Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — AGA Financial Forum 2022
57 slides from Northwestern Energy's conference presentation, May 17, 2022
Slide 1: AGA Financial Forum May 16-19, 2022
AGA Financial Forum May 16-19, 2022 8-K May 16, 2022
Slide 2: Forward Looking Statements
2 Forward Looking Statements 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. Forward-looking statements often address our expected f
Slide 3: NWE - An Investment for the Long Term
NWE - An Investment for the Long Term 3 • 100% pure electric & natural gas utility business with over 100 years of operating history • Solid economic indicators in service territory • Diverse electric supply portfolio ~56% hydro, wind & solar Black Eagle dam Pure Electric & Gas Utility Solid Utility
Slide 4: About NorthWestern
About NorthWestern 4 Montana Operations Electric 391,400 customers 24,996 miles – transmission & distribution lines 876 MW maximum capacity owned power generation Natural Gas 206,600 customers 7,111 miles of transmission and distribution pipeline 17.75 Bcf of gas storage capacity Own 38.8 Bcf of pro
Slide 5: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 5 NorthWestern’s ‘80/20’ rules: Approximately 80% Electric and 80% Montana. Nearly $4.2 billion of rate base investment to serve our customers Data as reported in our 2021 10-K (1) Utility Margin is a non-GAAP Measure. See appendix for additional disclosure. (1
Slide 6: Highly Carbon-Free Supply Portfolio
6 Highly Carbon-Free Supply Portfolio Based upon 2021 MWH’s of owned and long-term contracted resources. Approximately 56% of our total company owned and contracted supply is carbon-free – better than the national average of ~40% in 2021. (eia.gov table 7.2b) NorthWestern does not own all the renewa
Slide 7: Strong Utility Foundation
Strong Utility Foundation 7 Solid and generally improving JD Power Overall Customer Satisfaction Scores Residential electric and natural gas rates below national average * Solid electric system reliability Better than average natural gas leaks per mile * SD & NE bills temporarily impacted by
Slide 8: Solid Economic Indicators
Solid Economic Indicators 8 • Customer growth rates historically exceed National Averages. • Projected population growth in our service territories in-line or better than the National Average. Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via S
Slide 9: A History of Growth
A History of Growth 9 2012-2021 CAGR’s: GAAP EPS: 3.4% - Non-GAAP EPS: 4.5% - Dividend: 5.9% See appendix for “Non-GAAP Financial Measures” $2.60 - $2.75 $3.10 - $3.30 $3. 0-$3.40 $3.30-$3.50
Slide 10: Investment for Our Customers' Benefit
Investment for Our Customers’ Benefit 10 Over the past decade we have been reintegrating our Montana energy supply portfolio and making additional investments across our entire service territory to enhance system safety, reliability and capacity. We have made these enhancements with minimal impact t
Slide 11: Looking Forward
11 Looking Forward
Slide 12: Earnings Growth
Earnings Growth 12 See appendix for additional disclosures regarding “Non-GAAP Financial Measures” See “Non-GAAP Financial Measures” slide in appendix for “Non-GAAP Adjusted EPS”. NorthWestern affirms its 2022 earnings guidance range of $3.20 to $3.40 per diluted share based upon, but not limited to
Slide 13: 2022 Earnings Bridge
2022 Earnings Bridge 13 NorthWestern affirms 2022 earnings guidance range of $3.20 to $3.40 per diluted share based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service territories; • Continued delay, or elimination, of
Slide 14: Capital Investment Forecast and Funding
Capital Investment Forecast and Funding 14 $2.4 billion of low-risk capital investment forecasted over the next five years to address grid modernization and renewable energy integration. This sustainable level of capex is expected to drive annualized rate base growth of approximately 4%-5%. We expec
Slide 15: Continued Investment in a Sustainable Grid
Continued Investment in a Sustainable Grid the Capital Investment Forecast 15 $2.4 billion of total capital investment over the five year period (a $300 million increase to prior 5-year forecast). We expect to finance this capital with a combination of cash flows from operations, first mortgage bond
Slide 16: Solid Balance Sheet and Ample Liquidity
Solid Balance Sheet and Ample Liquidity 16 Investment grade credit ratings, liquidity in excess of $100 million target, debt to capitalization within our targeted 50%-55% range and no long-term debt maturities until 2023. *Liquidity target temporarily increased to $200 million due to uncertain econo
Slide 17: De-risking the Montana Capacity Deficit
De-risking the Montana Capacity Deficit 17 NorthWestern has made significant progress to de-risk the capacity deficit between now and 2025. These near term capacity solutions allow time for clarity on Colstrip arbitration, further development in the western markets, and ongoing technological advance
Slide 18: Supply Planning
Supply Planning 58 megawatt Bob Glanzer generating project in South Dakota… Performance and emissions testing underway Total construction costs of approximately $86 million (Approximately $80.8 million through March 31, 2022) Commercial operation expected in May 2022 175 megawatt generating
Slide 19: Distribution System Update
Distribution System Update 19 Five Year Projects Grid of the Future System Efficiencies • Advanced Distribution Management Systems (ADMS) Enhancements • Fault Location, Isolation and Service Restoration (FLISR) Implementation • Distribution Energy Resource (DER) Integration Operational Efficiencies
Slide 20: Transmission System Update
Transmission System Update 20 Electric Transmission: • In June 2021, we joined the Western Energy Imbalance Market (WEIM). This real-time, within-hour energy market will provide the company’s Montana customers with economically efficient energy to resolve imbalances and variations in load and genera
Slide 21: Our Net-Zero Vision
Our Net-Zero Vision 21 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 risks, by
Slide 22: ESG Publications
ESG Publications 22 Environmental Social Governance These eight publications* provide valuable insight into NorthWestern Energy’s Environmental, Social and Governance (ESG) Sustainability practices. * Available at: https://www.northwesternenergy.com/about-us/environmental-social-governance and https
Slide 23: ESG - Environmental
ESG - Environmental 23 Beethoven Wind Farm NWE Montana & South Dakota combined 56% Carbon-Free Owned and Long-Term Contracted Portfolio in 2021 vs ~40% National Average in 2021 Based on MWh’s Source: U.S. Energy Information Administration – form EIA.gov Table 7.2b Electric Net Generation: U.S. Elect
Slide 24: ESG - Social
ESG - Social 24 Community EmployeesCustomers $2.6 Billion Economic Output in 2021 ($2.30B in Montana & $300M in SD/NE) Over $5 million Donations, Sponsorships, Economic Development, Scholarship Funding, Public Recreation Support, Safety Awareness and Volunteer Program Grants in 2021 411 Number of no
Slide 25: ESG - Governance
EO ESG - Governance 25 What We Do: • Annual election of all directors. • Majority vote plus resignation standard in uncontested elections. If a director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, the director must submit a resignation for the Board to consider. • Allow shareholders o
Slide 26: Conclusion
Conclusion 26 Pure Electric & Gas Utility Solid Utility Foundation Best Practices Corporate Governance Attractive Future Growth Prospects Strong Earnings & Cash Flows
Slide 27: Upetivering a
Upetivering a bright future
Slide 28: Detailed 2022 Earnings Bridge
Detailed 2022 Earnings Bridge 28Appendix Assumptions included in the 2022 Guidance includes, but not limited to, the following major assumptions: • Normal weather in our electric and natural gas service territories; • Continued delay, or elimination, of the electric fixed cost recovery mechanism in
Slide 29: NWE Rate Base and Earnings Profile
NWE Rate Base and Earnings Profile 29Appendix (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 r
Slide 30: Accredited Capacity Contribution in Montana
Accredited Capacity Contribution in Montana 30Appendix On a megawatt basis, wind generation comprises a very significant portion of our electric generation portfolio. However, based upon its ~13% accredited capacity, it provides a much less significant contribution to our overall capacity deficit. A
Slide 31: Alternative Capacity Considerations
Alternative Capacity Considerations 31 We expect to build the 175MW nameplate Yellowstone County Reciprocating Internal Combustion Engine (RICE) generation facility for approximately $275 million with capacity generation output of roughly 160 MW*. If we were to build wind or solar to provide the equ
Slide 32: Significant Capacity Retirements in the West
Significant Capacity Retirements in the West 32 Planned coal retirements in the west exceed 20 gigawatts over the next decade resulting in worsening capacity deficits as forecasted by the Northwest Power Plan. Appendix Confirmed End-of-life Proposed Unknown 750MW
Slide 33: Existing Colstrip Ownership
Existing Colstrip Ownership Colstrip Power Plant Colstrip Transmission System System Owner Segment A Segment B AVISTA Corporation 10.2% 12.1% NorthWestern Energy 36.4% 24.3% PacifiCorp 6.8% 8.1% Portland General 13.6% 16.2% Puget Sound Energy 33.0% 39.3% Facility Owner (%) Unit 1 Unit 2 Unit 3 Unit
Slide 34: Timeline of Montana Generation Portfolio
Timeline of Montana Generation Portfolio 34 Since 2011, we have added approximately 780 MW, both owned and long- term contract, to our generation portfolio, all of which is from carbon-free resources. Appendix Owned and Long-Term Resource Portfolio Timeline
Slide 35: Comparison of Installed Capacity
Comparison of Installed Capacity 35 California is dealing with significant capacity issues DESPITE having a greater amount of dispachable generation and fewer renewables than NorthWestern Energy in Montana (as a percentage of the total). Appendix
Slide 36: Summary Financial Results (First Quarter)
Summary Financial Results 36 (1) (First Quarter) Appendix (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 37: Utility Margin Bridge (First Quarter)
Utility Margin Bridge 37 (First Quarter) Appendix $2.8 Million (1.1%) increase in Utility Margin due to items that impact Net Income. Pre-tax Earnings NOTE: Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 38: Operating Expense Bridge (First Quarter)
Operating Expense Bridge 38 (First Quarter) Appendix Pre-tax Earnings $5.8 Million (3.3%) increase in Operating Expenses due to items that impact Net Income. NOTE: Operating Expense excludes fuel, purchased supply and direct transmission expense.
Slide 39: Utility Margin (First Quarter)
39 Utility Margin (First Quarter) 39Appendix (dollars in millions) Three Months Ended March 31, 2022 2021 Variance Electric $ 194.1 $ 189.9 $ 4.2 2.2% Natural Gas 65.3 66.4 (1.1) (1.7%) Total Utility Margin $ 259.4 $ 256.3 $ 3.1 1.2% (1) Utility Margin is a non-GAAP Measure See appendix slide titled
Slide 40: Weather (First Quarter)
Weather 40 (First Quarter) Appendix Much needed snowfall blanketed Western Montana in the last week in April 2022, improving Snow Water Equivalent percentages – now reporting only slightly below their thirty year medians. (Missouri, Madison & Clark Fork Rivers and West Rosebud Creek)
Slide 41: Operating Expenses (First Quarter)
Operating Expenses 41 (First Quarter) Appendix (dollars in millions) Three Months Ended March 31, 2022 2021 Variance Operating & maintenance $ 52.8 $ 51.8 $ 1.0 1.9% Administrative & general 31.6 29.1 2.5 8.6% Property and other taxes 46.9 47.5 (0.6) (1.3%) Depreciation and depletion 48.9 47.0 1.9 4
Slide 42: Operating to Net Income (First Quarter)
Operating to Net Income 42 (First Quarter) Appendix (dollars in millions) Three Months Ended March 31, 2022 2021 Variance Operating Income $ 79.2 $ 80.9 $ (1.7) (2.1%) Interest expense (23.7) (23.5) (0.2) (0.9%) Other income, net 4.7 5.6 (0.9) (16.1%) Income Before Taxes 60.2 63.1 (2.9) (4.6%) Incom
Slide 43: Income Tax Reconciliation (First Quarter)
Income Tax Reconciliation 43 (First Quarter) Appendix
Slide 44: Adjusted Non-GAAP Earnings (First Quarter)
Adjusted Non-GAAP Earnings 44 (First Quarter) Appendix The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that are non-recurring or variance from normal weather, however they should not be considered a substitute for financial results and measures dete
Slide 45: Balance Sheet
Balance Sheet 45Appendix Debt to Total Capitalization down from last year and remains within our targeted 50% - 55% range.
Slide 46: Cash Flow
Cash Flow 46Appendix Cash from Operating Activities increased by $130 million primarily due to: • $95.5 million increase* in collection of energy supply costs from customers incurred in the prior period, which includes costs incurred during a February 2021 prolonged cold weather event, and the under
Slide 47: Qualified Facility Earnings Adjustment
Qualified Facility Earnings Adjustment 47Appendix 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
Slide 48: Quarterly PCCAM Impacts
Quarterly PCCAM Impacts 48Appendix 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 established a baseline
Slide 49: 2021 System Statistics
2021 System Statistics 49 Note: Statistics above are as of 12/31/2021 except for electric transmission for others which is 2020 data (1) Nebraska is a natural gas only jurisdiction (2) Dave Gates Generating Station (DGGS) in Montana is a 150 MW nameplate facility but consider it a 105 MW (60 MW FERC
Slide 50: Experienced & Engaged Board of Directors
Experienced & Engaged Board of Directors 50 Britt E. Ide • Committees: Safety, Environmental, Technology and Operations, Human Resources • Independent • Director since April 2017 Anthony T. Clark • Committees: Nominating and Governance, Human Resources • Independent • Director since Dec. 2016 Dana J
Slide 51: Strong Executive Team
Strong Executive Team 51Appendix Robert C. Rowe • Chief Executive Officer • Current position since 2008 Heather H. Grahame • General Counsel and Vice President of Regulatory and Federal Government Affairs • Current position since 2010 Curtis T. Pohl • Vice President - Distribution • Current position
Slide 52: Our Commissioners
Our Commissioners 52Appendix
Slide 53: Non-GAAP Financial Measures – Utility Margin
Non-GAAP Financial Measures – Utility Margin 53Appendix 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 a
Slide 54: Non-GAAP Financial Measures (1 of 3)
Non-GAAP Financial Measures (1 of 3) 54Appendix
Slide 55: Non-GAAP Financial Measures (2 of 3)
Non-GAAP Financial Measures (2 of 3) 55Appendix 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 con
Slide 56: Non-GAAP Financial Measures (3 of 3)
Non-GAAP Financial Measures (3 of 3) 56Appendix The data presented in this presentation includes financial information prepared in accordance with GAAP, as well as other Non-GAAP financial measures such as Utility Margin (Revenues less Fuel, purchased supply and direct transmission expense (exclusiv
Slide 57: Upetivering a
Upetivering a bright future