Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — FY2023 Earnings Presentation
60 slides from Northwestern Energy's earnings presentation, Feb 15, 2024
Slide 1: 2023 Year-End Earnings Webcast
2023 Year-End Earnings Webcast February 15, 2024 8-K February 15, 20241
Slide 2: Forward Looking Statements
NorthWestern Energy 2 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 future
Slide 3: Recent Highlights
Recent Highlights • Reported GAAP diluted EPS of $3.22 o Non-GAAP diluted EPS of $3.271 • Affirming 2024 diluted EPS guidance of $3.42 - $3.622 • Affirming long-term (5 year) rate base and earnings per share growth rates targets of 4% - 6%2 • Unanimous approval of multi-party rate review settlements
Slide 4: The NorthWestern Value Proposition
9%-11% Total Growth 11%+ Total Growth Incremental Opportunities: 6% + EPS Growth ~5% Dividend Yield Base Capital Plan: 4%-6% EPS Growth FERC Transmission Incremental generating capacity (subject to successful resource procurement bids) Qualifying Facility and / or Power Purchase Agreement buyo
Slide 5: 2023 Financial Results
2023 Financial Results 5 1.) See reconciliation of Non-GAAP adjustments on pages 8 & 12 and “Non-GAAP Financial Measures” in appendix Fourth Quarter 2023 EPS vs Prior Period •GAAP: 21 cents or 18.1% •Non-GAAP1: 25 cents or 22.1% Full Year 2023 EPS vs Prior Period •GAAP: $0.03 or (0.9%) •Non-GAAP1: $
Slide 6: Fourth Quarter Financial Review
Fourth Quarter Financial Review 6
Slide 7: Fourth Quarter Earnings Drivers
After-tax EPS vs Prior Year Fourth Quarter Earnings Drivers 7 1 2 Improvement in Utility Margin and income tax impacts offset weather, depreciation, interest expense and share count dilution 1.) Utility Margin is a non-GAAP Measure. See appendix slide titled “Explaining Utility Margin” for additiona
Slide 8: Fourth Quarter 2023 Non-GAAP Earnings
Fourth Quarter 2023 Non-GAAP Earnings (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
Slide 9: Full Year Financial Review
Full Year Financial Review 9
Slide 10: Year Over Year Earnings Drivers
Improvement in Utility Margin offset weather, inflationary impacts, depreciation, interest rates and share count dilution 1.) Utility Margin is a non-GAAP Measure. See appendix slide titled “Explaining Utility Margin” for additional disclosure. 2.) See reconciliation of Non-GAAP adjustments on page
Slide 11: Year Over Year Utility Margin Bridge
Year Over Year Utility Margin Bridge Pre-tax Millions vs. Prior Year 5.3% increase in Utility Margin NOTE: Utility Margin is a non- GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. 11
Slide 12: Full Year Non-GAAP Earnings
Full Year Non-GAAP Earnings We estimate weather to be a $4.3 million pre-tax detriment as compared to normal and a $13.2 million detriment as compared to 2022. The adjusted non-GAAP measures reflect significant items that are non-recurring or a variance from normal weather, however they should not b
Slide 13: Credit, Cash flow and Financing Plans
Credit, Cash flow and Financing Plans 13 Credit Ratings 2024 Financing Plan No equity expected to fund the current 5-year | $2.5 billion capital plan Financing plans (targeting a FFO to Debt ratio > 14%) are expected to maintain our current credit ratings. We expect to pay minimal cash taxes into 20
Slide 14: Strong Growth Outlook
Strong Growth Outlook This guidance range is based upon, but not limited to, the following major assumptions: • Normal weather in our service territories; • An effective income tax rate of approximately 12%-14%; and • Diluted average shares outstanding of approximately 61.3 million. 2024 Non-GAAP EP
Slide 15: Regulated Utility Five-Year Capital Forecast
$2.5 billion of highly-executable and low-risk capital investment Regulated Utility Five-Year Capital Forecast 15
Slide 16: South Dakota Electric Rate Review
South Dakota Electric Rate Review • First rate review since 2015 with base rate increase driven by more than $267 million invested in South Dakota critical electric infrastructure, while keeping operating costs below the rate of inflation, since our last electric rate review. • Received nearly 70% o
Slide 17: Holding Company Reorganization Completed
Holding Company Reorganization Completed 17
Slide 18: Conclusion
Conclusion Pure Electric & Gas Utility Solid Utility Foundation Best Practices Corporate Governance Attractive Future Growth Prospects Strong Earnings & Cash Flows 18
Slide 19: Appendix
Appendix: 19
Slide 20: Full Year Appendix
Full Year Appendix 20
Slide 21: Full Year Financial Results
Full Year Financial Results 21 Decrease in revenues is primarily related to pass-through property tax and supply trackers and non-cash regulatory amortizations. 1.) Utility Margin is a non-GAAP Measure. See appendix slide titled “Explaining Utility Margin” for additional disclosure. Appendix
Slide 22: Year Over Year Operating & Administrative Costs
NorthWestern maintains best- in-class expense efficiency among our regional peers. (See slide “Disciplined Expense Program” that follows in appendix) Pre-tax Millions vs Prior Year Year Over Year Operating & Administrative Costs 22 Appendix
Slide 23: Utility Margin (Full-Year)
Utility Margin (Full-Year) Increase in utility margin due to the following factors: $ 32.6 Higher Montana rate review – new base rates 14.2 Lower non-recoverable Montana electric supply costs 12.8 Higher Montana property tax tracker collections 2.2 Higher Montana natural gas transportation 0.6 Highe
Slide 24: Operating Expenses (Full-Year)
Operating Expenses (Full-Year) Decrease in operating expenses due to the following factors: $ 15.5 Higher depreciation due to plant additions 6.1 Higher labor and benefits expense(1) 2.1 Higher insurance expense 1.1 Increase in uncollectible accounts 1.0 Higher expenses at our electric generation fa
Slide 25: Operating to Net Income (Full-Year)
Operating to Net Income (Full-Year) (dollars in millions) Twelve Months Ended December 31, 2023 2022 Variance Operating Income $ 300.5 $ 263.1 $ 37.4 14.2% Interest expense (114.6) (100.1) (14.5) (14.5)% Other income, net 15.8 19.4 (3.6) (18.6)% Income Before Taxes 201.6 182.4 19.2 10.5% Income tax
Slide 26: Tax Reconciliation (Full-Year)
Tax Reconciliation (Full-Year) 26 Appendix
Slide 27: Segment Results (Full-Year)
27 Segment Results (Full-Year) Appendix (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 28: Electric Segment (Full-Year)
Electric Segment (Full-Year) 28 (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. Appendix 2023 2022 $ % 2023 2022 2023 2022 Montana 408,341$ 357,384$ 50,957$ 14.3 % 2,795 2,868 322,489 316,968 South Dakota 67,888 69,809 (1,921)
Slide 29: Natural Gas Segment (Full-Year)
Natural Gas Segment (Full-Year) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. 29 Appendix 2023 2022 $ % 2023 2022 2023 2022 Montana 136,097$ 152,343$ (16,246)$ (10.7) % 14,008 15,319 183,810 181,879 South Dakota 36,638 39,17
Slide 30: Balance Sheet
Balance Sheet Debt to Total Capitalization remains at the bottom of our targeted 50% - 55% range. 30 Appendix
Slide 31: Cash Flow and Capital Investment
(dollars in millions) 2023 2022 Operating Activities Net Income 194.1$ 183.0$ Non-Cash adjustments to net income 210.1 183.1 Changes in working capital 115.6 (37.0) Other non-current assets & liabilities (30.6) (21.9) Cash provided by Operating Activities 489.2 307.2 Cash used in Investing Activitie
Slide 32: Disciplined Expense Program
32 Disciplined Expense Program Source: FERC Form 1 Reports - 2022 expenses and company filings through S&P Global IQ Electric Non-Fuel O&M excludes fuel and steam costs for power generation, water costs for hydro operations and purchased power cost unless identified in company disclosures, electric
Slide 33: 2024 Earnings Bridge
2024 Earnings Bridge This guidance range is based upon, but not limited to, the following major assumptions: • Normal weather in our service territories; • An effective income tax rate of approximately 12%- 14%; and • Diluted average shares outstanding of approximately 61.3 million. 33 Appendix
Slide 34: PCCAM Impact by Quarter
PCCAM Impact by Quarter 34 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 of powe
Slide 35: Qualified Facility Earnings Adjustment
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 customers.
Slide 36: Reconciling Gross Margin to Utility Margin
Reconciling Gross Margin to 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 associated reg
Slide 37: Fourth Quarter Appendix
Fourth Quarter Appendix 37
Slide 38: Financial Results (Q4)
Financial Results (Q4) 38 Decrease in revenues is primarily related to pass- through property tax and supply trackers and non-cash regulatory amortizations. 1.) Utility Margin is a non-GAAP Measure. See appendix slide titled “Explaining Utility Margin” for additional disclosure. Appendix
Slide 39: Utility Margin (Q4)
Utility Margin (Q4) (dollars in millions) Three Months Ended December 31, 2023 2022 Variance Electric $ 200.0 $ 205.6 $ (5.6) (2.7)% Natural Gas 57.8 66.7 (8.9) (13.3)% Total Utility Margin $ 257.8 $ 272.3 $ (14.5) (5.3)% (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining
Slide 40: Operating Expenses (Q4)
Operating Expenses (Q4) Decrease in operating expenses due to the following factors: $ 3.4 Higher depreciation expense 0.6 Higher insurance expense 0.2 Higher materials expense (2.1) Lower property and other taxes not recovered in trackers (1.9) Lower electric generation facilities expense (1.4) Low
Slide 41: Operating to Net Income (Q4)
Operating to Net Income (Q4) (dollars in millions) Three Months Ended December 31, 2023 2022 Variance Operating Income $ 103.2 $ 83.3 $ 19.9 23.9% Interest expense (29.5) (27.1) (2.4) (8.9)% Other income, net 2.9 7.6 (4.7) (61.8)% Income Before Taxes 76.6 63.8 12.8 20.1% Income tax benefit 6.5 2.9 3
Slide 42: Tax Reconciliation (Q4)
Tax Reconciliation (Q4) 42 Appendix
Slide 43: Q4 Results by Segment
Three Months Ending December 31, 2023 Electric Gas Other Total Operating revenues 264,229$ 91,780$ -$ 356,009$ Fuel, purchased supply & direct transmission* 64,263 33,986 - 98,249 Utility margin 199,966 57,794 - 257,760 Operating and maintenance 42,257 14,326 - 56,583 Administrative and general 16,2
Slide 44: Electric Segment (Q4)
Electric Segment (Q4) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. 44 Appendix
Slide 45: Natural Gas Segment (Q4)
Natural Gas Segment (Q4) 45 Appendix (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 46: Weather and Hydro Conditions (Q4)
Weather and Hydro Conditions (Q4) Snow water equivalents 42% to 73% of the 30-year medians for our hydro territory. We estimated a $5.2 million pre-tax detriment as compared to normal and a $7.5 million detriment as compared to Q4 2022. Snow Water Equivalent vs. 30-Year Median 46 Appendix
Slide 47: Regulatory Jurisdictions and Rate Base Summary
(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 rate base or authorized returns. (2) The Montan
Slide 48: Historic 5-Year Capital Investment
$2.3 billion invested into our operations over the last five years of which 65% was transmission and distribution. Historic 5-Year Capital Investment Appendix 48
Slide 49: Montana General Rate Review
Montana General Rate Review 49 Unanimous MPSC approval of a constructive multi-party settlement Appendix
Slide 50: South Dakota Electric Rate Review
South Dakota Electric Rate Review Electric $13.67 Per month Increase for an average residential electric customer that uses 750 kWh with our new rates. 50 Appendix
Slide 51: Colstrip Transfer
Colstrip Transfer 51
Slide 52: Colstrip Transfer Overview
Colstrip Transfer 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 ownership to 444
Slide 53: Colstrip Facility Ownership Overview
Colstrip 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 that w
Slide 54: Why Colstrip?
Why Colstrip? Reliable Existing resource, ready to serve our Montana customers. Avoids lengthy planning, permitting and construction of a new facility that would stretch in-service beyond 2026. Reduces reliance on imported power and volatile markets, providing increased energy independence. In
Slide 55: Why Colstrip? Reduces Risk
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 operations past 202
Slide 56: January 2024 Cold Weather Event - Montana
January 2024 Cold Weather Event - Montana 56 Appendix The above charts illustrate our resource nameplate capacity, the actual resource specific contribution of energy, the capacity deficit we faced, and the market price of power during the January 2024 multi-day cold weather event in Montana. As a r
Slide 57: Our Net-Zero Vision
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 inc
Slide 58: Non-GAAP Financial Measures
Non-GAAP Financial Measures 58 Appendix
Slide 59: Non-GAAP Financial Measures
Non-GAAP Financial Measures 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 considered “non-GAAP fi
Slide 60: Delivering a bright future
Delivering a bright future 60
NorthWestern Energy Group — FY2023 Earnings Presentation on 6ix