Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — EEI Financial Conference 2021
60 slides from Northwestern Energy's conference presentation, Nov 8, 2021
Slide 1: EEI Financial Conference
Madison Dam - Montana EEI Financial Conference November 7-9, 2021 8-K’ed on November 8, 2021
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 ~65% hydro, wind & solar • Residential
Slide 4: About NorthWestern
4 About NorthWestern South Dakota Operations Electric 63,900 customers 3,622 miles – transmission & distribution lines 411 MW nameplate owned power generation Natural Gas 48,000 customers 1,766 miles of transmission and distribution pipeline Montana Operations Electric 384,700 customers 24,877 miles
Slide 5: A Diversified Electric and Gas Utility
5 A Diversified Electric and Gas Utility (1) (1) (1) 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 Me
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 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 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: A History of Growth
9 A History of Growth $3.30-$3.50 $3.10 - $3.30 $2.60$3.20-$3.40 - $2.75 2011-2020 CAGR’s: GAAP EPS: 2.1% - Non-GAAP EPS: 3.7% - Dividend: 5.8% See appendix for “Non-GAAP Financial Measures”
Slide 10: Investment for Our Customers' Benefit
10 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 11: Balance Sheet Strength and Liquidity
11 Balance Sheet Strength and Liquidity Investment grade credit ratings (placed on negative outlook by Moody’s on March 12, 2021), maintaining 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
Slide 12: 2021 Earning Guidance
12 2021 Earning Guidance $3.30-$3.45 $2.60 - $2.75 Non-GAAP Adjusted EPS Growth Averaged 4.3% from 2013 - 2020 NorthWestern affirms its previously revised 2021 earnings guidance range of $3.43 to $3.58 per diluted share based upon, but not limited to, the following major assumptions and expectations
Slide 13: Looking Forward
Looking Forward 13
Slide 14: Five Year Capital Update
14 Five Year Capital Update Highly Executable / Low Risk Capital Plan A low-risk mix of investment opportunity over the next five years to address grid modernization and renewable energy integration.
Slide 15: Continued Investment in a Sustainable Grid
15 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 16: Funding our Capital Investment
16 Funding our Capital Investment Equity Needs • We expect total equity proceeds of approximately $225 million in 2021* and $250 million in 2022. • Only $100 million equity issued from 2017 to 2020 to fund $1.3 billion of capital investment. • Future equity plans balance our intentions to protect ou
Slide 17: 2022 Earnings Bridge
17 2022 Earnings Bridge Guiding down to $3.20 to $3.40 primarily driven by 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
Slide 18: Regulatory Update
18 Regulatory Update Montana Public Service Commission • An April 15, 2021 filing of a motion requesting to delay the implementation of our Montana fixed cost recovery mechanism pilot for another year until July 2022 or beyond, due to the continued uncertainties created by the COVID-19 pandemic. On
Slide 19: Growth Supporting Renewable Energy
19 Growth Supporting Renewable Energy Two facilities designed specifically to provide peak capacity and support the intermittent nature of renewable energy that currently comprises approximately 65% of NorthWestern’s energy supply portfolio. Dispatchable Intermittent Peak Capacity Production • Laure
Slide 20: Transmission System Update
20 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 21: Distribution Grid Update
21 Distribution Grid Update Accomplishments 5 Year Projects Grid of the Future •Emergency System Management System Efficiencies New Technology (EMS) •ADMS Enhancements •EV Charging •Mobile Work Force •Fault Location, •Micro Management Management (MWM) Isolation and Service System (MGMS) •Advanced Di
Slide 22: ESG Advancements
22 ESG Advancements NorthWestern has launched a new website with increased focus on communicating our stewardship and ESG efforts including: • SASB Framework Report (new) • TCFD Framework Report (new) • AGA ESG Methane reporting template (new) • EEI ESG Carbon reporting template (updated) • Key Sust
Slide 23: ESG Publications
23 ESG Publications Environmental Social Governance These six 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 24: ESG - Environmental
24 ESG - Environmental NWE Montana & South Dakota combined Based upon 2020 MWH’s of owned and long-term contracted resources. 65% of NorthWestern Energy’s 2020 Electric Generation Portfolio Delivered was Carbon-Free (based on megawatt hours) Black Eagle Power House Beethoven Wind Farm 57% Carbon Fre
Slide 25: ESG - Social
25 ESG - Social Community Customers Employees $2.3 Billion Economic Output in Typical Residential Bills Lower than Safety Culture Transformation 2020 ($2.013B in Montana & National Average $249M in SD/NE) Over $5 million Donations, Sponsorships, Economic Development, Scholarship Funding, Public Recr
Slide 26: ESG - Governance
26 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 27: Our Carbon Reduction Vision for NorthWestern Energy in Montana
27 Our Carbon Reduction Vision for NorthWestern Energy in Montana 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 28: Conclusion
28 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 29: Appendix
Upetivering a bright future
Slide 30: Detailed 2022 Earnings Bridge
Appendix 30 Detailed 2022 Earnings Bridge NorthWestern announces a preliminary 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; • Co
Slide 31: February Cold Weather Event
Appendix 31 February Cold Weather Event • 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 regu
Slide 32: February Cold Weather Event (Montana)
Appendix 32 February Cold Weather Event (Montana) Portfolio Resource Portfolio Resource Production (Megawatts) (Megawatt Hours) Resource Adequacy Requirement Wind (455MW) Purchase Price NWE Load Solar (17MW) Accredited Capacity of current portfolio Coal and Natural Gas (511MW) Hydro (484MW) The char
Slide 33: MegaWatts (MW)
• • • MegaWatts (MW) 0 -900 -800 -700 -600 -500 -400 -300 -200 -100 2/10/21 0:00 2/10/21 3:00 2/10/21 6:00 2/10/21 9:00 2/10/21 12:00 2/10/21 15:00 2/10/21 18:00 2/10/21 21:00 2/11/21 0:00 2/11/21 3:00 2/11/21 6:00 2/11/21 9:00 2/11/21 12:00 2/11/21 15:00 2/11/21 18:00 2/11/21 21:00 2/12/21 0:00 2/1
Slide 34: NWE Capacity as compared to Regional Peers
Appendix 34 NWE Capacity as compared to Regional Peers NWE’s capacity deficit exposes our customers to greater market exposure (price and availability) than any of our regional peers.
Slide 35: Accredited Capacity Contribution in Montana
Appendix 35 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 36: Significant Capacity Retirements in the Pacific NW
Appendix 36 Significant Capacity Retirements in the Pacific NW Retired ahead of schedule (Jan ‘20) 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 re
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 over 775 MW of generation, 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 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).
Slide 40: Summary Financial Results
Appendix 40 Summary Financial Results (Nine Months Ended Sept. 30) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. See appendix for additional disclosure.
Slide 41: Gross Margin
Appendix 41 Gross Margin (Nine Months Ended Sept. 30) (dollars in millions) Nine Months Ended September 30, 2021 2020 Variance(1) Electric $ 580.2 $ 533.4 $ 46.8 8.8% Natural Gas 133.6 131.4 2.2 1.7% Total Gross Margin $ 713.8 $ 664.8 $ 49.0 7.4% Increase in gross margin due to the following factors
Slide 42: Weather
Appendix 42 Weather (Nine Months Ended Sept. 30) We estimate favorable weather through the first nine months of 2021 has contributed approximately $4.1M pretax benefit as compared to normal and $8.2M pretax benefit as compared to the same period in 2020.
Slide 43: Operating Expenses
Appendix 43 Operating Expenses (Nine Months Ended Sept. 30) (dollars in millions) Nine Months Ended September 30, 2021 2020 Variance Operating, general & admin. $ 238.9 $ 224.0 $ 14.9 6.7% Property and other taxes 138.3 136.8 1.5 1.1% Depreciation and depletion 140.9 134.3 6.6 4.9% Operating Expense
Slide 44: Operating to Net Income
Appendix 44 Operating to Net Income (Nine Months Ended Sept. 30) (dollars in millions) Nine Months Ended September 30, 2021 2020 Variance Operating Income $ 195.7 $ 169.7 $ 26.0 15.3% Interest Expense (70.3) (72.3) 2.0 2.8% Other Income / (Expense) 13.9 (1.0) 14.9 1,490.0% Income Before Taxes 139.4
Slide 45: Income Tax Reconciliation
Appendix 45 Income Tax Reconciliation (Nine Months Ended Sept. 30)
Slide 46: Adjusted Non-GAAP Earnings
Appendix 46 Adjusted Non-GAAP Earnings (Nine Months Ended Sept. 30) The adjusted non- GAAP measures presented in the table are being shown to reflect significant items that were non-recurring or variance from normal weather, however they should not be considered a substitute for financial results an
Slide 47: Balance Sheet
Appendix 47 Balance Sheet Targeted debt to capitalization ratio of 50%-55% 52.3% Debt to Capitalization at September 30, 2021
Slide 48: Cash Flow
Appendix 48 Cash Flow Cash from operating activities decreased by $100.9 million primarily due to an $106.9 million* net increase in under collection of energy supply costs from customers in the current period, and a refund of approximately $20.5 million to our FERC regulated customers in 2021. Thes
Slide 49: Qualified Facility Earnings Adjustment
Appendix 49 Qualified Facility Earnings Adjustment $4.3 million YTD benefit * due to a more favorable adjustment of our electric QF liability (unrecoverable costs associated with PURPA contracts as part of a 2002 stipulation with the MPSC and other parties) reflecting a $7.9 million gain in 2021 (a)
Slide 50: Quarterly PCCAM Impacts
Appendix 50 Quarterly PCCAM Impacts We recover the cost of our electric and natural gas supply through tracking mechanisms. The natural gas supply tracking mechanism in each of our jurisdictions, and electric supply tracking mechanism in South Dakota are designed to provide stable recovery of supply
Slide 51: Segmented Capital Forecast
Appendix 51 Segmented Capital 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 bonds and equity issuances. Financing plans
Slide 52: Net Operating Losses & Effective Tax Rate
52 Net Operating Losses & Effective Tax Rate 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 53: NWE Rate Base and Earnings Profile
Appendix 53 NWE Rate Base and Earnings Profile Data as reported in our 2020 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 54: 2020 System Statistics
Appendix 54 2020 System Statistics (1) (2) 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 1
Slide 55: Experienced & Engaged Board of Directors
Appendix 55 Experienced & Engaged Board of Directors Dana J. Dykhouse Anthony T. Clark Jan R. Horsfall Britt E. Ide • Chairman of the Board • Committees: Nominating and • Committees: Safety, • Committees: Safety, • Independent Governance, Human Resources Environmental, Technology Environmental, Tech
Slide 56: Strong Executive Team
Appendix 56 Strong Executive Team Robert C. Rowe Brian B. Bird Crystal D. Lail • Chief Executive Officer • President and • Vice President and Chief • Current position since Chief Operating Officer Financial Officer 2008 • Current position since • Current position since 2021 (formerly Chief 2021 (for
Slide 57: Our Commissioners
Appendix 57 Our Commissioners
Slide 58: Non-GAAP Financial Measures (1 of 2)
Appendix 58 Non-GAAP Financial Measures (1 of 2) 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 meas
Slide 59: Non-GAAP Financial Measures (2 of 2)
Appendix 59 Non-GAAP Financial Measures (2 of 2) 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 an
Slide 60: Upetivering a bright future
Upetivering a bright future
NorthWestern Energy Group — EEI Financial Conference 2021 on 6ix