Northwest Natural Holding Company · NYSE:NWN
Northwest Natural — NW Natural Holdings — Investor Presentation (September 2021)
51 slides from Northwest Natural's investor presentation, September 2021
Slide 1: Investor Presentation September 2021
INVESTOR PRESENTATION SEPTEMBER 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 FRANK BURKHARTSMEYER • SVP and Chief Financial Officer Mr. Burkhartsmeyer is currently NW Natural Holdings’ Senior Vice President and CFO effective October 2018 and NW Natural’s Senior Vice President and CFO effective May 2017. Previously, Mr. Burkhartsmeyer served as President
Slide 4: Introduction
INTRODUCTION 4
Slide 5: NWN at a Glance
NWN AT A GLANCE Water & Wastewater Utilities • 65,000 people served • 27,000 connections • $111 million committed to date • Fast-growing service territories • Continued disciplined expansion Gas Utility Gas Utility • 2.5 million people served • 2.5 million • Overpeople 780,000 served connections • 7
Slide 6: Key Themes and Q2 2021 Results
KEY THEMES AND Q2 2021 RESULTS • Reported net income of $1.92 per share for the first six months of 2021, compared to $1.41 from continuing operations in the prior period • Results reflect new rates in Oregon for NW Natural, customer growth, asset management benefits during the February weather even
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 & 2020 Achievements
ESG LANDSCAPE & 2020 ACHIEVEMENTS Published ESG Report in alignment with SASB disclosures Governance Environmental ◼ Maintained well-qualified, diverse, independent and active Board with ◼ On track to meet or exceed carbon savings appropriate business & risk oversight goal of 30% by 20351 ◼ Board re
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: Highly Regulated
HIGHLY REGULATED Pure-Play Utility Business Model Favorable Customer Mix 2020 Net Income 2020 Natural Gas Utility Margin Other1 Interstate 5% Storage, Water Industrial & Other 7% 10% Commercial 24% Natural Residential Gas Utility 64% 90% 1 Other is primarily margin from North Mist regulated gas stor
Slide 13: Resilient Business Model
RESILIENT BUSINESS MODEL ~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 Total 100% 1
Slide 14: Natural Gas Utility
NATURAL GAS UTILITY 14
Slide 15: 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 780,000 meters in Oregon and southwest Washington • Consistently recognized for high
Slide 16: 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 • 8 in 10 pr
Slide 17: 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% 1.6% 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 17
Slide 18: 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 19: Progressive Regulation
PROGRESSIVE REGULATION OREGON WASHINGTON KEY MECHANISMS: Decoupling/WARM ✔ Purchased Gas Adjustment ✔ ✔ Environmental Cost ✔ ✔ Incentive Sharing(1) ✔ RATE CASE TEST YEAR Forward Multiyear(2) CURRENT RATE STRUCTURES(3): ROE 9.4% 9.4% ROR 6.965% 7.161% Equity Ratio 50% 49% 2020 Rate Base(4) $1.5B $0.2
Slide 20: Washington 2021 Rate Case
WASHINGTON 2021 RATE CASE o Filed request December 18, 2020 – based on continued system investment. Multi-party 2021 - 2022 settlement filed in July 2021, subject to RATE CASE review and approval by the WUTC. New rates expected to be effective Nov. 1, 2021 Year 1 Year 2 and Nov. 1, 2022 Request Sett
Slide 21: Environmental Stewardship
ENVIRONMENTAL STEWARDSHIP 21 21
Slide 22: 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 23: Our Low-Carbon Pathway
OUR LOW-CARBON PATHWAY VOLUNTARY GOAL: 30% CARBON SAVINGS BY 2035 Baseline: 2015 emissions associated with customer use & company operations 23
Slide 24: 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 24
Slide 25: Destination Zero
to Gas P 2 Indus age ut cet + Destination Zero: ha AE Yn a bh) ae <a The pathway to our vision Carbon Neutral Se wre Rag, of carbon neutral Pant ePheatng : "" A decarbonized network: » Deep energy efficiency » Renewable natural gas » Renewable hydrogen ¥ Blended Y¥ Methanated ¥ Dedicated Commercial
Slide 26: 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 27: 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 27
Slide 28: 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 29: 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 30: 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 31: From Waste to Renewables
31 FROM WASTE TO RENEWABLES RNG Projects Operational: 189 Under Construction: 146 Planned: 95 Total: 430 NZ NW Notural®
Slide 32: 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 • Tyson first project construction expected in fall with completion planned for early 2022 • Exercised first option for ~$8 mil
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 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 34: Water
WATER 34
Slide 35: 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 65,000 people through more than 27,000 water and wastewater connec
Slide 36: 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 37: NW Natural Water at a Glance
NW NATURAL WATER AT A GLANCE Closed Pending(2) Total People served(1) 65,000 1,600 66,600 Connections 26,900 700 27,600 (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 ut
Slide 38: 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 39: Conclusion
CONCLUSION 39
Slide 40: 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 41: 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 41
Slide 42: 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 43: Appendix
APPENDIX 43
Slide 44: Net Income Bridge
NET INCOME BRIDGE Q2 2020 vs. Q2 2021 Drivers included: NGD • Higher margin from new rates in Oregon and Margin Excld. Feb. customer growth in Natural Gas Distributions Event $0.82 segment (NGD) Feb. '21 • Lower financial impacts from COVID-19 NGD Winter Event $0.09 • Increased O&M from compensation
Slide 45: 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 46: 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) Peter Lake (R) • Appointed April 2017 • Appointed chair • Appointed 2011 • Appointed April 2021 Chair • Term ends
Slide 47: 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 48: 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 49: 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 50: Water Transactions
WATER TRANSACTIONS Company People Served Connections Location Date Signed Date Closed Transaction Details Salmon Valley Water Company 1,856 928 Welches, OR 12/18/2017 11/1/2018 12/19/2017 9/13/2018 Falls Water Falls Water Company 17,864 6,290 Idaho Falls, ID 6/28/2019 8/3/2020 Taylor Mountain 7/2/20
Slide 51: Perseverance and Progress
PERSEVERANCE AND PROGRESS
NW Natural Holdings — Investor Presentation (September 2021) on 6ix