Northwest Natural Holding Company · NYSE:NWN
Northwest Natural — NW Natural Holdings — Investor Presentation (June 2023)
61 slides from Northwest Natural's investor presentation, June 2023
Slide 1: Investor Presentation June 2023
Investor Presentation June 2023
Slide 2: Investor Information
INVESTOR INFORMATION COMPANY INFORMATION FORWARD LOOKING STATEMENTS This and other presentations made by NW Natural Holdings from time to time, may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation NW Natural Holdings Reform Act of 1995, which are subjec
Slide 3: Leadership Presenting
LEADERSHIP PRESENTING DAVID H. ANDERSON • Chief Executive Officer Mr. Anderson is currently NW Natural Holding’s CEO effective May 2023. Previously Anderson was NW Natural Holding’s President and CEO effective October 2018 and NW Natural’s President and CEO effective August 2016. Since he joined NW
Slide 4: Introduction
INTRODUCTION 4
Slide 5: NWN at a Glance
NWN AT A GLANCE Gas Utility Water & Wastewater Utilities NW Natural Renewables • 2.5 million people served • Over 155,000 people served through approximately • Investing in renewable energy and • Over 795,000 connections 63,000 owned connections the transition to a decarbonized future • 14,000 miles
Slide 6: Corporate Strategy
CORPORATE STRATEGY 6
Slide 7: Conservative Strategy
CONSERVATIVE STRATEGY Stable gas and water utility margins through progressive regulation • Gas utility: weather, decoupling and environmental cost recovery mechanisms as well as a renewable natural gas automatic adjustment clause in Oregon • Constructive relationships with regulators and customer g
Slide 8: ESG Landscape & Achievements
ESG LANDSCAPE & ACHIEVEMENTS Published ESG Report with disclosures in alignment with SASB and including components of TCFD Governance Environmental ◼ Maintained well-qualified, diverse, independent and active Board with appropriate business & risk oversight ◼ On track to meet or exceed carbon saving
Slide 9: Investment Targets
INVESTMENT TARGETS Growth targets over the next five years include: Financial • EPS growth of 4% - 6%1 Targets • Strong and growing dividend2 Gas • Customer growth averaging 1.1% per year Utility • Capital plan of $1.3 - $1.5 billion Growth • Rate base growth of 5% - 7%3 Water • Long-term strategy,
Slide 10: Highly Regulated
HIGHLY REGULATED 90%+ Net Income from Utilities Favorable Customer Mix 2022 Net Income 2022 Natural Gas Utility Margin Other1 3% Interstate Storage, Water Industrial & Other 7% 8% Commercial 25% Natural Residential Gas Utility 65% 92% 1 Other is primarily margin from North Mist regulated gas storage
Slide 11: Natural Gas Utility
NATURAL GAS UTILITY 11
Slide 12: Gas Utility Overview
GAS UTILITY OVERVIEW • Nearly 165 years of service in our communities • Largest stand-alone local distribution company in the Pacific Northwest • Serve 2.5 million people in more than 140 communities through over 795,000 meters in Oregon and southwest Washington • Consistently recognized for high-qu
Slide 13: Resilient Business Model
RESILIENT BUSINESS MODEL ~80% of Natural Gas Utility Margin is Decoupled % of Margin % of Volumes % of Margin Tight Residential Real Estate Market Decoupled Leads to Fewer Losses Residential 38% 65% 93% Housing Inventory through March 2023 Commercial 23% 25% 78% 25 Industrial 39% 7% 0% Other N/A 3%
Slide 14: Customer Growth
CUSTOMER GROWTH 2.0% 1.8% 1.7% 1.7% 1.5% 1.5% 1.5% 1.5% 1.4% 1.4% 1.3% 1.1% 0.9% 1.0% 1.0% 0.8% 0.9% 0.8% 0.5% 0.0% Net Customer Growth Rate 14
Slide 15: Investing in the Gas System
INVESTING IN THE GAS SYSTEM System Capital Expenditures1 Customer growth (In millions) • New construction & conversions • Main extensions $338 ~$330 8 $304 24 30 ~$290 Safety & Reliability 9 Avg/Yr • Recurring replacements $278 20 34 20 • Enhanced system reliability to support growth $248 24 83 10 5
Slide 16: Progressive Regulation
PROGRESSIVE REGULATION OREGON WASHINGTON KEY DEFERRALS RECOVERING: COVID ✔ ✔1 ERP System Upgrade ✔ ✔ TSA Cybersecurity ✔ ✔1 KEY MECHANISMS: Decoupling/WARM ✔ Purchased Gas Adjustment ✔ ✔ Environmental Cost ✔ ✔ 1 In Washington, NW Natural is currently recovering the ERP ✔ ✔ System Upgrade deferral. T
Slide 17: Supportive Mechanisms
SUPPORTIVE MECHANISMS OREGON • Breaks link between earnings and consumption by removing incentive to increase usage Decoupling • Employs use-per-customer decoupling calculation, which adjusts margin revenues to account for the difference between actual and expected customer volumes OREGON • Stabiliz
Slide 18: Washington 2021 Rate Case
WASHINGTON 2021 RATE CASE o Order received October 21, 2021 – Multi- party settlement approved by the WUTC. 2021 - 2022 New rates were effective Nov. 1, 2021 with RATE CASE the second year effective Nov. 1, 2022 Year 1 Year 2 o Request Based on System Investments – Request Order Request Order Multiy
Slide 19: Oregon 2022 Rate Case
OREGON 2022 RATE CASE 2020 2022 o Order received October 24, 2022 – Multi- RATE CASE RATE CASE party settlements approved by the OPUC. Total New rates were effective Nov. 1, 2022 Settled Order Request o Case based on system improvements – ROE 9.4% 9.5% 9.4% based on continued system investment ROR 6
Slide 20: Environmental Stewardship
ENVIRONMENTAL STEWARDSHIP 20 20
Slide 21: Role of Our System Today
ROLE OF OUR SYSTEM TODAY NW Natural’s System • Delivers 50% more energy than any other utility in Oregon • Heats roughly 75% of residential square footage in the areas we serve • Provides 90% of energy needs for our residential space and water heat customers on the coldest winter days • One of the t
Slide 22: Our Low-Carbon Pathway
OUR LOW-CARBON PATHWAY VOLUNTARY GOAL: 30% CARBON SAVINGS BY 2035 Goal established in 2016 Baseline: 2015 emissions associated with customer use & company operations 22
Slide 23: On Track to Meet or Exceed Goal
ON TRACK TO MEET OR EXCEED GOAL Our voluntary carbon savings goal of 30% by 2035 includes emissions from our own operations and the gas use by our sales customers 23
Slide 24: Driving a Clean Energy Future
DRIVING A CLEAN ENERGY FUTURE • The ONE Future coalition represents more than 20% of the U.S. natural gas value chain committed to reducing methane emissions through adopting science- based standards and deploying best practices. Target of reducing emissions across the natural gas value chain to 1%
Slide 25: Destination Zero: Our Vision of Carbon Neutrality
25 £ Fuel Cell 4 Destination Zero: “sg 7 Our Vision of etch Naish } Commercial and Waste Carbon Neutrality Residential Heating A decarbonized network: » Deep energy efficiency » Renewable natural gas » Renewable hydrogen ¥ Blended /¥ Methanated ¥ Dedicated Commercial Transport Efficiency MEE Renewab
Slide 26: Destination Zero Analysis
DESTINATION ZERO ANALYSIS 2050 POSSIBLE SCENARIOS • The next evolution in our thinking is an in-depth Percentage of GHG savings by source analysis, using a variety of assumptions, to illustrate Balanced Moderate Offset Balanced mix of renewable supply and demand-side Offsets in conjunction with mix
Slide 27: RNG Projects Across North America
RNG PROJECTS ACROSS NORTH AMERICA As of March 20, 2023 27
Slide 28: Groundbreaking RNG Bill
GROUNDBREAKING RNG BILL • Oregon law (SB 98) supports gas utilities purchasing renewable natural gas (RNG). Passed in 2019 and rulemaking completed in July 2020 • Creates another path for RNG to become an increasing part of Oregon’s energy supply • Allows natural gas utilities to acquire RNG and hyd
Slide 29: Gas Utility RNG Contracts to Date
GAS UTILITY RNG CONTRACTS TO DATE Procurement Investments (Pass-through Cost) (Rate Base) • Anew LLC (formerly Element Partnership with Tyson & Markets) – 0.7 million MMBtu BioCarbN totaling up to $38 million from 2021 - 2023 of investment • Archaea – up to 1 million MMBtu • Lexington Facility – $8M
Slide 30: Hydrogen & CCUS Projects
HYDROGEN & CCUS PROJECTS NW Natural Initiatives Hydrogen Blend Testing – testing of 15% completed, with a 20% blend goal by 2024, if learnings allow, at NW Natural’s state-of-the-art training facility Turquoise Hydrogen Pilot Project – partnering with Modern Electron in an effort to turn methane int
Slide 31: NW Natural Water
NW NATURAL WATER 31
Slide 32: Water Investment Approach
WATER INVESTMENT APPROACH The water and wastewater sector aligns well with NWN’s conservative risk profile and offers diversification, stable cash flows, and substantial long-term investment opportunities • Federal and state agencies driving upgrades to water and wastewater infrastructure Acquire •
Slide 33: NW Natural Water Owned Connections at a Glance
NW NATURAL WATER OWNED CONNECTIONS AT A GLANCE CASCADIA Pending SUNCADIA GEM STATE Pending WASHINGTON ARIZONA Pending SALMON TEXAS BLUE FOOTHILLS VALLEY TOPAZ SUNRIVER Pending AVION OREGON Closed Pending2 Total IDAHO FALLS WATER People served1 156,100 12,200 168,300 Connections 62,900 4,900 67,800 W
Slide 34: Foothills Acquisition Closed
FOOTHILLS ACQUISITION CLOSED • Closed our largest water and wastewater Yuma County Projected Population Trends (in thousands) acquisition to-date in October 2022 • Increased NW Natural Water’s number of water 300 264 214 197 and wastewater connections by 70% 200 161 • Located in Yuma, AZ serving app
Slide 35: Water & Wastewater Acquisition Opportunities
WATER & WASTEWATER ACQUISITION OPPORTUNITIES All Water and Privately Owned Wastewater Systems Systems Systems Connections Systems Connections Pacific 4,700 5.6M 2,760 511,000 Northwest Texas 5,739 17.3M 2,400 400,000 Arizona 1,100 3.0M 500 530,000 West of 36,500 77.3M 16,700 9.1M Mississippi United
Slide 36: Growing Water Systems
GROWING WATER SYSTEMS Investing in Safety, Reliability Strong Customer Growth • Five-year cap-ex expected to be ~$100 • Acquired utilities in fast-growing areas million (2023-2027) • Additional opportunities near existing • Investments in system reliability footprint • Focus on information technolog
Slide 37: O&M Services Business
O&M SERVICES BUSINESS Estimated Size of O&M Market Our Investment Goals $2.6B O&M contract services market today with growth expected • A natural extension of its utility ownership business, NW Natural Water launched a water and wastewater services # Customers per Contract business in April 2023 wit
Slide 38: Water Regulation
WATER REGULATION • Collaborative, transparent, and productive relationships with regulators • Strong track record of approvals for acquisitions and constructive general rate cases OREGON WASHINGTON IDAHO TEXAS ARIZONA KEY MECHANISMS: COVID Deferral ✔ ✔ ✔ Fair Market Value ✔ ✔ Legislation RATE CASE T
Slide 39: NW Natural Renewables
NW NATURAL RENEWABLES 39
Slide 40: Strategic Rationale for Competitive RNG
STRATEGIC RATIONALE FOR COMPETITIVE RNG The competitive RNG business represents a significant opportunity to add earnings and cash flows in a rapidly-growing market segment • Opportunity to achieve attractive returns as demand exceeds RNG supply • Increasing demand for renewable fuels expected to be
Slide 41: Market Opportunity
MARKET OPPORTUNITY US RNG Production US RNG Market Size (million MMBtu) ($ in billions) 299 22-26 35% 5x 10x 167 11-14 41% 61% 59 2-3 54% 76% 13% 6% 3% 2% 5% 2% 2% 2020 2025 2030 2020 2025 2030 LCFS RIN Gas Wastewater Food waste Agriculture Landfill Source: Analysis using Argonne National Laboratory
Slide 42: Primary Expected RNG Markets
PRIMARY EXPECTED RNG MARKETS Commercial, Industrial, and Gas Utilities Natural Gas Vehicles Institutional Customers Meet voluntary emissions/renewable goals, Meet obligations for low- Corporate sustainability goals including demand for RNG PRIMARY DRIVERS emissions fuel in state and including emissi
Slide 43: NW Natural Renewables: EDL Partnership
NW NATURAL RENEWABLES: EDL PARTNERSHIP • NW Natural Renewables’ first projects are with EDL, a leading global producer of sustainable distributed energy • Committed $50 million toward the development of two production facilities designed to convert landfill waste gases into RNG • NW Natural Renewabl
Slide 44: Financials
FINANCIALS 44
Slide 45: Capital Allocation 2023-27
CAPITAL ALLOCATION 2023-27 2023-27 Forecasted Capital Expenditures 2023-27 Forecasted Capital Expenditures 1,600,000 (In millions) 4% Regulated RNG 7% 1,400,000 Water Utilities 21% 1,200,000 Growth 12% Capex Gas Utility 1,000,000 3% 800,000 600,000 Replacement 400,000 Capex 200,000 53% Customer Grow
Slide 46: Strong Liquidity
STRONG LIQUIDITY NW Holdings • $200 million credit facility NW Natural Credit Ratings(1) • Expires in 2026 • Extension for two additional one-year periods • Access to capital markets AA- A2 A2 A2 NW Natural A-1 P2 P-2 P2 Stable Stable • $400 million credit facility Stable Stable • Expires in 2026 •
Slide 47: 67 Years of Growing Dividends
67 YEARS OF GROWING DIVIDENDS $1.93 $1.94 $1.92 $1.91 $1.89 $1.90 $1.88 $1.87 $1.85 $1.86 $1.83 $1.79 $1.75 $1.68 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 1 Indicated 1 Future dividends are subject to Board of Director discretion and approval 1 of only 3 Companies on NYS
Slide 48: Conclusion
CONCLUSION 48
Slide 49: Investment Thesis
INVESTMENT THESIS Stable and growing utility margins driven by the following targets over the next five years including: • EPS growth of 4% – 6%1 • Gas utility customer growth averaging 1.1% • Gas utility cap-ex $1.3 – $1.5 billion with rate base growth of 5% – 7%2 Excellent operations and efficient
Slide 50: Appendix
APPENDIX 50
Slide 51: RNG Process
RNG PROCESS Waste Collection Bio-waste is collected from Gas Collection System Waste is processed before various sources it becomes biogas Wastewater Agricultural Raw Biogas Waste 51 Pipeline Quality Biogas Upgrading the raw biogas to ‘become pipeline quality Raw Biogas RNG on the System RNG mixes s
Slide 52: Hydrogen Process
HYDROGEN PROCESS 1 52 1 Clean hydrogen is defined in the federal Inflation Reduction Act as having an emissions profile of 4kgCO2e/kgH2 or less.
Slide 53: Renewables Are Nationally Integrated
RENEWABLES ARE NATIONALLY INTEGRATED 53
Slide 54: Current Utility Commissioners
CURRENT UTILITY COMMISSIONERS OREGON WASHINGTON IDAHO TEXAS ARIZONA COMMISSION COMMISSION COMMISSION COMMISSION COMMISSION (OPUC) (WUTC) (IUTC) (PUCT) (ACC) Megan Decker (D) David Danner (D) Eric Anderson (R) Peter Lake (R) James O’Connor (R) Chair • Appointed April 2017 • Appointed chair Feb • Appo
Slide 55: Gas Utility Debt Portfolio
GAS UTILITY DEBT PORTFOLIO First Mortgage Bond Maturity Schedule 2023 YE Projected Embedded Weighted Average Cost – 4.672% Millions 2023 YE Projected Weighted Average Life 18.7 Years $160 $150 M $140 M $140 M $140 $130 M $120 $100 M $100 $90 M $90 M $80 M $80 $75 M $65 M $60 $55 M $50 M $50 M $50 M
Slide 56: Diverse Resource Portfolio
DIVERSE RESOURCE PORTFOLIO Gas Supply • 60% supply from Canada • 40% supply from the Rockies • Natural gas serves territory through one bi-directional pipeline LNG Peaking Facilities • Portland LNG – 0.6 Bcf • Newport LNG – 1.0 Bcf Mist Gas Storage Facility • Valuable asset – limited storage in the
Slide 57: Mist Storage Facility
MIST STORAGE FACILITY Mist Storage Capacity BCF 18 Overview 15 • In operation since 1989 12 • Storage capacity at Mist 17.5 Bcf 9 ─ 11.7 Bcf Core Utility 6 3 ─ 5.8 Bcf Interstate Storage Services 0 Unique, Valuable Asset • Limited storage options in Pacific Northwest BCF / Day Mist Storage Deliverab
Slide 58: North Mist Facility
NORTH MIST FACILITY • Unique no-notice 24/7 storage service supporting gas-fired electric generating facilities that are integrating wind into energy generation mix • $149 million investment was immediately included in rate base once placed into service in May 2019 • Contracted under 30-year agreeme
Slide 59: Water & Wastewater Utility Transactions
WATER & WASTEWATER UTILITY TRANSACTIONS Company People Served Connections Location Date Signed Date Closed Transaction Details Salmon Valley Water Company 1,920 960 Welches, OR 12/18/2017 11/1/2018 12/19/2017 9/13/2018 Falls Water Falls Water Company 19,366 6,819 Idaho Falls, ID 6/28/2019 8/3/2020 T
Slide 60: Water and Wastewater O&M Service Transactions
WATER AND WASTEWATER O&M SERVICE TRANSACTIONS Company Connections Region Served Date Signed Date Closed King Water Company 9,900 Washington 4/30/2023 4/30/2023 Total Closed 9,900 Hiland 5,000 Oregon 5/8/2023 Total Pending 5,000 Total Closed & Pending 14,900 60
Slide 61: Meeting the Moment
Meeting the Moment DECARBONIZE. DIVERSIFY. DELIVER
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