Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — BofA 2023 Power, Utilities & Clean Energy Conference
73 slides from Northwestern Energy's conference presentation, Feb 27, 2023
Slide 1: BofA 2023 Power, Utilities & Clean Energy Conference
Ryan Dam Great Falls, Montana BofA 2023 Power, Utilities & Clean Energy Conference February / March 2023 8-K February 27, 2023
Slide 2: Forward Looking Statements
2 Forward Looking Statements Forward Looking Statements O’Dell Creek - 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 Reform Act of 1995. Forward-l
Slide 3: Company Overview
Delivering @ Bright Future
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 ~55% hydro, wind & solar • Residential
Slide 5: About NorthWestern
5 About NorthWestern South Dakota Operations Electric 64,700 customers 3,650 miles – transmission & distribution lines 446 MW nameplate owned power generation Natural Gas 49,200 customers 1,779 miles of transmission and distribution pipeline Montana Operations Electric 398,200 customers 25,131 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. Over $4.5 billion of rate base investment to serve our customers Data as reported in our 2022 10-K (1) Utility Margin is a non-GAAP Measure. See appendix for additional disclosu
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 * NE bills temporarily impacted by ongoing recovery of Residential electric and natural gas rates below national average * the February 2021 prolonged cold weather event that Solid electric
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: Regulatory & Financial Update
10 Regulatory & Financial Update
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 Key dates are currently expected: recommendations of the staff for interim rates, subject to refund, which increased rates by the 03/06/23: NorthW
Slide 13: Delivering Customer Value
13 Delivering Customer Value Percent Increase over the prior Decade 1 NorthWestern’s utility 19.8% 33.9% NWE Electric Bill 2 6.6% (to current) (approved interim) (final) 19.8% NWE Natural Gas Bill 3 19.6% (to current) 32.8% infrastructure investment Butter 53.2% (gross plant) - providing Propane, ke
Slide 14: Colstrip Transfer
14 Colstrip Transfer Reliable Existing resource, ready to serve our Montana customers. Avoids NorthWestern Energy executed lengthy planning, permitting and construction of a new facility that would an agreement with Avista stretch in-service beyond 2026. Corporation for the transfer of Reduces r
Slide 15: December 2022 Polar Vortex
15 December 2022 Polar Vortex The chart illustrates the actual resource specific contribution of energy, the capacity deficit we faced, and the market price of power during the late December 2022 multi-day cold weather event in Montana. As a result of our capacity deficit, we were reliant upon the h
Slide 16: Financial Outlook
16 Financial Outlook 2023 earnings guidance is expected to Rowe Dam at Mystic Lake, Montana be provided following an outcome in our pending Montana rate review. $510 million capital plan for 2023 (inclusive of $80 million of investment specific to Yellowstone County Generating Station). Long-term
Slide 17: Capital Investment
17 Capital Investment ($millions, unless stated otherwise) 5 Year History of Capital Investment 5 Year Forecast of Capital Investment Yellowstone County Generating Station Over $2.1 Billion investment* over last 5 years $2.4 billion of forecasted low-risk capital investment opportunity… • Capital in
Slide 18: Capital Investment
18 Capital Investment 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 the Montana Rate Review.
Slide 19: Solid Balance Sheet
19 Solid Balance Sheet Investment grade credit ratings, debt to capitalization within our targeted 50%-55% range and a manageable schedule of debt maturities.
Slide 20: Supply Update
20 Supply Update 175 megawatt Yellowstone County generating project in Montana • Construction began in April 2022 • Construction costs of approximately $275 million with $154.9 million invested to date • Current schedule anticipates commercial operation during 2024* Electric Supply Resource Plans
Slide 21: Distribution System Update
21 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 22: Transmission System Update
22 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 23: Corporate Responsibility
23 Corporate Responsibility
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 55% Carbon-Free Owned and Long-Term Contracted Portfolio in 2022 vs ~39% National Average (2021 data) NWE Based on MWh’s Montana & Source: U.S. Energy Information Administration – form EIA.gov South Dakota Table 7.2b Electric Net Generation: U.S. Electric Power Sector 2021 com
Slide 26: ESG - Social
26 ESG - Social Community Customers Employees $2.9 Billion Economic Output in Typical Residential Bills Lower than Safety Culture Transformation 2022 ($2.56B in Montana & $350M National Average in SD/NE) Over $5 million Donations, Sponsorships, Economic Development, Scholarship Funding, Public Recre
Slide 27: ESG - Governance
27 ESG - Governance 5th 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 Recent Governance Recognition America’s Most Responsible Companies Recognized by New
Slide 28: ESG Publications
28 ESG Publications Environmental Social Governance These eight publications provide valuable insight into NorthWestern Energy’s Environmental, Social and Governance (ESG) Sustainability practices. Available at www. Northwesternenergy.com
Slide 29: Conclusion
29 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 30: Delivering a Bright Future
Upetivering a bright future
Slide 31: Regulated Utility Five-Year Capital Forecast
Appendix 31 Regulated Utility Five-Year Capital Forecast Electric Supply Resource Plans - Our energy resource plans identify portfolio resource requirements including potential investments. Included within our projections is approximately $120.0 million of capital to complete construction of the 175
Slide 32: NWE Rate Base and Earnings Profile
Appendix 32 NWE Rate Base and Earnings Profile Data as reported in our 2022 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 33: Colstrip Transfer Agreement
Appendix 33 Colstrip Transfer Agreement
Slide 34: Colstrip Transaction Overview
Appendix 34 Colstrip Transaction 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 o
Slide 35: Why Colstrip?
Appendix 35 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 operati
Slide 36: Facility Ownership Overview
Appendix 36 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 tha
Slide 37: Timeline of Montana Generation Portfolio
Appendix 37 Timeline of Montana Generation Portfolio Owned and Long-Term Resource Portfolio Timeline Since 2011, we have added approximately 870 MW, both owned and long- term contract, to our generation portfolio, all of which is from carbon-free resources.
Slide 38: Comparison of Installed Capacity
Appendix 38 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 39: Significant Capacity Retirements in the West
Appendix 39 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 40: Montana Rate Review
Appendix 40 Montana Rate Review
Slide 41: Montana Rate Review
Appendix 41 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 42: Montana Electric Rate Review Summary
Appendix 42 Montana Electric Rate Review Summary • If approved, the total requested rate adjustment would cost an average residential electric customer about $23 per month. • Approximately 43%1 of the increase is due to: • costs included in the PCCAM for market power purchases; and • higher property
Slide 43: Montana Electric Revenue Request
Appendix 43 Montana Electric Revenue Request Infrastructure investment drives 68%* of requested base rate increase • Approximately $453 million increase to rate base (from $2.337 billion to $2.790 billion) $91.8 Million Revenue Request * $34.5 million Cost of Capital plus $41.3 million Infrastruct
Slide 44: Montana Natural Gas Rate Review
Appendix 44 Montana Natural Gas Rate Review • If approved, the total requested rate adjustment would cost an average residential natural gas customer about $7 per month. • Approximately 22%1 of the increase is due to higher property taxes. • Natural Gas supply purchases are adjusted outside of the g
Slide 45: Montana Natural Gas Revenue Request
Appendix 45 Montana Natural Gas Revenue Request Infrastructure investment drives 61%* of requested base rate increase • $143 million increase to rate base (from $432 million to $575 million) $20.2 Million Revenue Request * $11.1 million Cost of Capital plus $7.5 million Infrastructure Investment a
Slide 46: Modifications to Existing Revenue Mechanisms
Appendix 46 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 47: New Revenue Mechanisms
Appendix 47 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 48: 2022 Earning & Other
Appendix 48 2022 Earning & Other
Slide 49: Summary Financial Results
Appendix 49 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 50: EPS Bridge
Appendix 50 EPS Bridge After-tax Earnings Per Share (Full Year) Full year earnings per share driven by increased operating expense (including See “Non-GAAP Financial property taxes and depreciation), interest expense and dilution from higher Measures” slide in the average shares outstanding. These d
Slide 51: Utility Margin Bridge
Appendix 51 Utility Margin Bridge Pre-tax Earnings (Full Year) NOTE: Utility Margin is a non-GAAP Measure $24.9 Million or 2.6% increase in Utility Margin See appendix slide titled “Explaining Utility due to items that impact Net Income. Margin” for additional disclosure. *Interim rates subject to r
Slide 52: Utility Margin
Appendix 52 Utility Margin (Full Year) (dollars in millions) 12 Months Ended December 31, 2022 2021 Variance Electric $ 782.1 $ 757.4 $ 24.7 3.3% Natural Gas 203.7 189.4 14.3 7.6% (1) Total Utility Margin $ 985.8 $ 946.8 $ 39.0 4.1% Increase in utility margin due to the following factors: $ 14.8 Hig
Slide 53: Operating Expenses
Appendix 53 Operating Expenses (Full Year) (dollars in millions) Twelve Months Ended December 31, 2022 2021 Variance Operating & maintenance $ 221.4 $ 208.3 $ 13.1 6.3% $25.0 Administrative & general 113.8 101.9 11.9 11.7% Property and other taxes 192.5 173.4 19.1 11.0% Depreciation and depletion 19
Slide 54: Operating to Net Income
Appendix 54 Operating to Net Income (Full Year) (dollars in millions) Twelve Months Ended December 31, 2022 2021 Variance Operating Income $ 263.1 $ 275.7 $ (12.6) (4.6%) Interest expense (100.1) (93.7) (6.4) (6.8%) Other income, net 19.4 8.2 11.2 136.6% Income Before Taxes 182.4 190.2 (7.8) (4.1%)
Slide 55: Tax Reconciliation
Appendix 55 Tax Reconciliation (Full Year)
Slide 56: GAAP to Non-GAAP Earnings
Appendix 56 GAAP to 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 a variance from normal weather, however they should not be considered a substitute for financial results and measures determ
Slide 57: Weather Impact Adjustment
Appendix 57 Weather Impact Adjustment (Full Year) Revision to non-GAAP weather normalization method - Up to, and including, Q3 2022, our weather normalizing adjustment included the estimated impact from four customer classes; commercial electric, residential electric, commercial natural gas and resi
Slide 58: Weather
Appendix 58 Weather Mean Temperature Departures from 30-Year Average We estimated a $8.9 million pre-tax benefit as compared to normal and a $10.0 million benefit as compared to the full year 2021. Drought Conditions in Montana vs 30-Year Normal Source: www.drought. gov/states/ montana Approximately
Slide 59: GAAP to Non-GAAP Earnings
Appendix 59 GAAP to 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 a variance from normal weather, however they should not be considered a substitute for financial results and measures d
Slide 60: Quarterly PCCAM Impacts
Appendix 60 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 61: Balance Sheet
Appendix 61 Balance Sheet Debt to Total Capitalization down from last year and slightly below our targeted 50% - 55% range with the incremental equity issuance in the 4th quarter of 2022.
Slide 62: Cash Flow
Appendix 62 Cash Flow (Full Year) Cash from Operating Activities increased by $87.2 million primarily due to $78.0 million increase in collection of energy supply costs from customers. Funds from Operations increased by $3.6 million over prior period. Net Under-Collected Supply Costs (in millions) B
Slide 63: Qualified Facility Earnings Adjustment
Appendix 63 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 64: EPS & Dividend History
Appendix 64 EPS & Dividend History $3.30-$3.50 $3.10 - $3.30 $2.60$3.20-$3.40 - $2.75 2013-2022 CAGR’s: GAAP EPS: 3.1% - Non-GAAP EPS: 2.7% - Dividend: 5.8% See appendix for “Non-GAAP Financial Measures”
Slide 65: Investment for Our Customers' Benefit
Appendix 65 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 66: 2022 System Statistics
Appendix 66 2022 System Statistics (1) (2) Note: Statistics above are as of 12/31/2022 except for electric transmission for others which is 2021 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 67: Experienced and Engaged Board of Directors
Appendix 67 Experienced and Engaged Board of Directors Dana J. Dykhouse Anthony T. Clark Jan R. Horsfall Britt E. Ide Kent T. Larson • Chairman • Nom. & Gov., HR • SETO (chair), Audit • Nom. & Gov., HR • SETO, Audit • Independent • Independent • Independent • Independent • Independent • Since Jan. 2
Slide 68: Our Commissioners
Appendix 68 Our Commissioners
Slide 69: Non-GAAP Financial Measures (1 of 4)
Appendix 69 Non-GAAP Financial Measures (1 of 4) 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 70: Non-GAAP Utility Margin Reconciliation (2 of 4)
Appendix 70 Non-GAAP Utility Margin Reconciliation (2 of 4) 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 a
Slide 71: Non-GAAP Earnings (3 of 4)
Appendix 71 Non-GAAP Earnings (3 of 4)
Slide 72: Non-GAAP Ratios and Metrics (4 of 4)
Appendix 72 Non-GAAP Ratios and Metrics (4 of 4) 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 73: Delivering a Bright Future
Upetivering a bright future
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