Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — KeyBanc September 2022
60 slides from Northwestern Energy's conference presentation, Sep 22, 2022
Slide 1: Investor Update - KeyBanc
Investor Update - KeyBanc September 2022 8-K September 22, 2022
Slide 2: Forward Looking Statements
2 Forward Looking Statements Forward Looking Statements Boulder RiverO’Dell Creek - in Montana 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 Refor
Slide 3: NWE - An Investment for the Long Term
3 NWE - An Investment for the Long Term • 100% pure electric & natural gas utility business Black Eagle dam Pure Electric & with over 100 years of operating history Gas Utility • Solid economic indicators in service territory • Diverse electric supply portfolio ~56% hydro, wind & solar • Residential
Slide 4: About NorthWestern
4 About NorthWestern South Dakota Operations Electric 64,200 customers 3,628 miles – transmission & distribution lines 395 MW nameplate owned power generation Natural Gas 48,600 customers 1,759 miles of transmission and distribution pipeline Montana Operations Electric 391,400 customers 24,996 miles
Slide 5: A Diversified Electric and Gas Utility
5 A Diversified Electric and Gas Utility (1) (1) 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 disclo
Slide 6: Highly Carbon-Free Supply Portfolio
6 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 Regu
Slide 7: Strong Utility Foundation
7 Strong Utility Foundation Solid and generally improving JD Power Overall Customer Satisfaction Scores * SD & NE bills temporarily impacted by ongoing Residential electric and natural gas rates below national average * recovery of the February 2021 prolonged cold weather Solid electric system
Slide 8: Solid Economic Indicators
8 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") Sourc
Slide 9: Solid Balance Sheet and Ample Liquidity
9 Solid Balance Sheet and Ample Liquidity 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 econom
Slide 10: A History of Growth
10 A History of Growth $3.30-$3.50 $3.10 - $3.30 $2.60$3.20-$3.40 - $2.75 2012-2021 CAGR’s: GAAP EPS: 3.4% - Non-GAAP EPS: 4.5% - Dividend: 5.9% See appendix for “Non-GAAP Financial Measures”
Slide 11: Investment for Our Customers' Benefit
11 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 impact t
Slide 12: Looking Forward
Looking Forward 12
Slide 13: Earnings Growth
13 Earnings Growth Non-GAAP Adjusted EPS Growth Averaged 4.5% from 2012 - 2021 NorthWestern affirms its 2022 earnings guidance range of $3.20 to $3.40 per diluted share NorthWestern expects to based upon, but not limited to, the following major assumptions and expectations: issue 2023 earnings • Nor
Slide 14: 2022 Earnings Bridge
14 2022 Earnings Bridge Guiding down to $3.20 to $3.40 primarily due to equity needed to support increased capital investment. • An increased, yet more sustainable, level of operating expenses, along with dilution from equity financing of capital investment, is expected to be partially offset by org
Slide 15: Capital Investment Forecast and Funding
15 Capital Investment Forecast and Funding $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 16: Continued Investment in a Sustainable Grid
16 Continued Investment in a Sustainable Grid the Capital Investment Forecast $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 17: Montana Rate Review
17 Montana Rate Review Requested base rate increase supports over a billion dollars invested in Montana critical infrastructure, while keeping operating costs below the rate of inflation, since our last rate reviews. (Test years: 2015 nat. gas and 2017 electric) Approximately 42%1 of the request
Slide 18: Modifications to Existing Revenue Mechanisms
18 Modifications to Existing Revenue Mechanisms PCCAM Redesign Proposal FCRM Redesign Proposal The current Power Costs & Credit The current decoupling, or the Fixed Adjustment Mechanism (PCCAM) does Cost Recovery Mechanism (FCRM), not allow for timely response to pilot design is flawed because it do
Slide 19: New Revenue Mechanisms
19 New Revenue Mechanisms NorthWestern Proposes new revenue adjustment mechanisms to support three areas critical to safe and reliable service for our customers. Enhanced Wildfire Cyber/IT Reliability Mitigation Plan • Allows for the ability to • Allows for the ability to • Allows for the ability to
Slide 20: Delivering Customer Value
20 Delivering Customer Value NorthWestern’s utility infrastructure investment (gross plant) - providing increased capacity, reliability and safety for our Montana customers - has more than doubled over the last decade (increasing over $2.9 billion) yet increases to customer bills have remained well
Slide 21: De-risking the Montana Capacity Deficit
21 De-risking the Montana Capacity Deficit 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 22: Electric Supply Planning
22 Electric Supply Planning 58 megawatt Bob Glanzer generating project in South Dakota… Operational on May 27, 2022 Total construction costs was $83.1 million and under budget Provides on-demand electricity to support the intermittency of wind and solar projects coming onto our system and the
Slide 23: Distribution System Update
23 Distribution System Update Five Year Projects Grid of the Future System Efficiencies New Technology • Advanced Distribution Management • Electric Vehicle Charging / Infrastructure Systems (ADMS) Enhancements • Micro Management Systems (MGMS) • Fault Location, Isolation and Service • Advanced Dist
Slide 24: Transmission System Update
24 Transmission System Update Electric Transmission: • In June 2021, we joined the Western Energy Imbalance Market (WEIM). WEIM active & Pending Participants This real-time, within-hour energy market will provide the company’s Montana customers with economically efficient energy to resolve imbalance
Slide 25: Our Net-Zero Vision
25 Our Net-Zero Vision 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 26: ESG Publications
26 ESG Publications 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 27: ESG - Environmental
27 ESG - Environmental 56% Carbon-Free Owned and Long-Term Contracted Portfolio in 2021 vs ~40% National Average in 2021 Based on MWh’s NWE Montana & Source: U.S. Energy Information Administration – form EIA.gov Table 7.2b Electric Net Generation: U.S. Electric Power Sector 2021 South Dakota Note: N
Slide 28: ESG - Social
28 ESG - Social Community Customers Employees $2.6 Billion Economic Output in Typical Residential Bills Lower than Safety Culture Transformation 2021 ($2.30B in Montana & $300M National Average in SD/NE) Over $5 million Donations, Sponsorships, Economic Development, Scholarship Funding, Public Recre
Slide 29: ESG - Governance
29 ESG - Governance 5 th Best Score Among 50 Publicly Traded North American Diverse Leadership Board of Directors Executive Team Utility and Power Companies by Moody’s Investment Services on Best Governance Practices Corporate Governance What We Do: • Annual election of all directors. • Majority vot
Slide 30: Conclusion
30 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 31: Upetivering a
Upetivering a bright future
Slide 32: Detailed 2022 Earnings Bridge
Appendix 32 Detailed 2022 Earnings Bridge NorthWestern affirms its 2022 earnings guidance range of $3.20 - $3.40 per diluted share. Cash Tax Outlook We anticipate production tax and other credits to largely offset federal cash tax obligations into 2023. Effective Tax Rate Outlook Assuming no signifi
Slide 33: NWE Rate Base and Earnings Profile
Appendix 33 NWE Rate Base and Earnings Profile Data as reported in our 2021 10-K (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 s
Slide 34: Accredited Capacity Contribution in Montana
Appendix 34 Accredited Capacity Contribution in Montana On a megawatt basis, wind generation Accredited Capacity Contribution is the ability of each resource fuel-type to contribute to meet demand during peak energy usage by customers. comprises a very significant portion of Accredited Capacity Cont
Slide 35: Alternative Capacity Considerations
Appendix 35 Alternative Capacity Considerations 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 provid
Slide 36: Significant Capacity Retirements in the West
Appendix 36 Significant Capacity Retirements in the West 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. Confirmed End-of-life Proposed Unknown 750MW
Slide 37: Existing Colstrip Ownership
Appendix 37 Existing Colstrip Ownership Colstrip Power Plant Colstrip Transmission System Facility Owner (%) Unit 1 Unit 2 Unit 3 Unit 4 AVISTA Corporation - - 15% 15% NorthWestern Energy - - - 30% PacifiCorp - - 10% 10% Portland General - - 20% 20% Puget Sound Energy 50% 50% 25% 25% Talen Energy 50
Slide 38: Timeline of Montana Generation Portfolio
Appendix 38 Timeline of Montana Generation Portfolio Owned and Long-Term Resource Portfolio Timeline 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.
Slide 39: Comparison of Installed Capacity
Appendix 39 Comparison of Installed Capacity Source: EIA.gov – 2021 Form EIA-860 Data - Schedule 3 for calendar year 2021 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 40: Summary Financial Results
Appendix 40 Summary Financial Results (Second Quarter) (1) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 41: Utility Margin Bridge
Appendix 41 Utility Margin Bridge Pre-tax Earnings (Second Quarter) NOTE: Utility Margin is a non- GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional $2.0 Million (0.9%) decrease in Utility Margin disclosure. due to items that impact Net Income.
Slide 42: Operating Expense Bridge
Appendix 42 Operating Expense Bridge Pre-tax Earnings (Second Quarter) NOTE: Operating Expense excludes fuel, purchased supply and direct $2.8 Million (1.6%) increase in Operating Expenses transmission expense. due to items that impact Net Income.
Slide 43: Utility Margin
Appendix 43 Utility Margin (Second Quarter) (dollars in millions) Three Months Ended June 30, 2022 2021 Variance Electric $ 185.7 $ 192.2 $ (6.5) (3.4%) Natural Gas 42.3 38.1 4.2 11.0% (1) Total Utility Margin $ 228.0 $ 230.3 $ (2.3) (1.0%) Decrease in utility margin due to the following factors: $
Slide 44: Operating Expenses
Appendix 44 Operating Expenses (Second Quarter) (dollars in millions) (1) We have included Three Months Ended June 30, the change in the non- service cost component 2022 2021 Variance of our pension and other postretirement benefits, which is Operating & maintenance $ 53.3 $ 51.5 $ 1.8 3.5% recorded
Slide 45: Operating to Net Income
Appendix 45 Operating to Net Income (Second Quarter) (dollars in millions) Three Months Ended June 30, 2022 2021 Variance Operating Income $ 52.4 $ 59.1 $ (6.7) (11.3%) Interest expense (24.0) (23.5) (0.5) (2.1%) Other income, net 2.9 3.0 (0.1) (3.3%) Income Before Taxes 31.2 38.6 (7.4) (19.2%) Inco
Slide 46: Tax Reconciliation
Appendix 46 Tax Reconciliation (Second Quarter)
Slide 47: Weather / Hydro Conditions
Appendix 47 Weather / Hydro Conditions (Second Quarter) We estimated a $3.0 million pre-tax benefit as compared to normal and a $1.0 million benefit as compared to Q2 2021 with a longer heating season in April and May, partially offset by an overall cooler June. Much needed snowfall blanketed Wester
Slide 48: Adjusted Non-GAAP Earnings
Appendix 48 Adjusted Non-GAAP Earnings (Second Quarter) 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 det
Slide 49: 2022 YTD GAAP to Non-GAAP Earnings
Appendix 49 2022 YTD 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 determine
Slide 50: Balance Sheet
Appendix 50 Balance Sheet Debt to Total Capitalization down from last year and remains within our targeted 50% - 55% range.
Slide 51: Cash Flow
Appendix 51 Cash Flow (YTD thru June 30) Cash from Operating Activities increased by $128.3 million primarily due to: • $87.3 million increase* in collection of energy supply costs from customers, which includes costs incurred during a February 2021 prolonged cold weather event, and the under-collec
Slide 52: Qualified Facility Earnings Adjustment
Appendix 52 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 53: Quarterly PCCAM Impacts
Appendix 53 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 54: 2021 System Statistics
Appendix 54 2021 System Statistics (1) (2) 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 1
Slide 55: Our Commissioners
Appendix 55 Our Commissioners November 2022 Election Randy Pinocci will run unopposed John Rempke (D) will run against Ann Bukacek (R) to replace Brad Johnson November 2022 Election Chris Nelson - incumbent (R) will run against Jeff Barth (D) November 2022 Election Eric Kamler (R) defeated Rod Johns
Slide 56: Non-GAAP Financial Measures – Utility Margin
Appendix 56 Non-GAAP Financial Measures – Utility Margin 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
Slide 57: Non-GAAP Financial Measures (1 of 3)
Appendix 57 Non-GAAP Financial Measures (1 of 3)
Slide 58: Non-GAAP Financial Measures (2 of 3)
Appendix 58 Non-GAAP Financial Measures (2 of 3) 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 59: Non-GAAP Financial Measures (3 of 3)
Appendix 59 Non-GAAP Financial Measures (3 of 3) 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 60: Upetivering a
Upetivering a bright future