Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Bank of America Power, Utilities and Alternative Energy Leaders Conference 2022
53 slides from Northwestern Energy's conference presentation, Mar 2, 2022
Slide 1: Bank of America Power, Utilities and Alternative Energy Leaders Conference
Mystic Lake Dam, west of Red Lodge, MT Bank of America | Power, Utilities and Alternative Energy Leaders Conference March 2, 2022 8-K March 2, 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 391,600 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 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 2012-2021 CAGR’s: GAAP EPS: 3.4% - Non-GAAP EPS: 4.5% - Dividend: 5.9% 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: Looking Forward
Looking Forward 11
Slide 12: Earnings Growth
12 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 based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas
Slide 13: 2022 Earnings Bridge
13 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 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. This sustainable level of capex is expected to drive annualized rate base growth of approximately 4%-5%. We expec
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: Solid Balance Sheet and Ample Liquidity
16 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 econo
Slide 17: De-risking the Montana Capacity Deficit
17 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 18: Growth Supporting Renewable Energy
18 Growth Supporting Renewable Energy Two facilities designed specifically to provide peak capacity and support the intermittent nature of renewable energy that currently comprises approximately 56% of NorthWestern’s energy supply portfolio. Dispatchable Intermittent • 175 MW of flexible natural gas
Slide 19: Transmission System Update
19 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 20: ESG Advancements
20 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 21: ESG Publications
21 ESG Publications Environmental Social Governance These seven 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 22: ESG - Environmental
22 ESG - Environmental 56% Carbon-Free Owned and Long-Term Contracted Portfolio in 2021 vs ~40% National Average in 2020 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 2020 South Dakota Note: N
Slide 23: ESG - Social
23 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 24: ESG - Governance
24 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 25: Conclusion
25 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 26: Powering a bright future
Upetivering a bright future
Slide 27: Detailed 2022 Earnings Bridge
Appendix 27 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 28: NWE Rate Base and Earnings Profile
Appendix 28 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 29: Accredited Capacity Contribution in Montana
Appendix 29 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 30: Significant Capacity Retirements in the West
Appendix 30 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 31: Existing Colstrip Ownership
Appendix 31 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 32: Timeline of Montana Generation Portfolio
Appendix 32 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 33: Comparison of Installed Capacity
Appendix 33 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 34: Summary Financial Results
Appendix 34 Summary Financial Results (Full Year) (1) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Slide 35: Utility Margin
Appendix 35 Utility Margin (Full Year) (dollars in millions) Twelve Months Ended December 31, 2021 2020 Variance Electric $ 757.4 $ 704.2 $ 53.2 7.6% Natural Gas 189.4 188.3 1.1 0.6% Total Utility Margin $ 946.8 $ 892.5 $ 54.3 6.1% Increase in utility margin due to the following factors: $ 25.1 Elec
Slide 36: Weather
Appendix 36 Weather (Full Year) We estimate overall unfavorable weather in 2021 resulted in a $1.1 million pretax detriment as compared to normal and a $8.7 million benefit as compared to 2020.
Slide 37: Operating Expenses
Appendix 37 Operating Expenses (Full Year) (dollars in millions) Twelve Months Ended December 31, 2021 2020 Variance Operating & maintenance $ 208.3 $ 203.0 $ 5.3 2.6% Administrative & general 101.9 94.1 7.8 8.3% Property and other taxes 173.4 179.5 (6.1) (3.4%) Depreciation and depletion 187.5 179.
Slide 38: Operating to Net Income
Appendix 38 Operating to Net Income (Full Year) (dollars in millions) Twelve Months Ended December 31, 2021 2020 Variance Operating Income $ 275.7 $ 236.2 $ 39.5 16.7% Interest expense (93.7) (96.8) 3.1 3.2% Other income, net 8.2 4.8 3.4 70.8% Income Before Taxes 190.2 144.2 46.0 31.9% Income tax (e
Slide 39: Income Tax Reconciliation
Appendix 39 Income Tax Reconciliation (Full Year)
Slide 40: Adjusted Non-GAAP Earnings
Appendix 40 Adjusted Non-GAAP Earnings (Full Year) 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 determin
Slide 41: Balance Sheet
Appendix 41 Balance Sheet Debt to Total Capitalization down from last year and remains within our targeted 50% - 55% range.
Slide 42: Cash Flow
Appendix 42 Cash Flow Cash from Operating Activities decreased by $132 million primarily due to: • $122M net increase in under collection of energy supply costs, which includes costs related to the February 2021 prolonged cold weather event ($80M electric and $42M natural gas); • A refund of approxi
Slide 43: Qualified Facility Earnings Adjustment
Appendix 43 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 44: Quarterly PCCAM Impacts
Appendix 44 Quarterly PCCAM Impacts 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 baselin
Slide 45: 2021 System Statistics
Appendix 45 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 46: Experienced & Engaged Board of Directors
Appendix 46 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 47: Strong Executive Team
Appendix 47 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 48: Our Commissioners
Appendix 48 Our Commissioners
Slide 49: Non-GAAP Financial Measures – Utility Margin
Appendix 49 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 50: Non-GAAP Financial Measures (1 of 3)
Appendix 50 Non-GAAP Financial Measures (1 of 3)
Slide 51: Non-GAAP Financial Measures (2 of 3)
Appendix 51 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 52: Non-GAAP Financial Measures (3 of 3)
Appendix 52 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 53: Powering a bright future
Upetivering a bright future