Northwest Natural Holding Company · NYSE:NWN
Northwest Natural — NW Natural Holdings — Investor Presentation (December 2020)
56 slides from Northwest Natural's investor presentation, December 2020
Slide 1: Investor Presentation: Virtual Investor Meetings
INVESTOR PRESENTATION Virtual Investor Meetings December 2020
Slide 2: Investor Information and Forward Looking Statements
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 • President and Chief Executive Officer Mr. Anderson is currently NW Holding’s President and CEO effective October 2018 and NW Natural’s President and CEO effective August 2016. Since he joined NW Natural in 2004, Mr. Anderson has served in various executive p
Slide 4: Introduction
INTRODUCTION 4
Slide 5: NWN at a Glance
NWN AT A GLANCE Water & Wastewater Utilities • 65,000 people served • 26,000 connections • $110 million committed to date • Fast-growing service territories • Continued disciplined expansion Gas Utility Gas Utility • 2.5 million people served • 2.5 million • Nearly people served 770,000 connections
Slide 6: Key Themes and YTD Q3 2020 Results
KEY THEMES AND YTD Q3 2020 RESULTS • Continued to provide customers with essential natural gas and water utility services during COVID-19 • Ongoing focus on safe and reliable service and assisting our most vulnerable community members • Reported lower earnings reflecting higher O&M & depreciation an
Slide 7: Corporate Strategy
CORPORATE STRATEGY 7
Slide 8: Our Mission and Values
Our Mission We provide safe, reliable and affordable essential utility services in an environmentally responsible way to better the lives of the public we serve Our Values Safety Integrity Service Ethic Caring Environmental Stewardship 8
Slide 9: 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 10: ESG Landscape & 2019 Achievements
ESG LANDSCAPE & 2019 ACHIEVEMENTS Published inaugural ESG Report in alignment with SASB disclosures and AGA Sustainability Template Environmental Governance 2050 ◼ On track to meet or exceed carbon savings goal of 30% by 20351 ◼ Maintained well-qualified, diverse, independent and active Board with ◼
Slide 11: Investment Targets
INVESTMENT TARGETS Growth targets over the next five years include: Financial • EPS growth of 3% - 5%1 Targets • Strong and growing dividend2 Gas • Customer growth 1.7%+ per year Utility • Capital plan of $950 million - $1.1 billion Growth • Rate base growth of 4% - 6%1 Water • Long-term strategy, i
Slide 12: COVID-19 Response
COVID-19 RESPONSE 12
Slide 13: COVID-19
COVID-19 o Continue to Serve Customers during COVID – Ongoing incident command and business continuity planning to ensure customer & employee safety especially during winter heating season. NW Natural and NW Natural Water are considered essential and continue to operate and serve customers without i
Slide 14: Term Sheets & Deferrals
TERM SHEETS & DEFERRALS Deferrals: Oregon, Idaho, and Texas have approved. Washington deferral docket in process. Term Sheets: Approved in all jurisdictions and provide guidelines and timing related to resuming normal operations Oregon Washington Idaho Texas Deferral Application Approved Pending App
Slide 15: Resilient Business Model
RESILIENT BUSINESS MODEL Pure-Play Utility Business Model Favorable Customer Mix 2019 Net Income 2019 Natural Gas Utility Margin Interstate Other Storage, 5% Water & Other 7% Industrial 8% Commercial 24% Natural Residential Gas Utility 63% 93% 15
Slide 16: Mitigating Factors
MITIGATING FACTORS 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% 63% 89% Commercial 22% 24% 79% Industrial 40% 8% -% Other N/A 5% N/A Total 100% 100% 80% Based on 2019 SEC finan
Slide 17: Natural Gas Utility
NATURAL GAS UTILITY 17
Slide 18: 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 nearly 770,000 meters in Oregon and southwest Washington • Consistently recognized for hi
Slide 19: Sophisticated Marketing
SOPHISTICATED MARKETING Affordable, Preferred, Growing • Growing communities with healthy permitting levels • Natural gas price advantage 3,000 to 4,000 Conversions Annually • Up to 67% advantage over electric furnace • Up to 15% advantage over high-efficiency heat pumps 80,000 • Preferred by 9 out
Slide 20: 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 1.9% 2.0% 1.8% 1.7% 12,000 1.6% 1.7% 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 *In March
Slide 21: Investing in Gas System
INVESTING IN GAS SYSTEM System Capital Expenditures* Customer growth (In millions) • New construction & conversions $248 ~$250 • Main extensions 30 15 ~$200 $201 Avg/Yr Safety & Reliability 51 50 10 21 • Recurring replacements $164 30 • Enhanced system reliability to support customer $134 32 34 grow
Slide 22: Progressive Regulation
PROGRESSIVE REGULATION OREGON WASHINGTON KEY MECHANISMS: Decoupling/WARM ✔ Purchased Gas Adjustment ✔ ✔ Environmental Cost ✔ ✔ Incentive Sharing(1) ✔ RATE CASE TEST YEAR Forward Historical(2) RATE STRUCTURES: ROE 9.4% 9.4% ROR 6.965% 7.161% Equity Ratio 50% 49% 2019 Rate Base(3) $1.4B $0.2B (1) In O
Slide 23: Oregon 2020 Rate Case
OREGON 2020 RATE CASE • Filed December 2019 – OPUC issued order 2018-19 2020 in October 2020 approving settlement. New RATE CASE RATE CASE rates were effective Nov. 1, 2020 Original • Rate Base Growth – Settlement includes Settled Request Order $242.1 million increase in rate base related to ROE 9.4
Slide 24: Environmental Stewardship
ENVIRONMENTAL STEWARDSHIP 24
Slide 25: 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 26: Our Low-Carbon Pathway
OUR LOW-CARBON PATHWAY VOLUNTARY GOAL: 30% CARBON SAVINGS BY 2035 Baseline: 2015 emissions associated with customer use & company operations 26
Slide 27: On Track to Meet or Exceed Low Carbon Pathway Goal
ON TRACK TO MEET OR EXCEED LOW CARBON PATHWAY GOAL Our voluntary carbon savings goal of 30% by 2035 includes greenhouse gas emissions from our own operations and the use of our product by our sales customers 2019: Above Target Savings Rate. 275,101 metric tons of carbon dioxide equivalent saved. Thi
Slide 28: New Thinking Is Required for Future
NEW THINKING IS REQUIRED FOR FUTURE What is the goal? RENEWABLE NATURAL GAS Turning the problem of waste into • Emission reductions – as fast and affordably as possible renewable energy How are we driving to a lower carbon electric system? Wastewater • We didn’t “cut the wires,” we set out to decarb
Slide 29: Getting to Zero
GETTING TO ZERO The pathway to our vision of 100% carbon neutral by 2050 Renewable sources that do not Partnership with cleaner electric Encouraging contribute new carbon to the systems to create seasonal and innovation in efficiency. atmosphere peak energy storage 29
Slide 30: From Waste to Renewables
FROM WASTE TO RENEWABLES • 130 RNG facilities operating today in the U.S. and Canada • Nearly 110 more are in development or under construction • We are working to interconnect 3 projects onto our transportation system in the next 12 months • Actively working to procure RNG for our customers in the
Slide 31: Power to Gas
POWER TO GAS Converting wind, solar, or hydro to renewable hydrogen for use in our pipeline system • Partners with renewable electric system to solve the peak capacity How we convert wasted power to useable, renewable gap energy • Blends into the existing pipeline system for immediate use • 100+ pro
Slide 32: Enabling Policy Support with Groundbreaking RNG Bill
ENABLING POLICY SUPPORT WITH GROUNDBREAKING RNG BILL • Oregon law (SB 98) first-of-its-kind legislation that 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
Slide 33: RNG Strategy & Near-Term Opportunities
RNG STRATEGY & NEAR-TERM OPPORTUNITIES Dedicated RNG Team whose mission is to secure renewable supply for NW Natural customers and renewable resources to decarbonize the company’s system RNG Procurement Strategy is to prioritize contracts/investments that: • Can deliver RNG at the lowest incremental
Slide 34: Water
WATER 34
Slide 35: Growing Water Utilities
GROWING WATER UTILITIES PP&E Growth In millions Tripled # of People Served in <3 Years $73 • NW Natural Water has tripled the number of people it serves since 12.6% CAGR its initial transactions in Dec. 2017 $40 • Today NW Natural Water serves 65,000 people through 26,000 water and wastewater connec
Slide 36: NW Natural Water at a Glance
NW NATURAL WATER AT A GLANCE Closed Pending(2) Total People served(1) 64,900 300 65,200 Connections 26,200 100 26,300 (1) People served is based on estimated average household size for service territory (2) Pending transaction is expected to close in 2020 36
Slide 37: Water & Wastewater Opportunities
WATER & WASTEWATER OPPORTUNITIES All Water and Privately Owned Wastewater Systems Systems Systems Connections Systems Connections Pacific 4,700 5.6M 2,760 511,000 Northwest Mississippi River Texas 5,739 17.3M 2,400 400,000 West of 36,500 77.3M 16,700 9.1M Mississippi United 77,000 188.6M 30,160 20.5
Slide 38: Strategic Rationale for Water
STRATEGIC RATIONALE FOR WATER 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 Conservative • Demand for water and wastewater is relatively inelastic Business Profile • S
Slide 39: Financial Performance
FINANCIAL PERFORMANCE 39
Slide 40: Focus on Earnings
FOCUS ON EARNINGS Executing on LT Strategy, Providing Growth Earnings Per Share Growth • Actions taken since 2016 4% ✓ Completed successful rate cases in OR & WA CAGR $2.41 ✓ Added ~38,000 customers $2.19 $2.12 ✓ Invested over $650 million in gas infrastructure ✓ Brought North Mist online ✓ Launched
Slide 41: Strong Liquidity
STRONG LIQUIDITY NW Holdings • $100 million credit facility NW Natural Credit Ratings(1) • Expires in 2023 • 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 • $300 million credit facility Stable Stable • Expires in 2023 •
Slide 42: 65 Years of Growing Dividends
65 YEARS OF GROWING DIVIDENDS $1.91 $1.92 $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 Indicated* *Future dividends are subject to Board of Director discretion and approval 1 of only 3 Companies on NYSE with this Legacy 42
Slide 43: Conclusion
CONCLUSION 43
Slide 44: Investment Thesis
INVESTMENT THESIS Stable and growing utility margins driven by targets over the next five years projections including: • EPS growth of 3% – 5% • Gas utility customer growth 1.7%+ • Gas utility cap-ex $950 million – $1.1 billion, projecting rate base growth of 4% – 6% Excellent operations and efficie
Slide 45: Appendix
APPENDIX 45
Slide 46: Net Income from Continuing Operations
NET INCOME FROM CONTINUING OPERATIONS YTD Q3 2020 vs. Q3 2019 Adjusted1 YTD Q3 2019 Natural Gas Distribution (NGD) $1.13 • Higher investment in system led to NGD Other Income, Net YTD increased depreciation & general taxes $0.20 Q3 2020 $0.80 • Higher other income, net and lower tax benefits are rel
Slide 47: Non-GAAP Reconciliation
NON-GAAP RECONCILIATION YTD 3Q 2020 YTD 3Q 2019 FY 2019 FY 2018 $ EPS $ EPS $ EPS $ EPS (In millions) Net income from continuing operations $24.5 $0.80 $27.0 $0.91 $65.3 $2.19 $67.3 $2.33 Regulatory pension disallowance(1) - - 10.5 0.35 10.5 0.35 - - Income tax effect of disallowance(1) - - (3.9) (0
Slide 48: 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 49: Current Utility Commissioners
CURRENT UTILITY COMMISSIONERS OREGON WASHINGTON IDAHO TEXAS COMMISSION COMMISSION COMMISSION COMMISSION (OPUC) (WUTC) (IUTC) (PUCT) Megan Decker (D) David Danner (D) Paul Kjellander (R) DeAnn Walker (R) • Appointed April 2017 • Appointed chair • Appointed 2011 • Appointed Sep 2017 Chair • Term ends
Slide 50: Oregon 2018/19 Rate Case
OREGON 2018/19 RATE CASE Final • Oct. 2018 Order Resolved Majority of Items – 2012 2018/19 Revenue requirement and sharing allocations for Rate Case Rate Case utility asset management revenue with customers Outcome resolved ROE 9.5% 9.4% • March 2019 Order Resolved Remaining Items in ROR 7.78% 7.317
Slide 51: Washington 2019 Rate Case
WASHINGTON 2019 RATE CASE Final • Order in October 2019 – Resolves all items in 2009 2019 rate case with rates effective Nov. 1, 2019 Rate Case Rate Case Outcome • Tax Reform – Provide customers with $2.1M benefits in first year with $0.5M benefit each ROE 10.1% 9.4% year thereafter ROR 8.4% 7.161%
Slide 52: 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 53: Mist Storage Facility
MIST STORAGE FACILITY Mist Storage Capacity BCF 18 Overview 15 • In operation since 1989 12 • Storage capacity at Mist 16 Bcf 9 ─ 11 Bcf Core Utility 6 3 ─ 5 Bcf Interstate Storage Services 0 Unique, Valuable Asset • Limited storage options in Pacific Northwest BCF / Day Mist Storage Deliverability
Slide 54: 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 55: Water Transactions
WATER TRANSACTIONS People Company Served Connections Location Date Signed Date Closed Transaction Details Salmon Valley Water Company 1,850 921 Welches, OR 12/18/2017 11/1/2018 12/19/2017 9/13/2018 Falls Water Falls Water Company 19,400 6,309 Idaho Falls, ID 6/28/2019 8/3/2020 Taylor Mountain 5/15/2
Slide 56: Reliable Resilient Renewable
RELIABLE RESILIENT RENEWABLE
NW Natural Holdings — Investor Presentation (December 2020) on 6ix