Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — 58th Annual EEI Financial Conference (November 2023)
75 slides from Northwestern Energy's conference presentation, Nov 13, 2023
Slide 1: 58th Annual EEI Financial Conference
58th Annual EEI Financial Conference Phoenix, AZ | November 2023 8-K November 13, 2023
Slide 2: Forward Looking Statements
2 Forward Looking Statements O’Dell Creek - Forward Looking Statements Madison River Valley - Montana 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-l
Slide 3: Vision Mission Values
NorthWestern Energy Vision Mission Values Enriching Working Safety lives through together to Excellence a safe and deliver safe, Respect sustainable reliable and Value energy affordable Integrity future. energy Community solutions. Environment 3
Slide 4: Company Overview
pa Oy ae a p eae = Company Overview Delivering © Bright Future
Slide 5: NWE - An Investment for the Long Term
5 NWE - An Investment for the Long Term • 100% pure electric & natural gas utility business Pure Electric & with over 100 years of operating history Gas Utility • Solid economic indicators in service territory • Diverse electric supply portfolio ~55% hydro, wind & solar • Residential electric & gas
Slide 6: About NorthWestern
6 About NorthWestern South Dakota Operations Electric 64,700 customers 3,650 miles – transmission & distribution lines 446 MW nameplate owned power generation Natural Gas 49,200 customers 1,779 miles of transmission and distribution pipeline Montana Operations Electric 398,200 customers 25,131 miles
Slide 7: NorthWestern's Combo-Advantage
7 NorthWestern’s Combo-Advantage Combination electric & natural gas provider in Montana & South Dakota • Targeting best-in-class Customer Experience • Opportunity to invest in critical Capacity expansion (supply & transmission) • Continued Grid Evolution to improve resiliency and enhance wildfire
Slide 8: Natural Gas LDC - AECO Advantage to Customers
8 Natural Gas LDC - AECO Advantage to Customers NWE has access to some of the lowest and stable natural gas prices in the nation, through the Alberta Energy Company (AECO) trading hub. Source: S&P Global
Slide 9: Montana Enhanced Wildfire Mitigation Plan
9 Montana Enhanced Wildfire Mitigation Plan Reduction of System and Enhanced Enriched Public Ignition Potential Environmental Vegetation Communication Monitoring Maintenance and Outreach Filed in August 2022 with Montana general rate review Approved settlement provides for deferral of fire mitig
Slide 10: A Diversified Electric and Gas Utility
10 A Diversified Electric and Gas Utility (1) (1) NorthWestern’s ‘80/20’ rules: Approximately 80% Electric and 80% Montana. Over $4.5 billion of rate base investment to serve our customers Data as reported in our 2022 10-K (1) Utility Margin is a non-GAAP Measure. See appendix for additional disclos
Slide 11: Highly Carbon-Free Supply Portfolio
11 Highly Carbon-Free Supply Portfolio MT NWE Contracted energy from Colstrip Energy Limited Partners (CELP), Yellowstone Energy Limited Partners (YELP) as well as a majority of the contracted wind, hydro and solar are federally mandated Qualifying Facilities, as defined under the Public Utility Reg
Slide 12: Strong Utility Foundation
12 Strong Utility Foundation Solid and generally improving JD Power Overall Customer Satisfaction Scores * NE bills temporarily impacted by ongoing recovery of Residential electric and natural gas rates below national average * the February 2021 prolonged cold weather event that Solid electric
Slide 13: Solid Economic Indicators
13 Solid Economic Indicators Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2/21/17 Electric: EEI Statistical Yearbook (published December 2015, table 7.2) Natural Gas: EIA.gov (Data table "Number of Natural Gas Consumers") Sour
Slide 14: Corporate Sustainability
14 Corporate Sustainability Environmental Social Governance These eight publications provide valuable insight into NorthWestern Energy’s Environmental, Social and Governance (ESG) Sustainability practices. Sustainability Report includes Sustainability Accounting Standards Board (SASB) and Task Force
Slide 15: Best Practices Governance
15 Best Practices Governance 5th Best Score Among 50 Publicly Traded North American Diverse Leadership Board of Directors Executive Team Utility and Power Companies by Moody’s Investment Services for Best Governance Practices Recent Governance Recognition America’s Most Responsible Companies Recogni
Slide 16: Financial & Regulatory Update
16 Financial & Regulatory Update
Slide 17: Strong Outlook & 2024 Earnings Guidance
17 Strong Outlook & 2024 Earnings Guidance Non-GAAP EPS guidance 2023: $3.00 - $3.10 2024: $3.42 - $3.62 Long-term (5 Year) expected growth rates • EPS growth of 4% to 6% (from 3% to 6%) from 2022 base year of $3.18 Non-GAAP • Rate base growth of 4% - 6% (from 4% to 5%) from 2022 base year $4.54 b
Slide 18: Earnings Bridge to 2024
18 Earnings Bridge to 2024 This guidance range is based upon, but not limited to, the following major assumptions: • Final approval of all material aspects of the Montana general rate review settlement agreement • Constructive outcomes in our current South Dakota rate review and regulatory proceedin
Slide 19: Disciplined Electric O&M Program
19 Disciplined Electric O&M Program Per Customer… Per Employee… Per Rate Base… NorthWestern has best-in-class expense efficiency among our regional peers. Source: FERC Form 1 Reports - 2022 expenses and MWh's Electric Non-Fuel O&M excludes fuel and steam costs for power generation, water costs for h
Slide 20: Track Record of Growing Capital Investment
20 Track Record of Growing Capital Investment 2018-2022 2024-2028 $2.1B Invested over the last 5 years* $2.5B Forecasted over the next 5 years** This critical capital investment addresses generation and transmission capacity constraints, grid modernization and renewable energy integration. More than
Slide 21: Highly Executable Pipeline of Capital Investment
21 Highly Executable Pipeline of Capital Investment Capital Opportunities not currently included in the Projections FERC Transmission Incremental generating capacity (subject to successful resource procurement bids) Qualifying Facility and / or Power Purchase Agreement buyouts Electrificatio
Slide 22: Solid Balance Sheet
22 Solid Balance Sheet Investment grade credit ratings, liquidity significantly greater than our $100 million target, debt to capitalization at the bottom our targeted 50%-55% range and a manageable schedule of debt maturities.
Slide 23: Montana General Rate Review
23 Montana General Rate Review Unanimous approval from the Montana Final settlement Public Service Commission of a constructive rates effective November 1, 2023 multi-party settlement We do not expect a true-up in rates from interim to final rates for the period from October 1, 2022 to October 3
Slide 24: South Dakota Rate Review
24 South Dakota Rate Review Request to update our rates to reflect the current cost to provide safe and reliable service to our customers • First rate review since 2015. Seeking recovery of nearly 30 percent of rate base that is not included in South Dakota electric rates today. • Requested base rat
Slide 25: South Dakota Rate Review
25 South Dakota Rate Review Infrastructure investment drives nearly 99%* of the requested base rate adjustment * $19.0 million Cost of Capital plus $17.2 million Infrastructure Investment as a percent of $36.6 million Total Change in Cost of Service.
Slide 26: Holding Company Reorganization
26 Holding Company Reorganization
Slide 27: Supply Update
27 Supply Update Montana: • 175 MW Yellowstone County Generating Station Construction began in April 2022 with costs of approximately $275 million with $217.5 million invested to date (thru 9/30/23). Current schedule anticipates commercial operation during third quarter 2024* • Anticipated acquisit
Slide 28: Conclusion
28 Conclusion Best Attractive Improving Pure Earnings & Solid Utility Practices Future Electric & Cash Flows Foundation Corporate Growth Gas Utility (rate reviews Governance Prospects pending)
Slide 29: Delivering a bright future
Upetivering a bright future
Slide 30: Regulated Utility Five-Year Capital Forecast
30 Appendix Regulated Utility Five-Year Capital Forecast Distribution and Transmission Modernization and Maintenance - The primary goals of our infrastructure investments are to reverse the trend in aging infrastructure, maintain reliability, proactively manage safety, build capacity into the system
Slide 31: Detailed Earnings Bridge to 2024
31 Appendix Detailed Earnings Bridge to 2024 This guidance range is based upon, but not limited to, the following major assumptions: • Final approval of all material aspects of the Montana general rate review settlement agreement • Constructive outcomes in our current South Dakota rate review and re
Slide 32: NWE Rate Base and Earnings Profile
32 Appendix NWE Rate Base and Earnings Profile (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 33: 2022 System Statistics
33 Appendix 2022 System Statistics (1) (2) Note: Statistics above are as of 12/31/2022 (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 & 45MW MPSC jurisdictions) peaker
Slide 34: Transmission System Update
34 Appendix Transmission System Update Electric Transmission: WEIM Participants • 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 va
Slide 35: Rate Reviews
TI Rate Reviews Delivering © Bright Future
Slide 36: South Dakota Rate Review
36 Appendix South Dakota Rate Review $19.14 Per month Increase for an average residential electric customer that uses 750 kWh if our requested rate increase is approved.
Slide 37: South Dakota Rate Review
37 Appendix South Dakota Rate Review Since our last rate adjustment, NorthWestern’s typical residential electric customer bills have maintained a pace well below inflation. This request, if granted in full, would still result in customer bills in line with inflation.
Slide 38: Montana Rate Review
38 Appendix Montana Rate Review Reliable, Sustainable and still Affordable service for our customers. While still significant – the resulting increase in customer bills, from current rates, amounts to pennies a day (Electric: $8.24 per month or 27 cents per day | Natural Gas $3.94 per month or 13 ce
Slide 39: Colstrip Transfer Agreement
39 Appendix Colstrip Transfer Agreement
Slide 40: Colstrip Transaction Overview
40 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 o
Slide 41: Colstrip Transfer
41 Appendix Colstrip Transfer 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
Slide 42: Why Colstrip?
42 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 operati
Slide 43: December 2022 Polar Vortex
43 Appendix 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 u
Slide 44: Facility Ownership Overview
44 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 tha
Slide 45: Timeline of Montana Generation Portfolio
45 Appendix Timeline of Montana Generation Portfolio Owned and Long-Term Resource Portfolio Timeline Since 2011, we have added approximately 870 MW, both owned and long- term contract, to our generation portfolio, all of which is from carbon-free resources.
Slide 46: Comparison of Installed Capacity
46 Appendix Comparison of Installed Capacity Source: EIA.gov – 2022 Form EIA-860 Data - Schedule 3 for calendar year 2022 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 pe
Slide 47: EPS & Dividend History
47 Appendix EPS & Dividend History $3.30-$3.50 $3.10 - $3.30 $2.60$3.20-$3.40 - $2.75 2013-2022 CAGR’s: GAAP EPS: 3.1% - Non-GAAP EPS: 2.7% - Dividend: 5.8% See appendix for “Non-GAAP Financial Measures”
Slide 48: Investment for Our Customers' Benefit
48 Appendix Investment for Our Customers’ Benefit 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
Slide 49: Our Commissioners
49 Appendix Our Commissioners
Slide 50: Earnings & Other
Earnings & Other Delivering © Bright Future
Slide 51: Q3 2023 Financial Results
51 Appendix Q3 2023 Financial Results Third Quarter Net Income vs Prior Period •GAAP: $1.9 Million or +7.1% •Non-GAAP*: $4.2 Million +16.3% Third Quarter EPS vs Prior Period •GAAP: $0.01 or +2.1% •Non-GAAP*: $0.05 or 11.4% *See slide 56 and “Non-GAAP Financial Measures” slide in the appendix for add
Slide 52: Q3 2023 Financial Results
52 Appendix Q3 2023 Financial Results (1) (2) ( ) (1) Decrease in revenues is primarily related to pass-through supply costs and non-cash regulatory amortizations. (2) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 53: Q3 2023 EPS Bridge
53 Appendix Q3 2023 EPS Bridge After-tax Earnings Per Share See slide 56 and “Non-GAAP Improvement in Utility Margin Financial Measures” slide in the appendix for additional offset by higher expenses and share count dilution detail on this measure.
Slide 54: Q3 2023 Utility Margin Bridge
54 Appendix Q3 2023 Utility Margin Bridge Pre-tax Millions NOTE: Utility Margin is a non-GAAP Measure $8.5 Million or 3.8% increase in Utility Margin See appendix slide titled “Explaining Utility due to items that impact Net Income. Margin” for additional disclosure.
Slide 55: Q3 2023 OA&G Expense Bridge
55 Appendix Q3 2023 OA&G Expense Bridge Pre-tax Millions NOTE: Utility Margin is a non-GAAP Measure $1.3 Million or 1.6% increase in Operating, Administrative, See appendix slide titled “Explaining Utility and General Expenses due to items that impact Net Income. Margin” for additional disclosure.
Slide 56: Q3 2023 Tax Reconciliation
56 Appendix Q3 2023 Tax Reconciliation
Slide 57: Q3 2023 GAAP to Non-GAAP Earnings
57 Appendix Q3 2023 GAAP to 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
Slide 58: Weather and Hydro Conditions
58 Appendix Weather and Hydro Conditions Snow water equivalents generally in line with the 30-year medians. (Missouri, Madison & Clark Fork Rivers and West Rosebud Creek basins) Real-Time Streamflows versus 30-Year Normal For Q3 – we estimated a $0.9 million pre-tax detriment as compared to normal a
Slide 59: Year-to-Date 2023 Financial Results
59 Appendix Year-to-Date 2023 Financial Results (through Q3) Year-to-Date Net Income vs Prior Period •GAAP: $5.3 Million (or 4.6%) •Non-GAAP*: $1.9 Million (or 1.6%) Year-to-Date EPS vs Prior Period •GAAP: $0.24 (or 11.5%) •Non-GAAP*: $0.18 (or 8.7%) *See slide 63 and “Non-GAAP Financial Measures” s
Slide 60: Year-to-Date Financial Results
60 Appendix Year-to-Date Financial Results (through Q3) (1) (2) (1) Decrease in revenues is primarily related to pass-through supply costs and non-cash regulatory amortizations. (2) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 61: Utility Margin
61 Appendix Utility Margin (YTD thru 3rd Quarter) (dollars in millions) Nine Months Ended September 30, 2023 2022 Variance Electric $ 606.1 $ 576.5 $ 29.6 5.1% Natural Gas 138.0 137.0 1.0 0.7% (1) Total Utility Margin $ 744.1 $ 713.5 $ 30.6 4.3% Increase in utility margin due to the following factor
Slide 62: Operating Expenses
62 Appendix Operating Expenses (YTD thru 3rd Quarter) (dollars in millions) (1) In order to present Nine Months Ended September 30, the total change in labor and benefits, we 2023 2022 Variance have included the change in the non- service cost component Operating & maintenance $ 163.9 $ 160.8 $ 3.1
Slide 63: Operating to Net Income
63 Appendix Operating to Net Income (YTD thru 3rd Quarter) (dollars in millions) Nine Months Ended September 30, 2023 2022 Variance Operating Income $ 197.3 $ 179.9 $ 17.4 9.7% Interest expense (85.1) (73.1) (12.0) (16.4)% Other income, net 12.9 11.8 1.1 9.3% Income Before Taxes 125.1 118.6 6.5 5.5%
Slide 64: Year-to-Date Tax Reconciliation
64 Appendix Year-to-Date Tax Reconciliation (through Q3)
Slide 65: Year-to-Date GAAP to Non-GAAP Earnings
65 Appendix Year-to-Date GAAP to Non-GAAP Earnings (through Q3) 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 m
Slide 66: Cash Flow
66 Appendix Cash Flow (through Q3) Cash from Operating Activities increased by $117.7 million driven primarily by a $101.6 million increase in collection of energy supply costs from customers and Montana interim rates. Funds from Operations decreased by $4.5 million over prior period. Net Under-Coll
Slide 67: Balance Sheet
67 Appendix Balance Sheet Debt to Total Capitalization slightly below our targeted 50% - 55% range.
Slide 68: Quarterly PCCAM Impacts
68 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 esta
Slide 69: Qualified Facility Earnings Adjustment
69 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
Slide 70: Non-GAAP Financial Measures (1 of 5)
70 Appendix Non-GAAP Financial Measures (1 of 5) 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 co
Slide 71: Non-GAAP Utility Margin Reconciliation (2 of 5)
71 Appendix Non-GAAP Utility Margin Reconciliation (2 of 5) 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 a
Slide 72: Non-GAAP Utility Margin Reconciliation (3 of 5)
72 Appendix Non-GAAP Utility Margin Reconciliation (3 of 5) 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 a
Slide 73: Non-GAAP Earnings (4 of 5)
73 Appendix Non-GAAP Earnings (4 of 5)
Slide 74: Non-GAAP Ratios and Metrics (5 of 5)
74 Appendix Non-GAAP Ratios and Metrics (5 of 5) 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 (exclusi
Slide 75: Delivering a bright future
Upetivering a bright future
NorthWestern Energy Group — 58th Annual EEI Financial Conference (November 2023) on 6ix