0.3 ($1.5) revised the statute regarding our Full Year recovery
Slide 49: Qualified Facility Earnings Adjustment
Appendix Qualified Facility Earnings Adjustment Our electric QF liability consists of unrecoverable costs associated with contracts covered under PURPA that are part of a 2002 stipulation with the MPSC and other parties. Risks / losses associated with these contracts are born by shareholders, not cu
Slide 50: Balance Sheet
Appendix Balance Sheet Debt to Total Capitalization slightly below our targeted 50% - 55% range. 50
Slide 51: Explaining Utility Margin
Appendix Explaining Utility Margin Management believes that Utility Margin provides a useful measure for investors and other financial statement users to analyze our financial performance in that it excludes the effect on total revenues caused by volatility in energy costs and associated regulatory
Slide 52: Non-GAAP Financial Measures
Appendix Non-GAAP Financial Measures 52
Slide 53: Non-GAAP Financial Measures
Appendix Non-GAAP Financial Measures This presentation includes financial information prepared in accordance with GAAP, as well as other financial measures, such as Utility Margin, Adjusted Non-GAAP pretax income, Adjusted Non-GAAP net income and Adjusted Non-GAAP Diluted EPS that are considered “no
Slide 54: Upetivering a
Upetivering a bright future
NorthWestern Energy Group — Q2 2023 Earnings Presentation on 6ix