Northwest Natural Holding Company · NYSE:NWN
Northwest Natural — NW Natural Holdings — BofA Securities conference March 2022
57 slides from Northwest Natural's conference presentation, March 2022
Slide 1: Investor Presentation March 2022
INVESTOR PRESENTATION MARCH 2022
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 FRANK BURKHARTSMEYER • SVP and Chief Financial Officer Mr. Burkhartsmeyer is currently NW Natural Holdings’ Senior Vice President and CFO effective October 2018 and NW Natural’s Senior Vice President and CFO effective May 2017. Previously, Mr. Burkhartsmeyer served as President
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 • 145,000 people and 60,000 • Investing in renewable energy and the • 785,000+ connections connections served when pending transition to a decarbonized future • 14,000 miles of modern pipeline
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 in Oregon • Constructive relationships with regulators and customer groups benefit both gas and water utilities Excellent operation
Slide 8: ESG Landscape & 2020 Achievements
ESG LANDSCAPE & 2020 ACHIEVEMENTS Published ESG Report in alignment with SASB disclosures Governance Environmental ◼ Maintained well-qualified, diverse, independent and active Board with ◼ On track to meet or exceed carbon savings appropriate business & risk oversight goal of 30% by 20351 ◼ Board re
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 1.5%+ 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 Over 90% Earnings from Utilities Favorable Customer Mix 2021 Net Income 2021 Natural Gas Utility Margin Other1 Interstate 4% Storage, Water Industrial & Other 7% 10% Commercial 24% Natural Residential Gas Utility 65% 90% 1 Other is primarily margin from North Mist regulated gas stor
Slide 11: Natural Gas Utility
NATURAL GAS UTILITY 11
Slide 12: Gas Utility Overview
GAS UTILITY OVERVIEW • More than 160 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 785,000 meters in Oregon and southwest Washington • Consistently recognized for high
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% 89% Commercial 21% 24% 78% Housing Inventory 25 Industrial 41% 7% -% Other N/A 4% N/A 20 Total 100% 1
Slide 14: Sophisticated Marketing
SOPHISTICATED MARKETING Affordable, Preferred, Growing • Growing communities with healthy permitting levels • Price advantage of heating with natural gas – roughly a 60% price ~3,000 advantage over an electric or oil furnace Conversions Annually • 8 in 10 prospective homebuyers say natural gas is pr
Slide 15: Leading in Customer Growth
LEADING IN CUSTOMER GROWTH 20,000 3.0% 18,000 2.4% 2.5% 16,000 Gross Customer Additions Net Customer Growth Rate 14,000 2.0% 1.8% 1.7% 12,000 1.6% 1.7% 1.5% 1.5% 1.5% 10,000 1.4% 1.5% 1.4% 1.3% 8,000 0.9% 0.8% 0.9% 0.8% 1.0% 6,000 4,000 0.5% 2,000 - 0.0% Conversions Construction Net Growth Rate 15
Slide 16: Investing in Gas System
INVESTING IN GAS SYSTEM System Capital Expenditures1 Customer growth • New construction & conversions (In millions) ~$330 ~$300 • Main extensions $317 30 Avg/Yr 9 Safety & Reliability $278 29 20 30 • Recurring replacements $248 24 15 • Enhanced system reliability to support growth 65 30 94 55 44 $20
Slide 17: Progressive Regulation
PROGRESSIVE REGULATION OREGON WASHINGTON KEY MECHANISMS: Decoupling/WARM ✔ Purchased Gas Adjustment ✔ ✔ Environmental Cost ✔ ✔ Incentive Sharing1 ✔ RATE CASE TEST YEAR Forward Multiyear2 CURRENT RATE STRUCTURES: ROE 9.4% Not determined ROR 6.965% 6.814% Equity Ratio 50% Not determined 2021 Rate Base
Slide 18: 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 19: 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 20: Oregon Rate Case Filing
OREGON RATE CASE FILING o Filed in December 2021 – based on 2020 2022 continued system investment. NW RATE CASE RATE CASE Natural’s filing will be reviewed by the OPUC and other stakeholders. New rates Settled Requested expected to be effective Nov. 1, 2022 ROE 9.4% 9.5% o Request Based on System RO
Slide 21: Environmental Stewardship
ENVIRONMENTAL STEWARDSHIP 21 21
Slide 22: Role of Our System Today
ROLE OF OUR SYSTEM TODAY NW Natural’s System • Delivers more energy than any other utility in Oregon • Heats 74% 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 tightest, new
Slide 23: Our Low-Carbon Pathway
OUR LOW-CARBON PATHWAY VOLUNTARY GOAL: 30% CARBON SAVINGS BY 2035 Baseline: 2015 emissions associated with customer use & company operations 23
Slide 24: 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 24
Slide 25: Driving a Clean Energy Future
DRIVING A CLEAN ENERGY FUTURE • The ONE Future coalition represents more than 15% 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 26: Destination Zero: Our Vision of Carbon Neutrality
26 £ 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 27: 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 28: RNG Projects Across North America
RNG PROJECTS ACROSS NORTH AMERICA 28
Slide 29: Hydrogen
HYDROGEN NW Natural Initiatives Hydrogen Facility – working on application for a 1 MW electrolysis project (5% blending immediately and up to 10% in the future). Expect to be seek regulatory approval in 2022 Hydrogen Blend Testing – testing of 5% underway, with a 20% blend goal by 2024, if learnings
Slide 30: 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 the Oregon’s energy supply, one of the most effective ways to reduce emissio
Slide 31: Gas Utility RNG Contracts to Date
GAS UTILITY RNG CONTRACTS TO DATE Procurement Investments (Pass-through Cost) (Rate Base) • Element Markets – 0.7 million Partnership with Tyson & MMBtu from 2021 - 2023 BioCarbN totaling $38 million of investment • Archaea – up to 1 million MMBtu of RNG annually for a fixed fee for • Lexington Faci
Slide 32: Water
WATER 32
Slide 33: 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 34: NW Natural Water at a Glance
NW NATURAL WATER AT A GLANCE CASCADIA SUNCADIA GEM STATE WASHINGTON ARIZONA SALMON TEXAS FAR WEST* VALLEY BLUE Pending* TOPAZ SUNRIVER Pending* OREGON Closed Pending2 Total IDAHO FALLS People served1 81,500 65,000 146,500 Connections 33,400 25,900 59,300 WATER UTILITIES WASTEWATER *PENDING 1 People
Slide 35: Far West
FAR WEST Yuma County Projected Population Trends • Located in Yuma, AZ serving approximately 25,000 (in thousands) connections in the Foothills area 300 264 • Well positioned to serve a growing community with 200 197 214 161 significant development opportunities 108 • Once closed, nearly doubles NW
Slide 36: 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 37: Growing Water Systems
GROWING WATER SYSTEMS Investing in Safety, Reliability Strong Customer Growth • Five-year maintenance cap-ex expected • Acquired utilities in fast-growing areas to be ~$65 million (2022-2026) • Additional opportunities near existing • Investments in system reliability footprint • Focus on informatio
Slide 38: Water Regulation
WATER REGULATION • Collaborative, transparent, and productive relationships with regulators • Strong track record of approvals for acquisitions and constructive general rate cases as we seek recovery of investments in water utility systems OREGON WASHINGTON IDAHO TEXAS KEY MECHANISMS: COVID Deferral
Slide 39: Renewables
RENEWABLES 39
Slide 40: Strategic Rationale for Competitive RNG
STRATEGIC RATIONALE FOR COMPETITIVE RNG The competitive RNG business represents a significant opportunity to add earnings and cash flows in a rapidly-growing market segment • Opportunity to achieve attractive returns as demand exceeds RNG supply • Increasing demand for renewable fuels expected to be
Slide 41: Market Opportunity
MARKET OPPORTUNITY US RNG Production US RNG Market Size (million MMBtu) ($ in billions) 299 22-26 5.1x 35% +25% p.a. 167 11-14 41% 61% 59 54% 76% 2-3 13% 2% 6% 3% 5% 2% 2% 2020 2025 2030 2020 2025 2030 Wastewater Food waste Agriculture Landfill LCFS RIN Gas Source: Analysis using Argonne National La
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 • Executed agreements
Slide 44: Financials
FINANCIALS 44
Slide 45: Capital Allocation 2022-26
CAPITAL ALLOCATION 2022-26 2022-26 Forecasted Capital Expenditures 2022-26 Forecasted Capital Expenditures 1,600 (In millions) (In millions) 5% 1,400 6% Regulated RNG Water Utilities 24% 1,200 Growth Capex 16% 1,000 Gas Utility 800 4% 600 Replacement Capex 400 200 45% 0 Customer Growth Safety and Re
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: 66 Years of Growing Dividends
66 YEARS OF GROWING DIVIDENDS $1.93 $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 Indicated1 1 Future dividends are subject to Board of Director discretion and approval 1 of only 3 Companies on NYSE with this
Slide 48: Conclusion
CONCLUSION 48
Slide 49: Investment Thesis
INVESTMENT THESIS Stable and growing utility margins driven by targets over the next five years projections including: • EPS growth of 4% – 6%1 • Gas utility customer growth averaging 1.5%+ • Gas utility cap-ex $1.3 – $1.5 billion, projecting rate base growth of 5% – 7%2 Excellent operations and eff
Slide 50: Appendix
APPENDIX 50
Slide 51: Net Income Bridge
NET INCOME BRIDGE FY 2021 vs. 2020 Drivers included: NGD • Higher gas utility margin from new rates in Margin Excld. Feb. Event $1.11 Oregon & Washington and customer growth • Increased O&M from compensation & Feb. '21 Winter benefits, information technology costs, and Event NGD $0.09 other non-payr
Slide 52: 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) Lea Marquez Peterson • Appointed April 2017 • Appointed chair Feb • Appointe
Slide 53: Diverse Resource Portfolio
DIVERSE RESOURCE PORTFOLIO Gas Supply • 62% supply from Canada • 38% 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 54: Mist Storage Facility
MIST STORAGE FACILITY Mist Storage Capacity BCF 18 Overview 15 • In operation since 1989 12 • Storage capacity at Mist 17 Bcf 9 ─ 11.3 Bcf Core Utility 6 3 ─ 5.7 Bcf Interstate Storage Services 0 Unique, Valuable Asset • Limited storage options in Pacific Northwest BCF / Day Mist Storage Deliverabil
Slide 55: 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 56: Water Transactions
WATER TRANSACTIONS Company People Served Connections Location Date Signed Date Closed Transaction Details Salmon Valley Water Company 1,864 932 Welches, OR 12/18/2017 11/1/2018 12/19/2017 9/13/2018 Falls Water Falls Water Company 18,187 6,404 Idaho Falls, ID 6/28/2019 8/3/2020 Taylor Mountain 7/2/20
Slide 57: «YW Netural
«YW Netural
NW Natural Holdings — BofA Securities conference March 2022 on 6ix