Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Non-Deal Roadshow (December 2022)
65 slides from Northwestern Energy's roadshow presentation, Dec 16, 2022
Slide 1: Mizuho Securities – Virtual NDR
Mizuho Securities – Virtual NDR December 16, 2022 8-K December 7, 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: Company Overview
Company Overview 3
Slide 4: NWE - An Investment for the Long Term
4 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 5: About NorthWestern
5 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 6: A Diversified Electric and Gas Utility
6 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 7: Highly Carbon-Free Supply Portfolio
7 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 8: Strong Utility Foundation
8 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 9: Solid Economic Indicators
9 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 10: Business & Financial Update
Business & Financial Update 10
Slide 11: Montana Rate Review
11 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 12: MT Rate Review – Interim Rates / Procedural Schedule
12 MT Rate Review – Interim Rates / Procedural Schedule Interim Rates effective October 1, 2022 Procedural Schedule September 28th, the MPSC approved the recommendations of the staff for interim rates, Key dates are currently expected: subject to refund, which increased rates by the 12/19/22: Interv
Slide 13: Delivering Customer Value
13 Delivering Customer Value Percent Increase over the prior Decade 1 19.8% 33.9% NWE Electric Bill 2 6.6% (to current) (approved interim) (final) NorthWestern’s utility infrastructure 19.8% NWE Natural Gas Bill 3 19.6% (to current) 32.8% investment (gross plant) - providing Butter 53.2% increased c
Slide 14: Capital Investment Forecast and Funding
14 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. We expect to finance this capital with a combination of cash flows from operations, first mortgage bonds and equi
Slide 15: Continued Investment in a Sustainable Grid
15 Continued Investment in a Sustainable Grid the Capital Investment Forecast This sustainable level of capex is expected to drive annualized rate base growth of approximately 4%-5%. NorthWestern expects to issue 2023 Earnings Guidance with an updated Capital Investment Plan following an outcome in
Slide 16: Narrowing 2022 Earnings Guidance
16 Narrowing 2022 Earnings Guidance • Targeted long-term EPS growth of 3% - 6% while maintaining a 60% - 70% dividend payout ratio. • Rate base annualized growth of 4% - 5%. • Dividend payout ratio is expected to exceed 60%- 70% targeted range for 2022. 2023 Guidance: NorthWestern affirms its recent
Slide 17: Solid Balance Sheet and Ample Liquidity
17 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 a manageable schedule of debt maturities. *Liquidity target temporarily increased to $200 million due to uncertain econ
Slide 18: Supply Update
18 Supply Update 175 megawatt Yellowstone County generating project in Montana… • Construction began in April 2022 • Construction costs of approximately $275 million with $98.1 million invested to date • Current schedule anticipates commercial operation during 2024 Electric Supply Resource Plans S
Slide 19: De-risking the Montana Capacity Deficit
19 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 advanc
Slide 20: Distribution System Update
20 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 21: Transmission System Update
21 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 22: Regulatory & ESG
Regulatory & ESG 22
Slide 23: Our Commissioners
23 Our Commissioners November 2022 Election Randy Pinocci (R) won unopposed Ann Bukacek (R) defeated John Repke (D). Brad Johnson is termed out November 2022 Election Chris Nelson - incumbent (R) defeated Jeff Barth (D) November 2022 Election Eric Kamler (R) won unopposed. Kamler defeated Rod Johnso
Slide 24: 2022 Sustainability Report
24 2022 Sustainability Report • Published in November 2022 • Guided by our commitment to sustainability and our robust environmental, social and governance policies and practices. • Provides transparency into the social, environmental and economic impacts of NorthWestern Energy and offers insights i
Slide 25: ESG - Environmental
25 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 26: ESG - Social
26 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 27: ESG - Governance
27 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 28: Leadership Transition
Leadership Transition 28
Slide 29: 14 Years of Extraordinary Leadership
29 14 Years of Extraordinary Leadership During Rowe’s tenure, NorthWestern Energy has: o Increased the critical energy infrastructure dedicated to serve our customers from $2.5 billion in 2008 to more than $7 billion in 2022, and more than tripled the company’s value. o Acquired or developed energy
Slide 30: 14 Years of Extraordinary Leadership
30 14 Years of Extraordinary Leadership “Bob Rowe is passionate about NorthWestern Energy’s culture, built on collaborative interaction, mentorship and fellowship. Our outstanding employee group, demonstrating a commitment to safety, commitment to our customers, commitment to our environment, and co
Slide 31: Conclusion
31 Conclusion Best Attractive Improving Pure Earnings & Solid Utility Practices Future Electric & Cash Flows Foundation Corporate Growth Gas Utility (current rate Governance Prospects review pending)
Slide 32: Appendix
Upetivering a bright future
Slide 33: Montana Rate Review
Appendix 33 Montana Rate Review Operating and other costs increases are not driving this request. 49% of total requested increase is driven by capital investment. 42% is driven by increases in flow-through costs - PCCAM 35% and Property Taxes 7%. * All other base rate components, including operating
Slide 34: Modifications to Existing Revenue Mechanisms
Appendix 34 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 beca
Slide 35: New Revenue Mechanisms
Appendix 35 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 a
Slide 36: ESG Publications
Appendix 36 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
Slide 37: NWE Rate Base and Earnings Profile
Appendix 37 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 38: Accredited Capacity Contribution in Montana
Appendix 38 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 39: Alternative Capacity Considerations
Appendix 39 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 40: Significant Capacity Retirements in the West
Appendix 40 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 41: Existing Colstrip Ownership
Appendix 41 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 42: Timeline of Montana Generation Portfolio
Appendix 42 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 43: Comparison of Installed Capacity
Appendix 43 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 44: 2022-2026 Capex Plan
Appendix 44 2022-2026 Capex Plan $2.4 billion of total capital investment over the five year period (a $300 million increase to prior 5-year forecast). This is driven by highly executable transmission and distribution capital enabling growth and does not include potential IRP impacts in Montana or S
Slide 45: Investment for Our Customers’ Benefit
Appendix 45 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
Slide 46: A History of Growth
Appendix 46 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 47: Summary Financial Results
Appendix 47 Summary Financial Results (Third Quarter) (1) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 48: EPS Bridge to Third Quarter 2022
Appendix 48 EPS Bridge to Third Quarter 2022 After-tax Earnings Per Share (Third Quarter) We estimate favorable weather in the third quarter 2022 resulted in a $4.2 million pretax benefit as compared to normal and a $0.8 million benefit as compared to third quarter 2021. See slide 7 and “Non-GAAP Fi
Slide 49: Utility Margin Bridge
Appendix 49 Utility Margin Bridge Pre-tax Earnings (Third Quarter) NOTE: Utility Margin is a non-GAAP Measure $3.2 Million (1.4%) decrease in Utility Margin See appendix slide titled “Explaining Utility due to items that impact Net Income. Margin” for additional disclosure.
Slide 50: Utility Margin
Appendix 50 Utility Margin (Third Quarter) (dollars in millions) Three Months Ended September 30, 2022 2021 Variance Electric $ 196.7 $ 198.1 $ (1.4) (0.7%) Natural Gas 29.4 29.2 0.2 0.7% (1) Total Utility Margin $ 226.1 $ 227.3 $ (1.2) (0.5%) Decrease in utility margin due to the following factors:
Slide 51: Operating Expenses
Appendix 51 Operating Expenses (Third Quarter) (dollars in millions) (1) We have included Three Months Ended September 30, the change in the non- service cost component 2022 2021 Variance of our pension and other postretirement benefits, which is Operating & maintenance $ 54.7 $ 56.0 $ (1.3) (2.3%)
Slide 52: Operating to Net Income
Appendix 52 Operating to Net Income (Third Quarter) (dollars in millions) Three Months Ended September 30, 2022 2021 Variance Operating Income $ 48.2 $ 55.7 $ (7.5) (13.5%) Interest expense (25.3) (23.3) (2.0) (8.6%) Other income, net 4.2 5.3 (1.1) (20.8%) Income Before Taxes 27.1 37.7 (10.6) (28.1%
Slide 53: Tax Reconciliation
Appendix 53 Tax Reconciliation (Third Quarter)
Slide 54: GAAP to Non-GAAP Earnings
Appendix 54 GAAP to Non-GAAP Earnings (Third Quarter) Three Months Ended September 30, Non-GAAP Adjustments Non-GAAP Adjustments Non Non-GAAP Non The adjusted non-GAAP GAAP GAAP GAAP Variance GAAP measures presented in the table are being shown to reflect Move Pension Expense to OG&A (disaggregated
Slide 55: 2022 YTD GAAP to Non-GAAP Earnings
Appendix 55 2022 YTD GAAP to Non-GAAP Earnings (YTD thru September 30) 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 result
Slide 56: Balance Sheet
Appendix 56 Balance Sheet Debt to Total Capitalization down from last year and remains within our targeted 50% - 55% range.
Slide 57: Cash Flow
Appendix 57 Cash Flow (YTD thru September 30) Cash from Operating Activities increased by $87.7 million primarily due to: • $76.5 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-col
Slide 58: Qualified Facility Earnings Adjustment
Appendix 58 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 59: Quarterly PCCAM Impacts
Appendix 59 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 60: 2021 System Statistics
Appendix 60 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 61: Non-GAAP Financial Measures – Utility Margin
Appendix 61 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 62: Non-GAAP Financial Measures (1 of 3)
Appendix 62 Non-GAAP Financial Measures (1 of 3)
Slide 63: Non-GAAP Financial Measures (2 of 3)
Appendix 63 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 64: Non-GAAP Financial Measures (3 of 3)
Appendix 64 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 65: Upetivering a
Upetivering a bright future
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