Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Siebert Williams Shank Investor Conference March 2021
66 slides from Northwestern Energy's conference presentation, Mar 15, 2021
Slide 1: NorthWestern Energy Investor Update March 2021
Butte, MT 8-K’ed on March 15, 2021 NorthWestern Energy Investor Update March 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: NorthWestern Energy Value Proposition
3 NorthWestern Energy Value Proposition A pure play 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 F
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 ~65% hydro, wind & solar • Residential
Slide 5: About NorthWestern
5 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 6: A Diversified Electric and Gas Utility
6 A Diversified Electric and Gas Utility (1) (1) NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential 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
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 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
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: A History of Growth
10 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 11: Track Record of Delivering Results
11 Track Record of Delivering Results * Peer Group: ALE, AVA, BKH, IDA, MGEE, NWN, OGE, OGS, OTTR, PNM, POR & SR 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
Slide 12: Investment for Our Customers' Benefit
12 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 13: Net Operating Losses & Effective Tax Rate
13 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 any federal cash tax obligations until 2024. Effective Tax Rate: We anticipate the effective tax rate (ETR) for 2021 to be approximately (2.5%
Slide 14: Balance Sheet Strength and Liquidity
14 Balance Sheet Strength and Liquidity 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 increased to $20
Slide 15: Earnings Growth
15 Earnings Growth $3.30-$3.45 $2.60 - $2.75 Non-GAAP Adjusted EPS Growth Averaged 4.3% from 2013 - 2020 NorthWestern affirms its 2021 earnings guidance range of $3.40 to $3.60 per diluted share based upon, but not limited to, the following major assumptions and expectations: • COVID-19 related redu
Slide 16: 2020 Non-GAAP to 2021 EPS Bridge
16 2020 Non-GAAP to 2021 EPS Bridge We anticipate narrowing the $3.30-$3.45 20 cent guidance $2.60 -range $2.75 (to the standard 15 cent range) in the 2nd or 3rd quarter when we have a better sense Covid-19 impacts. Non-GAAP 2020 to 2021 midpoint EPS growth rate of 4.5%. $2.48 annualized dividend is
Slide 17: COVID-19: Margin Impact
17 COVID-19: Margin Impact Covid-19 impacts on gross margin continued into the fourth quarter with commercial and industrial customer classes impacted more than forecasted (residential in line with forecast). Industrial load was incrementally impacted by non-Covid related closures of a few industria
Slide 18: COVID-19: Expense Impacts
18 COVID-19: Expense Impacts Expenses that decreased: Covid-19 related expense Expenses that increased: • Bad debt expense • Distribution customer work reductions were generally in • Regulatory recovery in SD only • Contract services and material costs line with our expectations. • Covid-19 related
Slide 19: Maintaining Capital Investment Forecast
19 Maintaining Capital Investment Forecast • $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. We anticipate initiating a 3-year $200 million At-the-Mark
Slide 20: Generation Portfolio Update
20 Generation Portfolio Update Montana • Initial bids from the February 2020, 280 MW, competitive solicitation were Western Energy Imbalance Market submitted in July 2020. Bid submissions were evaluated by an independent party. We are reviewing the analyses from the administrator and expect to annou
Slide 21: Transmission System Update
21 Transmission System Update Electric Transmission: • Continue planned retirements of generating resources in Montana in conjunction with increasing demand is placing more stress on the transmission system (two record peaks in the last three seasons). As a result, we are experiencing less available
Slide 22: Distribution Grid Update
22 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 23: Looking Forward (Regulatory)
23 Looking Forward (Regulatory) • The MPSC recently approved a pilot Fixed Cost Recovery Mechanism (FCRM) effective July 1, 2020. We asked the MPSC to delay the start of the pilot for one year until July 1, 2021 due to the uncertainty created by the Covid-19 pandemic. The MPSC granted the requested
Slide 24: ESG Advancements
24 ESG Advancements • NorthWestern has a new Environmental, Social and Governance landing page. The new page: • Consolidates existing ESG information; • Includes disclosures of 19 new and existing policies and standards necessary for a best- practices ESG program; and • Includes a new, easy referenc
Slide 25: ESG Publications
25 ESG Publications Environmental Social Governance Code of Conduct Annual Report Environmental Report http://www.northwesternenergy.com/docs/default- http://www.northwesternenergy.com/our- source/documents/corporategovernance/code-of-conduct.pdf company/investor-relations/annual-reports http://www.
Slide 26: ESG - Environmental
26 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) Mystic Dam Beethoven Wind Farm 57% Carbon Free Nameplate P
Slide 27: ESG - Social
27 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 28: ESG - Governance
28 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 29: Our Carbon Reduction Vision for NorthWestern Energy in Montana
29 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 30: Conclusion
30 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 31: Powering a bright future
Upetivering a bright future
Slide 32: NWE Capacity as compared to Regional Peers
Appendix 32 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 33: Significant Capacity Deficit in Montana
Appendix 33 Significant Capacity Deficit in Montana 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
Appendix 34 Accredited Capacity Contribution in Montana Accredited Capacity Contribution is the ability of each resource fuel-type to contribute to meet demand during On a megawatt basis, wind generation peak energy usage by customers. comprises a very significant portion of Accredited Capacity Cont
Slide 35: A Recent Example
Appendix 35 A Recent Example In early February, 2019, NorthWestern experienced a nearly five day span* when the wind didn’t blow and the sun was scant. We were forced to rely upon an already strained market and transmission system for a significant amount of our required capacity (shown in red hatch
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 780 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 Comparison of Installed Capacity (MW) - Dispatchability and Carbon Emitting California NorthWestern Energy (Montana) MW Percent MW Percent 2019 of Total Dispatchable Non-Carbon 2019 QF Adds Proforma 2021 of Total Dispatchable Non-Carbon Coal / Coke 91 0.1
Slide 40: Summary Financial Results (Fourth Quarter)
Appendix 40 Summary Financial Results (Fourth Quarter) (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 (Fourth Quarter)
Appendix 41 Gross Margin (Fourth Quarter) (dollars in millions) Three Months Ended December 31, 2020 2019 Variance(1) Electric $ 170.8 $ 186.1 $ (15.3) (8.2)% Natural Gas 56.8 59.7 (2.9) (4.8)% (1) Total Gross Margin (1) $ 227.6 $ 245.8 $ (18.2) (7.4)% Decrease in gross margin due to the following f
Slide 42: Weather (Fourth Quarter)
Appendix 42 Weather (Fourth Quarter) We estimate unfavorable weather for the 4th quarter 2020 has contributed approximately $5.7M pretax detriment as compared to normal and $5.0M pretax detriment as compared to the same period in 2019. Degrees Fahrenheit from Average
Slide 43: Operating Expenses (Fourth Quarter)
Appendix 43 Operating Expenses (Fourth Quarter) (dollars in millions) Three Months Ended December 31, 2020 2019 Variance Operating, general & admin. $ 73.1 $ 79.3 $ (6.2) (7.8%) Property and other taxes 42.7 38.7 4.0 10.3% Depreciation and depletion 45.3 43.1 2.2 5.1% Operating Expenses $ 161.1 $ 16
Slide 44: Operating to Net Income (Fourth Quarter)
Appendix 44 Operating to Net Income (Fourth Quarter) (dollars in millions) Three Months Ended December 31, 2020 2019 Variance Operating Income $ 66.5 $ 84.7 $ (18.2) (21.5)% Interest Expense (24.5) (24.1) (0.4) (1.7)% Other Income / (Expense) 5.8 (0.5) 6.3 1,386.0% Income Before Taxes 47.8 60.1 (12.
Slide 45: Income Tax Reconciliation (Fourth Quarter)
Appendix 45 Income Tax Reconciliation (Fourth Quarter)
Slide 46: Balance Sheet
Appendix 46 Balance Sheet Debt to Capitalization remains within our targeted 50% - 55% range. In 2020, we netted our excess deferred income taxes in regulatory liabilities. This reclassification had no effect on previously reported Net income or Shareholders Equity balance.
Slide 47: Cash Flow
Appendix 47 Cash Flow Cash from operating activities increased by $55.4M primarily due to improved collections of energy supply costs in the current period, as compared with higher procured supply costs and payments reducing cash flows in 2019, including TCJA credits to Montana customers of approxim
Slide 48: Adjusted Non-GAAP Earnings (Fourth Quarter)
Appendix 48 Adjusted Non-GAAP Earnings (Fourth Quarter) 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 de
Slide 49: Summary Financial Results (Full Year)
Appendix 49 Summary Financial Results (Full Year) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. See appendix for additional disclosure.
Slide 50: Gross Margin (Full Year)
Appendix 50 Gross Margin (Full Year) (dollars in millions) Twelve Months Ended December 31, 2020 2019 Variance Electric $ 704.2 $ 741.6 $ (37.4) (5.0)% Natural Gas 188.3 198.3 (10.0) (5.0)% (1) Total Gross Margin $ 892.5 $ 939.9 $ (47.4) (5.0)% Decrease in gross margin due to the following factors:
Slide 51: Weather (Full Year)
Appendix 51 Weather (Full Year) We estimate overall unfavorable weather in 2020 resulted in a $9.8 million pretax detriment as compared to normal and a $17.1 million detriment as compared to 2019. Degrees Fahrenheit from Average
Slide 52: Operating Expenses (Full Year)
Appendix 52 Operating Expenses (Full Year) (dollars in millions) Twelve Months Ended December 31, 2020 2019 Variance Operating, general & admin. $ 297.1 $ 318.2 $ (21.1) (6.6)% Property and other taxes 179.5 171.9 7.6 4.4% Depreciation and depletion 179.6 172.9 6.7 3.9% Operating Expenses $ 656.2 $
Slide 53: Operating to Net Income (Full Year)
Appendix 53 Operating to Net Income (Full Year) (dollars in millions) Twelve Months Ended December 31, 2020 2019 Variance Operating Income $ 236.2 $ 276.9 $ (40.7) (14.7)% Interest Expense (96.8) (95.1) (1.7) (1.8)% Other Income, net 4.8 0.4 4.4 1,237.0% Income Before Taxes 144.2 182.2 (38.0) (20.8)
Slide 54: Income Tax Reconciliation (Full Year)
Appendix 54 Income Tax Reconciliation (Full Year)
Slide 55: Adjusted Non-GAAP Earnings (Full Year)
Appendix 55 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 56: Qualified Facility Earnings Adjustment
Appendix 56 Qualified Facility Earnings Adjustment The gain in 2020 for our QF liability was $3.1 million in total, it was comprised of $2.2 million adjustment to the liability and $0.9 million lower actual costs over last 12 months (QF contract year). This $3.1 million benefit is $3.3 million less
Slide 57: Quarterly PCCAM Impacts
Appendix 57 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 58: NorthWestern Energy Profile
Appendix 58 NorthWestern Energy Profile (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 ba
Slide 59: 2020 System Statistics
Appendix 59 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 60: Experienced & Engaged Board of Directors
Appendix 60 Experienced & Engaged Board of Directors Stephen P. Adik Anthony T. Clark Dana J. Dykhouse Jan R. Horsfall Britt E. Ide • Chairman of the • Committees: Governance, • Committees: Human • Committees: Operations • Committees: Governance, Board Human Resources Resources (chair), Audit (chair
Slide 61: Strong Executive Team
Appendix 61 Strong Executive Team Robert C. Rowe Heather H. Grahame Curtis T. Pohl • Chief Executive Officer • General Counsel and Vice • Vice President - • Current position since President of Regulatory Distribution 2008 and Federal Government • Current position since Affairs 2003 • Current positio
Slide 62: Our Commissioners
Appendix 62 Our Commissioners
Slide 63: Non-GAAP Financial Measures (1 of 3)
Appendix 63 Non-GAAP Financial Measures (1 of 3) 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 64: Non-GAAP Financial Measures (2 of 3)
Appendix 64 Non-GAAP Financial Measures (2 of 3) Disclaimer on Net Operating 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 t
Slide 65: Non-GAAP Financial Measures (3 of 3)
Appendix 65 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 Gross Margin (Revenues less Cost of Sales), Free Cash Flows (Cash flows from operations less
Slide 66: Powering a bright future
Upetivering a bright future
NorthWestern Energy — Siebert Williams Shank Investor Conference March 2021 on 6ix