Northwest Natural Holding Company · NYSE:NWN
Northwest Natural — NW Natural Holdings — Investor Presentation (March 2021)
56 slides from Northwest Natural's investor presentation, Mar 15, 2021
Slide 1: Investor Presentation
INVESTOR PRESENTATION Virtual Investor Meetings March 15, 2021
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 • 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 • 63,500 people served • 26,300 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 • Overpeople 770,000 served connections • 7
Slide 6: Key Themes and 2020 Results
KEY THEMES AND 2020 RESULTS • Reported net income from continuing operations of $2.30 per share for 2020 reflecting contributions from Oregon 2020 and Washington 2019 rate cases and customer growth, offset by higher depreciation & COVID • Invested over $270 million in our utility systems to support
Slide 7: Corporate Strategy
CORPORATE STRATEGY 7
Slide 8: Our Mission, Our 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 ◼ On track to meet or exceed carbon savings goal of 30% by 20351 ◼ Maintained well-qualified, diverse, independent and active Board with ◼ Save
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 1.4%+ per year Utility • Capital plan of $1.0 - $1.2 billion Growth • Rate base growth of 4% - 6%1 Water • Long-term strategy, increment
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 and term sheets approved in all jurisdictions. Term sheets provide guidelines and timing for resuming normal operations. Timelines were adjusted in Washington for residential and small commercial customers in February 2021. Oregon Washington Idaho Texas Deferral App
Slide 15: Resilient Business Model
RESILIENT BUSINESS MODEL Pure-Play Utility Business Model Favorable Customer Mix 2020 Net Income 2020 Natural Gas Utility Margin Other Interstate 5% Storage, Water Industrial & Other 7% 10% Commercial 24% Natural Residential Gas Utility 64% 90% 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% 64% 89% Commercial 21% 24% 78% Housing Inventory 25 Industrial 41% 7% -% Other N/A 5% N/A 20 Months of Inventor
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 over 770,000 meters in Oregon and southwest Washington • Consistently recognized for high
Slide 19: Sophisticated Marketing
SOPHISTICATED MARKETING Affordable, Preferred, Growing • Growing communities with healthy permitting levels • Price advantage of heating with natural gas 3,000 to 4,000 • Up to 65% advantage over electric furnace Conversions Annually • Up to 15% advantage over high-efficiency heat pumps • Preferred
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 2.0% 1.8% 1.7% 12,000 1.6% 1.7% 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 20
Slide 21: Investing in Gas System
INVESTING IN GAS SYSTEM System Capital Expenditures* Customer growth (In millions) • New construction & conversions • Main extensions ~$300 $278 20 Safety & Reliability ~$230 • Recurring replacements $248 24 25 Avg/Yr • Enhanced system reliability to support growth 30 45 75 $201 15 21 51 40 Technolo
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% 2020 Rate Base(3) $1.5B $0.2B (1) In O
Slide 23: Filed Washington 2021 Rate Case
FILED WASHINGTON 2021 RATE CASE o Filed request December 18, 2020 – based 2019 2021 - 2022 on continued system investment. An 11- month litigation period with new rates RATE CASE RATE CASE expected to be effective Nov. 1, 2021 and Year 1 Year 2 Settled Nov. 1, 2022 Request Request o Request Based on
Slide 24: Finished Oregon 2020 Rate Case
FINISHED 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 t
Slide 25: Environmental Stewardship
ENVIRONMENTAL STEWARDSHIP 25 25
Slide 26: 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 27: Our Low-Carbon Pathway
OUR LOW-CARBON PATHWAY VOLUNTARY GOAL: 30% CARBON SAVINGS BY 2035 Baseline: 2015 emissions associated with customer use & company operations 27
Slide 28: 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 29: Our Vision for the Gas System
Power Fuel Our Vision for the Gas System Industry Cell to Gas A decarbonizing network: Carbon Neutral Waste • Deep energy efficiency Commercial and Residential Heating • Renewable natural gas Electrolysis • Renewable hydrogen ✓ Blended ✓ Methanated ✓ Dedicated Commercial Transport Marine Aviation St
Slide 30: 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 as can be done in an affordable way renewable energy How are we driving to a lower carbon electric system? Wastewater • We didn’t “cut the wires,” we set out
Slide 31: 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 31
Slide 32: Power to Gas
POWER TO GAS Converting wind, solar, or hydro to renewable hydrogen for use in pipeline system • Partners with renewable electric system to solve the peak capacity gap Wasted power turned into useable, renewable energy • Renewable hydrogen blended or methanated into the existing pipeline system for
Slide 33: Gas System: Flexible Renewable Storage
GAS SYSTEM: FLEXIBLE RENEWABLE STORAGE 2019 U.S. Energy Output by Facility Type (MWh) • Gas system has 2.5 times the energy of hydro facilities and about 1,500 times the energy delivered from current large-scale utility batteries 700,000,000 • Existing facilities can be used to store renewable natur
Slide 34: 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 35: 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 36: Tyson RNG Partnership
TYSON RNG PARTNERSHIP RNG investment partnership signed in December 2020 • Partnership encompasses options for four initial projects for an estimated $38 million investment • Exercised first option for ~$8 million project • Potential for additional RNG development projects at other Tyson food proces
Slide 37: 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 in an effort to decarbonize the company’s system RNG Procurement Strategy is to prioritize contracts/investments that: • Can deliver RNG at the lowes
Slide 38: Water
WATER 38
Slide 39: Growing Water Utilities
GROWING WATER UTILITIES PP&E Growth In millions Increased Connections 4 Fold in 3 Years • NW Natural Water has 4x the connections it serves since its initial 9.5% CAGR $77 transactions in Dec. 2017 $49 • Today NW Natural Water serves 63,500 people through 26,000 water and wastewater connections Expa
Slide 40: 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 41: NW Natural Water at a Glance
NW NATURAL WATER AT A GLANCE Closed Pending(2) Total People served(1) 63,500 500 64,000 Connections 26,300 200 26,500 (1) People served is based on estimated average household size for service territory (2) Pending transactions may be pending application to acquire and authorization to close of util
Slide 42: 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 West of 36,500 77.3M 16,700 9.1M Mississippi United 71,325 202.0M 30,160 29.0M Stat
Slide 43: Conclusion
CONCLUSION 43
Slide 44: 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 45: 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 45
Slide 46: 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 1.4%+ • Gas utility cap-ex $1.0 – $1.2 billion, projecting rate base growth of 4% – 6% Excellent operations and efficient cost
Slide 47: Appendix
APPENDIX 47
Slide 48: Net Income from Continuing Operations
NET INCOME FROM CONTINUING OPERATIONS 2020 vs. 2019 Natural Gas Distribution (NGD) NGD Margin • Higher margin from new rates in Oregon and Adjusted1 2019 $0.37 Washington along with customer growth $2.41 Other 2020 • Investment in system led to increased $0.07 $2.30 depreciation & general taxes NGD
Slide 49: Non-GAAP Reconciliation
NON-GAAP RECONCILIATION FY 2020 FY 2019 $ EPS $ EPS (In millions) Net income from continuing operations $70.3 $2.30 $65.3 $2.19 Regulatory pension disallowance(1) - - 10.5 0.35 Income tax effect of disallowance(1) - - (3.9) (0.13) Adjusted net income from continuing operations $70.3 $2.30 $71.9 $2.4
Slide 50: 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 51: 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) Arthur D’Andrea (R) • Appointed April 2017 • Appointed chair • Appointed 2011 • Appointed Nov 2017 Chair • Term en
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 1,850 925 Welches, OR 12/18/2017 11/1/2018 12/19/2017 9/13/2018 Falls Water Falls Water Company 17,531 6,187 Idaho Falls, ID 6/28/2019 8/3/2020 Taylor Mountain 7/2/20
Slide 56: Reliable Resilient Renewable
RELIABLE RESILIENT RENEWABLE
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