Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — FY2022 Earnings Presentation
54 slides from Northwestern Energy's earnings presentation, Feb 17, 2023
Slide 1: 2022 Full Year Earnings Webcast
2022 Full Year Earnings Webcast February 17, 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: 2022 in Review
2022 in Review Operational performance • Maintained safe and reliable service while reaching new all-time system peaks for both electric (Montana & South Dakota) and natural gas (Montana & Nebraska) systems in 2022 • EEI Emergency Response Award recipient following May derecho in South Dakota and
Slide 4: Why Colstrip?
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 reliance
Slide 5: December 2022 Polar Vortex
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 the high
Slide 6: 2022 Financial Results
2022 Financial Results Fourth Quarter EPS vs Prior Period • GAAP: ↑ $0.20 (or 21%) • Non-GAAP*: ↑ $0.09 (or 9%) Full Year EPS vs Prior Period • GAAP: ↓ $0.35 (or 10%) • Non-GAAP*: ↓ $0.33 (or 10%) 6 *See slides 10 & 14 and “Non-GAAP Financial Measures” slide in the appendix for additional detail on
Slide 7: 2022 Comparison to Guidance
2022 Comparison to Guidance The dramatic rise in interest rates, inflationary impacts to operating costs, and volatility of market supply costs presented significant headwinds in 2022. In addition, extreme weather conditions in late December drove higher supply costs (which we don’t fully, or timely
Slide 8: Fourth Quarter Financial Results
Fourth Quarter Financial Results (1) 8 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 9: Fourth Quarter EPS Bridge
Fourth Quarter EPS Bridge After-tax Earnings Per Share Solid improvement in fourth quarter earnings per share driven by weather, See slide 10 and “Non-GAAP customer growth and Montana interim rates offset by increased operating Financial Measures” slide in expense (including property taxes and depre
Slide 10: Fourth Quarter Non-GAAP Earnings
Fourth Quarter Non-GAAP Earnings 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 measures determined or calculate
Slide 11: Full Year Financial Results
Full Year Financial Results (1) 11 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 12: Full Year EPS Bridge
Full Year EPS Bridge After-tax Earnings Per Share Full year earnings per share driven by increased operating expense (including See slide 14 and “Non-GAAP property taxes and depreciation), interest expense and dilution from higher Financial Measures” slide in average shares outstanding. These determ
Slide 13: Full Year Utility Margin Bridge
Full Year Utility Margin Bridge Pre-tax Millions PCCAM Impact $7.2M in 2022 vs. $5.4M in 2021 NOTE: Utility Margin is a non-GAAP Measure $24.9 Million or 2.6% increase in Utility Margin See appendix slide titled “Explaining Utility due to items that impact Net Income. Margin” for additional disclosu
Slide 14: Full Year Non-GAAP Earnings
Full Year Non-GAAP Earnings 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 measures determined or calculated in
Slide 15: Full Year Cash Flow
Full Year Cash Flow Cash from Operating Activities increased by $87.2 million primarily due to $78.0 million increase in collection of energy supply costs from customers. Funds from Operations increased by $3.6 million over prior period. Net Under-Collected Supply Costs (in millions) Beginning Endin
Slide 16: 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. $510 million capital plan for 2023 (inclusive of $80 million of investment specific to Yellowstone County Generating Station). Long-term gr
Slide 17: Capital Investment
Capital Investment ($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 18: Looking Forward
Looking Forward 175 megawatt Yellowstone County generating project in Montana • Construction began in April 2022 • Construction costs of approximately $275 million with $154.9 million invested to date • Current schedule anticipates commercial operation during 2024* Electric Supply Resource Plans S
Slide 19: Conclusion
Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects 19
Slide 20: Appendix
CT Appendix 20
Slide 21: Montana Rate Review Progress – Next Steps
Appendix Montana Rate Review Progress – Next Steps Requested base rate increase supports over a billion dollars invested in Montana critical infrastructure, while keeping operating costs below the rate of inflation, since our last rate reviews. On September 28, 2022, the MPSC approved the recomm
Slide 22: 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 of capital to complete construction of the 175 MW
Slide 23: 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. ( subject to refund) 23
Slide 24: 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 25: 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 26: 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 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: 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 29: Utility Margin
Appendix Utility Margin (Full Year) (dollars in millions) 12 Months Ended December 31, 2022 2021 Variance Electric $ 782.1 $ 757.4 $ 24.7 3.3% Natural Gas 203.7 189.4 14.3 7.6% (1) Total Utility Margin $ 985.8 $ 946.8 $ 39.0 4.1% Increase in utility margin due to the following factors: $ 14.8 Higher
Slide 30: Operating Expenses
Appendix Operating Expenses (Full Year) (dollars in millions) Twelve Months Ended December 31, 2022 2021 Variance Operating & maintenance $ 221.4 $ 208.3 $ 13.1 6.3% $25.0 Administrative & general 113.8 101.9 11.9 11.7% Property and other taxes 192.5 173.4 19.1 11.0% Depreciation and depletion 195.0
Slide 31: Operating to Net Income
Appendix Operating to Net Income (Full Year) (dollars in millions) Twelve Months Ended December 31, 2022 2021 Variance Operating Income $ 263.1 $ 275.7 $ (12.6) (4.6%) Interest expense (100.1) (93.7) (6.4) (6.8%) Other income, net 19.4 8.2 11.2 136.6% Income Before Taxes 182.4 190.2 (7.8) (4.1%) Inc
Slide 32: Tax Reconciliation
Appendix Tax Reconciliation (Full Year) 32
Slide 33: Weather
Appendix Weather (Full Year) Mean Temperature Departures from 30-Year Average We estimated a $8.9 million pre-tax benefit as compared to normal and a $10.0 million benefit as compared to the full year 2021. Drought Conditions in Montana vs 30-Year Normal Source: www.drought. gov/states/ montana Appr
Slide 34: Weather Impact Adjustment
Appendix Weather Impact Adjustment Revision to non-GAAP weather normalization method - Up to, and including, Q3 2022, our weather normalizing adjustment included the estimated impact from four customer classes; commercial electric, residential electric, commercial natural gas and residential natural
Slide 35: GAAP to Non-GAAP
Appendix GAAP to Non-GAAP 2021 as originally Revised 2021 Presentation presented (Excluding commercial electric impact) The comparison above updates 2021 non-GAAP earnings to exclude the estimated weather impacts of our commercial electric customers consistent with 2022 non-GAAP presentation. The ad
Slide 36: Quarterly PCCAM Impacts
Appendix Quarterly PCCAM Impacts Pre-tax Millions In 2017, the Montana legislature revised the statute regarding our recovery of electric supply costs. In response, the MPSC approved a new design for our electric tracker in 2018, effective July 1, 2017. The revised electric tracker, or PCCAM establi
Slide 37: 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 38: Balance Sheet
Appendix Balance Sheet Debt to Total Capitalization down from last year and slightly below our targeted 50% - 55% range with the incremental equity issuance in the 4th quarter of 2022. 38
Slide 39: Segment Results
Appendix Segment Results (Full Year) (1) (1) 39 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 40: Electric Segment
Appendix Electric Segment (Full Year) (1) 40 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 41: Natural Gas Segment
Appendix Natural Gas Segment (Full Year) (1) 41 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 42: Quarter Financial Results
Appendix Quarter Financial Results (4th Quarter) (1) 42 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 43: Utility Margin
Appendix Utility Margin (4th Quarter) (dollars in millions) Three Months Ended December 31, 2022 2021 Variance Electric $ 205.6 $ 177.2 $ 28.5 16.1% Natural Gas 66.6 55.7 11.0 19.7% (1) Total Utility Margin $ 272.2 $ 232.9 $ 39.4 16.9% Increase in utility margin due to the following factors: $ 9.5 M
Slide 44: Operating Expenses
Appendix Operating Expenses (4th Quarter) (dollars in millions) (1) In order to present Three Months Ended December 31, the total change in labor and benefits, we 2022 2021 Variance have included the change in the non- service cost component Operating & maintenance $ 60.7 $ 49.0 $ 11.7 23.9% of our
Slide 45: Operating to Net Income
Appendix Operating to Net Income (4th Quarter) (dollars in millions) Three Months Ended December 31, 2022 2021 Variance Operating Income $ 83.3 $ 80.0 $ 3.3 4.1% Interest expense (27.1) (23.4) (3.7) (15.8%) Other income, net 7.6 (5.7) 13.3 233.3% Income Before Taxes 63.8 50.9 12.9 25.3% Income tax b
Slide 46: Tax Reconciliation
Appendix Tax Reconciliation (4th Quarter) 46
Slide 47: Segment Results
Appendix Segment Results (4th Quarter) (1) (1) 47 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 48: Weather / Hydro Conditions
Appendix Weather / Hydro Conditions (4th Quarter) We estimated a $2.3 million pre-tax benefit as compared to normal and a $7.5 million benefit as compared to Q4 2021. Snow Water Equivalent Percent to 30-Year Normal Snow water equivalents generally in line with the 30-year medians. (Missouri, Madison
Slide 49: Electric Segment
Appendix Electric Segment (4th Quarter) (1) 49 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 50: Natural Gas Segment
Appendix Natural Gas Segment (4th Quarter) (1) 50 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
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 bright future
Upetivering a bright future
NorthWestern Energy Group — FY2022 Earnings Presentation on 6ix