NorthWestern Energy Group, Inc.

Northwestern Corporation's Financial Results webcast for the quarter ending September 30, 2022. My name is Travis Meyer. I'm the Director of Corporate Finance and Investor Relations for Northwestern. Joining us today to walk you through the results and provide an overall update are Bob Rowe, Chief Executive Officer, Brian Byrd, President and Chief Operating Officer, and Crystal Lael, Vice President and Chief Financial Officer. All participant lines are currently muted. After the presentation, we have allowed time for a Q&A session. I will provide instructions for asking questions at that time. However, if you intend to ask a question or are joining us by computer, please set your Zoom identity to your first and last name so we can call on you by name to let you know that your line is open. Northwestern's results have been released, and the release is available on our website at northwesternenergy.com. We also released our 10Q pre-market this morning. Please note that this company's press release, this presentation, and comments by presenters and responses to your questions may contain forward-looking statements. As such, I'll direct you to the disclosures contained within our SEC filings and the safe harbor provisions, including on the second slide of this presentation. Please also note this presentation includes non-GAAP financial measures. Please see the non-GAAP disclosures, definitions, and reconciliations also included in the presentation. The webcast is being recorded. The archived replay of today's webcast will be available for one year beginning at 6 p.m. Eastern time today and can be found in the financial results section of our website. With that, I will hand our presentation over one last time to Northwestern CEO Bob Ruhl.

Thank you very much, Travis. We're meeting this week in Sioux Falls, South Dakota. There's some great economic development activities over the weekend, and we're just delighted to be part of one of the most dynamic economies in the country. Highlight of the board meeting was a presentation by PUC Chair Chris Nelson, and Chair Nelson reminded us of our responsibility to focus on the reliability of our system. And Chair Nelson is very, very clearly focused, as are his colleagues, on reliability and affordability. It's a message that he also delivered very eloquently at the ribbon cutting for the Bob Glanger generating station. So we were really honored and appreciated that he made time for us. I want to say a couple of things about the ongoing renewal of our leadership at both the board and the executive level. At the board level, as probably most of you know, Kent Larson is a new member of our board of directors. Many of you probably know Kent. He was a key leader at Excel until his retirement and one of the key contributors to Excel's growth, sustainable growth. over a number of years. So TANF is already providing great contributions to the board of directors. At the executive team, our general counsel, who also leads our regulatory affairs efforts, Heather Graham, has announced her retirement in early January, along with me. Heather will be, among other things, pursuing her passion for triathlon, where she is world-ranked. Heather's been a great leader for the company, key in all of our legal regulatory compliance works and also a key contributor to our corporate strategy. Because Heather is as good as she is, we will be elevating two people to take her place. Shannon Heim coming in as general counsel and Shannon Fang becoming vice president for regulations. In addition, Kirk Bull, our Vice President for Distribution, has already moved into a new position focused on business development, and Jason Merkle has taken over the role of Distribution Vice President. So Ryan is going to be leading a great team with veterans, and some new faces, but very much aligned with the direction that Brian and the board and the executive team will be taking the company over the next few years. Turning to financial results, net income for the quarter was 27.4 million 47 cents of diluted EPS. Non-GAAP EPS was 24.3 million 42 cents diluted EPS. Our expected long-term EPS growth rate is 3% to 6% off a 2020 base. As you know, we filed a Montana rate review on August 8th. This was seven months into the year as opposed to the nine-month cadence that we're typically on. Very impressively, the Montana Public Service Commission issued an interim order on October 15th on October 1st. So basically two months after the filing was a unanimous order based on a staff recommendation. The order will significantly mitigate regulatory lag and under recovery of our purchase power costs and will certainly reinforce our credit metrics. And then that will also provide the retroactive date for a final order. A couple of other notable items in the rate case, and Brian's going to come back and talk to this in much more detail. First of all, some key procedural steps. The commission has issued a procedural order, and we're past the period during which the application could be deemed inadequate, which could have triggered a refiling or modification to the filing. We're doing some interesting and very constructive things in this case, including Brian kicked off the filing process with a very well-attended webinar. Cindy Fang will be leading a series of technical discussions on key points. The case is obviously driven by recovering our substantial investments in capital, electric and gas infrastructure since our last filings, cost recovery of flow-through costs, and then a set of about four important policy proposals. And Brian's going to be providing you more detail on that. But we're very, very pleased to be where we are right now and appreciate the professionalism of the Montana Commission and staff. We filed our South Dakota Integrated Resource Plan on September 6th. Look forward to implementation of the actions under that plan. We are on track. for our $582 million capital plan for this year. And the board has voted a 63 cent per share dividend payable on December 30th of this year. So first I will turn it over to Crystal and then Crystal will hand it off to Brian.

Thank you, Bob. I'll speak to slide four and discuss a bit further details of our financial results and then hand it over to Brian here. So for the third quarter of 2022, you'll see net income of $27.4 million. As Bob said, that's $0.47 on a diluted EPS basis, and that compares with third quarter of 2021. Net income of $35.2 million, or $0.68 on a diluted basis. Slide five lays out a bit of the significant drivers of that performance for the quarter, with a bridge from the $0.68 for the quarter on a gap basis in 2021 to $0.43. 7 cents on a gap basis or 42 cents on a non-gap basis in 2022. With that, you'll see utility margin 3.2 million or 5 cents after tax of detriment there in a quarter where we had favorable weather. I'll speak to that in a little bit more detail on the next slide. The next few columns you'll see are the impacts of our operating costs, which are in line with our expectations for the year. When we laid out our guidance for the year, we talked about a sustainable operating cost structure. Certainly we're seeing pressures there, but in line with our expectations, they're manageable. So you'll see six cents on those items or 4.1 million on a pre-tax basis. The next column you'll see is interest rate pressures, which I think everyone's experiencing. Three cents of impact to the quarter from that perspective. And then, of course, dilution from the share counts of the equity issuance that we announced and transacted last year in November on a forward basis. The impact of that dilution this year funding the amount of investment capital As Bob mentioned, on track for another record year capital investment in 2022. And then on a gap basis, 47 cents, you'll see adjusted. We're reducing five cents on a non-gap basis driven by weather. Utility margin is detailed on slide six in a bit more detail on that Q3 margin impact. Overall, a $3.2 million detriment when you consider that versus prior period and what impacts net income from a utility margin standpoint. First impact there is transmission margins seeing lower revenue, both driven by lower formula rate there and also volumes that is in line with what we expected to see on the transmission side. But importantly, a bit outside of what we expected to see is the next column, which is your PCAM impacts. As a reminder, that's the supply cost mechanism where we recover our costs in our Montana jurisdiction. And you'll see that that's $1.3 million versus the prior period, but importantly, 4 million to the quarter of negative impact on an absolute basis. We certainly saw higher market prices overall, but Certainly price spiking, think at the end of August, early September, we saw over $1,000 in megawatt-hour prices on the market to deliver to our customers. And when we see that sort of exposure, certainly provides headwinds for us at the margin line basis. I would also mention on the electric retail volumes, $2.1 million of favorable there. And while that's certainly a solid performance at that piece, you'll see that we have show favorable weather 4.2 million versus normal for the quarter. So that's what we're backing out on an on-gap basis. So when you only see 2.1 million of favorable versus the prior, we would expect to see a bit better performance there with the retail volume line and certainly including commercial loads. We're seeing lower commercial volumes for the quarter on 2% customer growth and a bit of warmer weather. So a bit of headwinds there in how we're seeing the commercial load shape up for Q3, all that leading to 224.1 million of utility margin falling to net income. And again, that's 3.2 million lower than the prior period. Slide seven shows you the look of our gap to non-gap adjustments. So for Q3, the only non-gap adjustment we have is weather. And again, I just spoke to the impacts there, but $27.4 million on a gap basis, adjusting out $4.2 million of favorable weather versus normal, or $3.1 million on an after-tax basis, resulting in $24.3 million on a non-gap earnings basis, and that compares with $33.6 million in the prior quarter. And again, you'll see the prior quarter, we had very warm weather in Q3 of 2022 broadly across our service territory. But we also had very warm weather in Q3 of 21. So you see 4.2 million free tax favorable weather we've adjusted out versus 3.4 million in the prior period. With that, I would move you to cash flows and impacts there on slide eight. While operating cash flows show significant improvement of 87.7 million from the prior year to date. You'll see that FFO actually decreased by 15.6 million. That's definitely driven by the lower net income. The other thing I would mention there is that while we are collecting significant costs from the prior period, think the winter storm URI gas costs that are still coming through and a significant amount of PCAM under collection from prior period that we are collecting currently, you also see the significant impacts this year of continued high market electric supply costs. And then what we're seeing is higher cost of bill storage in the off season and higher natural gas prices. All of that is impacting cash flows here in the near term and certainly will be rolling through and impacting customer bills and how we think about that in the future. So with that, I'll transition a bit to expectations. For closing out the quarter and looking to the full year 22 results on slide nine, we are narrowing our guidance range. As you all know, we started with a guidance range of 320 to 340 or a 20 cents range. And we're narrowing that to a 15 cent range of 320 to 335. While results in the quarter, certainly were lower than we expected. They were impacted by headwinds at the high level of market supply pricing in Montana. Certainly that PCAM impact that I mentioned and talking about utility margin for the quarter, it's the gift that keeps on giving because while it also impacts us at the margin line, it also drives higher unrecovered supply costs with pressure on our revolver balance. And of course, then ultimately the interest rates on that and then also timing of the draw on our forward equity. So with that, I will say what offsets that a bit is, and the most significant item for the quarter, other than this being Bob's last earnings call for you all to ask him very intriguing and interesting questions, would be that we filed our rate review in Montana. Obviously that's critical to how we think about the growth of the business going forward and resetting to a reasonable cost structure and recovering the amount of investment that's serving customers currently The NPSC, as Bob mentioned, held a substantive work session and authorized interim rates for both the base rates piece and PCAM. Thus, you'll see our updated guidance assumptions here looking to reflect those impacts. And with that, I will turn it over to Brian.