Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Barclays Energy-Power Conference 2021
58 slides from Northwestern Energy's conference presentation, Sep 9, 2021
Slide 1: Barclays Energy-Power Conference September 9, 2021
Barclays Energy-Power Conference September 9, 2021 8-K’ed on September 9, 2021 Fort Benton, MT
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: NorthWestern Energy Value Proposition
NorthWestern Energy Value Proposition 3 A pure electric and natural gas utility serving as stewards of critical energy infrastructure that provides essential services to a broad service territory spanning across Montana, South Dakota, Nebraska and Yellowstone National Park. A Strong Financial Founda
Slide 4: NWE - An Investment for the Long Term
NWE - An Investment for the Long Term 4 • 100% pure electric & natural gas utility business with over 100 years of operating history • Solid economic indicators in service territory • Diverse electric supply portfolio ~65% hydro, wind & solar Black Eagle dam Pure Electric & Gas Utility Solid Utility
Slide 5: About NorthWestern
About NorthWestern 5 Montana Operations Electric 384,700 customers 24,877 miles – transmission & distribution lines 871 MW maximum capacity owned power generation Natural Gas 203,700 customers 7,057 miles of transmission and distribution pipeline 17.75 Bcf of gas storage capacity Own 43.1 Bcf of pro
Slide 6: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 6 NorthWestern’s ‘80/20’ rules: Approximately 80% Electric and 80% Montana. Over $4.0 billion of rate base investment to serve our customers Data as reported in our 2020 10-K (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. See a
Slide 7: Highly Carbon-Free Supply Portfolio
7 Highly Carbon-Free Supply Portfolio Based upon 2020 MWH’s of owned and long-term contracted resources. Approximately 65% of our total company owned and contracted supply is carbon-free. NorthWestern does not own all the renewable energy certificates (RECs) generated by contracted wind, and periodi
Slide 8: Strong Utility Foundation
Strong Utility Foundation 8 Solid and improving JD Power Overall Customer Satisfaction Scores Residential electric and natural gas rates below national average Solid electric system reliability Low gas leaks per mile – just outside 1st quartile
Slide 9: Solid Economic Indicators
Solid Economic Indicators 9 • Customer growth rates historically exceed National Averages. • Projected population growth in our service territories better than the National Average. Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database
Slide 10: A History of Growth
A History of Growth 10 2011-2020 CAGR’s: GAAP EPS: 2.1% - Non-GAAP EPS: 3.7% - Dividend: 5.8% See appendix for “Non-GAAP Financial Measures” $2.60 - $2.75 $3.10 - $3.30 $3. 0-$3.40 $3.30-$3.50
Slide 11: Track Record of Delivering Results
Track Record of Delivering Results 11 Return on Equity on Non- GAAP Earnings within 8.3% - 10.5% band over the last 10 years with average of 9.4%. Total Shareholder Return is in line or better than our 12 peer average for the 1 & 3 year periods but lags in the 5 & 10 year periods, due in part to reg
Slide 12: Investment for Our Customers' Benefit
Investment for Our Customers’ Benefit 12 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 13: Net Operating Losses & Effective Tax Rate
Net Operating Losses & Effective Tax Rate 13 Cash Taxes: We anticipate NOLs to be available into 2021 with production tax and other credits to largely offset federal cash tax obligations into 2023. Effective Tax Rate: We anticipate the effective tax rate (ETR) for 2021 to be approximately (2.5%) to
Slide 14: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity 14 Investment grade credit ratings (placed on negative outlook by Moody’s on March 12, 2021), liquidity in excess of $100 million target, debt to cap within our targeted 50%-55% range and no long-term debt maturities until 2023. *Liquidity target temporarily incr
Slide 15: Earnings Growth
Earnings Growth 15 See appendix for additional disclosures regarding “Non-GAAP Financial Measures” $2.60 - $2.75 $3.30-$3.45 See “Non-GAAP Financial Measures” slide in appendix for “Non-GAAP Adjusted EPS”. Non-GAAP Adjusted EPS Growth Averaged 4.3% from 2013 - 2020 NorthWestern affirms its previousl
Slide 16: Maintaining Capital Investment Forecast
Maintaining Capital Investment Forecast 16 • $2.1 billion of total capital investment over the five year period. We expect to finance this capital with a combination of cash flows from operations, first mortgage bonds and equity issuances. • During the second quarter of 2021 we initiated a $200 mill
Slide 17: Looking Forward (Regulatory)
Looking Forward (Regulatory) 17 • We do not expect to make general rate case filings in any of our regulatory jurisdictions during 2021. We have made several other regulatory filings, primarily in our Montana jurisdiction, including: • An April 15, 2021 filing requesting to delay the implementation
Slide 18: Generation Portfolio Update
Generation Portfolio Update 18 60 MW of flexible capacity addition in Huron, SD Montana • A May 19, 2021 filing requesting approval to acquire electric capacity resources identified through our January 2020 RFP, including: • Laurel Generation Station - Construction of 175 MW of flexible reciprocatin
Slide 19: Transmission System Update
Transmission System Update 19 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 20: Distribution Grid Update
Distribution Grid Update 20 5 Year Projects Grid of the FutureAccomplishments VISION: Turning risks into opportunities by evolving the business and adding new value systems. System Efficiencies •ADMS Enhancements •Fault Location, Isolation and Service Restoration (FLISR) Implementation •Distribution
Slide 21: February Cold Weather Event
February Cold Weather Event 21 • In February 2021, a prolonged cold spell resulted in record winter peak demand for electricity and natural gas. In our SD & NE service territories, natural gas costs for the month of February 2021 exceeded the total cost for all of 2020. • We recorded a regulatory as
Slide 22: February Cold Weather Event (Montana)
February Cold Weather Event (Montana) (Megawatts) (Megawatt Hours) The chart illustrates the actual contribution of energy, by resource, during February’s multi-day cold weather event, the capacity deficit, and the market price of power. (Thermal includes all thermal resources – 222 MW Colstrip Unit
Slide 23: -900 -800 -700 -600 -500 -400 -300 -200 -100 /1 /2 :0 0 2
-900 -800 -700 -600 -500 -400 -300 -200 -100 0 2 /1 0 /2 1 0 :0 0 2 /1 0 /2 1 3 :0 0 2 /1 0 /2 1 6 :0 0 2 /1 0 /2 1 9 :0 0 2 /1 0 /2 1 1 2: 0 0 2 /1 0 /2 1 1 5: 0 0 2 /1 0 /2 1 1 8: 0 0 2 /1 0 /2 1 2 1: 0 0 2 /1 1 /2 1 0 :0 0 2 /1 1 /2 1 3 :0 0 2 /1 1 /2 1 6 :0 0 2 /1 1 /2 1 9 :0 0 2 /1 1 /2 1 1 2:
Slide 24: ESG Advances
ESG Advances 24 www.northwesternenergy.com/our-company/investor-relations www.northwesternenergy.com/our-company/investor-relations/ESG-Sustainability NorthWestern recently launched a new website with increased focus on communicating our stewardship and ESG efforts including: • SASB Framework Report
Slide 25: ESG Publications
ESG Publications 25 Environmental Social Governance http://www.northwesternenergy.com/our- company/investor-relations/proxy-materials http://www.northwesternenergy.com/our- company/investor-relations/annual-reports Annual Report Proxy Statement http://www.northwesternenergy.com /environment/our-envi
Slide 26: ESG - Environmental
ESG - Environmental 26 65% of NorthWestern Energy’s 2020 Electric Generation Portfolio Delivered was Carbon-Free (based on megawatt hours) Beethoven Wind FarmMystic Dam Based upon 2020 MWH’s of owned and long-term contracted resources. NWE Montana & South Dakota combined 57% Carbon Free Nameplate Po
Slide 27: ESG - Social
ESG - Social 27 Community EmployeesCustomers $2.3 Billion Economic Output in 2020 ($2.013B in Montana & $249M in SD/NE) Over $5 million Donations, Sponsorships, Economic Development, Scholarship Funding, Public Recreation Support, Safety Awareness and Volunteer Program Grants in 2020 411 Number of n
Slide 28: ESG - Governance
ESG - Governance 28 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 owni
Slide 29: Our Carbon Reduction Vision for NorthWestern Energy in Montana
Our Carbon Reduction Vision for NorthWestern Energy in Montana 29 90% carbon reduction by 2045 NorthWestern Energy commits to reduce the carbon intensity of our electric energy portfolio for Montana 90% by 2045.* * As compared with our 2010 carbon intensity as a baseline Already over 60% carbon free
Slide 30: Conclusion
Conclusion 30 Pure Electric & Gas Utility Solid Utility Foundation Best Practices Corporate Governance Attractive Future Growth Prospects Strong Earnings & Cash Flows
Slide 31: Delivering a bright future
Upetivering a bright future NorthWestern Energy
Slide 32: NWE Capacity as compared to Regional Peers
NWE Capacity as compared to Regional Peers 32 NWE’s capacity deficit exposes our customers to greater market exposure (price and availability) than any of our regional peers. Appendix
Slide 33: Significant Capacity Deficit in Montana
Significant Capacity Deficit in Montana 33Appendix NorthWestern Energy’s current resources provide about 755 MW of peaking capacity, which is the energy available during periods of our customers’ highest demand. An additional 645 MW of peaking capacity must currently be purchased from the market to
Slide 34: Accredited Capacity Contribution in Montana
Accredited Capacity Contribution in Montana 34Appendix 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. Ac
Slide 35: Significant Capacity Retirements in the Pacific NW
Significant Capacity Retirements in the Pacific NW 35 Planned retirements in the Pacific Northwest region exceed 3,600 MW and the Northwest Power and Conservation Council forecasts regional capacity shortfalls as early as 2021. NorthWestern’s continued reliance on the market to purchase energy to fi
Slide 36: 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 37: Timeline of Montana Generation Portfolio
Timeline of Montana Generation Portfolio 37 Since 2011, we have added over 775 MW of generation, 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 38: Comparison of Installed Capacity
Comparison of Installed Capacity 38 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 39: Summary Financial Results
Summary Financial Results 39 (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. See appendix for additional disclosure. (Six Months Ended June 30) Appendix
Slide 40: Gross Margin (Six Months Ended June 30)
$2.3 Property taxes recovered in revenue, offset in property tax expense 1.6 Production tax credits reducing revenue, offset in income tax benefit 0.2 Gas production taxes recovered in revenue, offset in property and other taxes $4.1 Change in Gross Margin Offset Within Net Income $34.2 Increase in
Slide 41: Weather (Six Months Ended June 30)
Weather 41 (Six Months Ended June 30) We estimate favorable weather through the first 6 months of 2021 has contributed approximately $0.7M pretax benefit as compared to normal and $4.2M pretax benefit as compared to the same period in 2020. Appendix
Slide 42: Operating Expenses (Six Months Ended June 30)
Operating Expenses 42 (Six Months Ended June 30) (dollars in millions) Six Months Ended June 30, 2021 2020 Variance Operating, general & admin. $ 158.0 $ 150.7 $ 7.3 4.8% Property and other taxes 94.8 91.5 3.3 3.6% Depreciation and depletion 93.8 90.0 3.8 4.2% Operating Expenses $ 346.6 $ 332.2 $ 14
Slide 43: Operating to Net Income (Six Months Ended June 30)
Operating to Net Income 43 (Six Months Ended June 30) $1.3 million decrease in interest expense, was a result of higher capitalization of AFUDC, partly offset by higher borrowings. $10.4 million increase in other income was due to a $7.7 million related to items offset in operating, general, and adm
Slide 44: Income Tax Reconciliation (Six Months Ended June 30)
Income Tax Reconciliation 44 (Six Months Ended June 30) Appendix
Slide 45: Adjusted Non-GAAP Earnings
Adjusted Non-GAAP Earnings 45 (1) As a result of the adoption of Accounting Standard Update 2017-07 in March 2018, pension and other employee benefit expense is now disaggregated on the GAAP income statement with portions now recorded in both OG&A expense and Other (Expense) Income lines. To facilit
Slide 46: Balance Sheet
Balance Sheet 46Appendix Targeted debt to capitalization ratio of 50%-55% 53.6% Debt to Capitalization at March 31, 2021
Slide 47: Cash Flow
Cash Flow 47Appendix Cash from operating activities decreased by $114.7 million primarily due to an $82.8 million increase in market purchases of supply during the February 2021 cold weather event resulting in an undercollection of supply costs from customers in the current period, and a refund of a
Slide 48: Income Tax Reconciliation (Six Months Ended June 30)
Income Tax Reconciliation 48 (Six Months Ended June 30) Appendix
Slide 49: Qualified Facility Earnings Adjustment
Qualified Facility Earnings Adjustment 49Appendix 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 50: Quarterly PCCAM Impacts
Quarterly PCCAM Impacts 50Appendix 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 51: NWE Rate Base and Earnings Profile
NWE Rate Base and Earnings Profile 51Appendix (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 52: 2020 System Statistics
2020 System Statistics 52 Note: Statistics above are as of 12/31/2020 except for electric transmission for others which is 2019 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 53: Experienced & Engaged Board of Directors
Experienced & Engaged Board of Directors 53 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 54: Strong Executive Team
Strong Executive Team 54Appendix 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 55: Our Commissioners
Our Commissioners 55Appendix
Slide 56: Non-GAAP Financial Measures (1 of 2)
Non-GAAP Financial Measures (1 of 2) 56 These materials include financial information prepared in accordance with GAAP, as well as other financial measures, such as Gross Margin and Adjusted Diluted EPS, that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a
Slide 57: Non-GAAP Financial Measures (2 of 2)
Non-GAAP Financial Measures (2 of 2) 57 Net Operating Losses (NOL’s): The expected tax rate and the expected availability of NOLs are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its man
Slide 58: Delivering a bright future
Upetivering a bright future NorthWestern Energy