NorthWestern Energy Group, Inc.

Northwestern Corporation's financial results webcast for the June 30, 2023 second quarter results. My name is Travis Meyer. I'm the Corporate Development and Investor Relations Officer for Northwestern. Joining us today to walk you through the results and provide an overall update are Brian Bird, the President and Chief Executive Officer, and Crystal Lael, Chief Financial Officer. All participant lines are currently muted. After the presentation, we have allowed time for a Q&A session. I'll provide instructions for asking questions at that time. However, if you do intend to ask a question and are joining us by computer, please set your Zoom identity to your first and last name and firm name so we can call on you by name to let you know when 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 on Tuesday morning. Please note that the company's press release, this presentation, comments by presenters, and responses to your questions may contain forward-looking statements. As such, I'll direct you to the disclosures contained in our SEC filings and our Safe Harbor provisions included on the second slide in 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 today. 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'll hand the presentation over to Northwestern CEO, Brian Byrd. Thanks, Travis.

Good morning, folks. I know many of you would have liked to have heard from us yesterday, but the reason we're having the call this morning is to Diminished the amount of travel necessary on Sunday. Our board meeting ran late on Tuesday. And so we decided to have the call here on Wednesday morning. To start on regarding the second quarter, we are very, very busy in the regulatory front, as you're well aware. We recently filed a South Dakota electric rate review. And obviously we're waiting for a decision on our multi-party settlement in the Montana rate review. And so hopefully we'll hear from that real soon. Regarding Yellowstone County Generating Station, a lot has happened since the first quarter. So during the second quarter, we had a tremendous amount of support from the governor and the legislature in Montana, which helped us resume construction of the facility. And we're ramping up that construction as we speak. We have invested over $200 million of the estimated $275 million in the project itself. We continue to operate in strong and growing service territories, as is seen by very, very low unemployment, some of the lowest unemployment in the country. And as a result, we're also seeing very good customer growth, which didn't necessarily help us here in the second quarter. It was going to help us on a going forward basis with our business. And lastly, on this page, I think it's important to point out, and this is one of the great things about Northwestern is workforce we have here and the culture we have here, and I think certainly being acknowledged by Newsweek as one of America's great workplaces in 2023. Pretty cool announcement for us. There's only 11 utilities acknowledged, and the only one in the SMCCAP space was Northwestern Energy. That, of course, came on the heels of 2022 of also being acknowledged as a great places to work. So, We just, it's a great tribute to our employees and we're very excited about that acknowledgement. And with that, I'm going to hand it over to Crystal.

Thank you, Brian. I'll begin my comments on slide four here in just a. conclude Brian's comments on working with a great team. I think the Newsweek acknowledgement of the what work we do here and the great people we work with is a pretty fantastic thing. So then I'll turn myself to a second quarter performance. And before getting into a bit of detail, we've added a couple of slides to hopefully give you a bit of color as to how we're thinking about the quarter. And while Brian acknowledged their results a little bit lower than We had hoped for the quarter, but in line with our expectations and how we think about the year. So to give you a little bit of color here, Q2 results lower on a gap basis by 10.7 million or 22 cents of EPS versus the prior year second quarter. So how do we think about that 22 cents of spread? We were impacted by shoulder season weather, and you all know Q2 is our lightest quarter from an earnings perspective. And you can see a bit of variability there depending upon weather. So for this year, Q2 23, that was three cents of unfavorable weather. But I would note last year we had more favorable weather for us. That was four cents last year in Q2 of 22. So when you compare those two, that's a seven cent swing in our earnings due to weather period over period for second quarter. In addition, you're all familiar with our equity issuances, so there's about three cents of drag with relation to shares outstanding impacting results for, again, Q2 23 versus 22. In addition, as we had talked to you at the end of Q1, we had just concluded hearings in our Montana rate review and reached a settlement there, so we provided a bit more detail, I would say. As you all know, we do not have guidance out for 23 and won't update you on our expectations fully until we see an outcome from the Montana Commission. But what we have done here is quantify the impacts of the Montana settlement to both our Q1 and Q2 23 earnings if it were approved as is with no adjustments. Again, this is meant to give you a bit of an indication of what we see as the impact of that settlement to our financial statements. So in 23, this would include impacts at both the revenue line and tax implications and would contribute about 15 cents to our Q2 earnings based off our estimates, again, if the settlement were approved as is. So slide four provided you a bit of that color, again, comparing quarter two versus of 23 versus 22, 22 cents there. There's definitely variability in weather and how that impacts our performance. I'll dig into that in a little bit further detail in slides coming up. But you think about that 7 cents plus 3 cents of equity drag And if we were able to record the impacts of that settlement contributing another 15 cents and you see a more comparable number as to how we think about that. Then on slide five, again, you're all familiar with our Q1 results. We had favorable weather then and some solid results. Brian talked about the customer growth that we continue to see underlying that. So you would see the impact of the settlement. Again, the Q1 would have been 20 cents. That would bring that to 35 cents total on a year-to-date basis. And you can see on a non-GAAP basis versus the numbers that you would see year-to-date at this point, $1.40. You adjust that, we'd be $1.75 at halfway through the year. And so that gives you some indication of how we are thinking about our earnings, both on a, as we conclude, half-year basis and from a 23-perspective. So with that, I would take you to slide six and dig a bit more detail into the detail of the quarter results. So from a net income basis, $19.1 million of net income as compared with $29.8 million in Q2 of 22. That's a $10.7 million reduction. And on an earnings per share basis, 32 cents compared to 54 cents. That's a 22 cent difference. Again, that's the color I just gave you a bit explaining and bridging that difference of 22 cents from last year's performance. Slide seven breaks that down. You can see we had favorable utility margin overall of what actually falls to the bottom line for us. And that was driven by favorable on the electric side, offset by unfavorable on the natural gas side. And I have a slide upcoming that will give you a bit more detail on that. And then you can see a continued push of what I would call the cost of running the business. So operating costs, interest and depreciation leading us to the 32 cents of earnings contribution from a second quarter basis. Slide eight. provides a bit more detail of the margin performance. And I would always highlight the positives, right? So first positives, interim rates, and the criticality of the Montana Commission's decision with regard to that. And again, those interim rates are just over 31 million and our settlement overall is about 81 million. So you can see the impact there in Q2 of that contribution. I also would mention our property tax tracker, and that's not something we've talked about a lot, but I think most of you know from a bill comparability perspective, in Montana, we collect property taxes or ad valorem taxes for the state, and that's about 15% of our customer bill. In Q2, we typically negotiate our valuation with the Department of Revenue, a variety of factors in that, but we saw a decrease in that valuation versus the prior year. We haven't a tracker in place. It's not a full tracker because it contains a haircut. And typically that haircut is one minus the tax rate and has been detrimental to us this year. We happen to have a positive from that in negotiating a lower valuation. So you can see 3.3 million versus last year in Q2, a positive there in the margin line. And then PCAM is the next item here showing favorability, $3 million favorable again versus Q2 of last year. And PCAM has not been my favorite thing to talk about in the past. So I do have to take a moment and highlight the positive there. What we saw is certainly consistent with the shoulder season weather forecast. impacting us volumetrically in loads, the flip side of that is we also saw more moderate pricing. And then more importantly, the impact of that interim rate base being much closer to what is the final base we've agreed to and a reasonable amount to have the 10% sharing around. So that's 4 cents of favorability for us when comparing to 22. And not that I want to relive it, but for 22, to full year impact, I'll remind you that we had 10 cents of drag from that PCAM mechanism. So when we're thinking about 23, seeing prices moderate, importantly, that's a huge impact on our customers and their bill and the amount that that 10 cent is compared to, but also how we think about dragging our earnings To see favorability here in Q2 and to think about what that impact was last year, this is certainly one of the things I'll say as a positive for Q2 and how we think about that. Then moving more to the right side of the bridge here, you see detriments primarily related to weather. I would highlight both the electric transmission and retail benefits. electric and gas volumes all impacted by weather. When we think about our transmission business, the ability to move power across our lines to elsewhere, a full wet spring, certainly we saw less demand for that. Having been in Missoula, Montana yesterday, I can tell you that weather has changed. It was quite warm in our service territory, but that certainly drives demand on the transmission side. And we have a little bit of a rate change there as well versus last year in that formula rate. And then you can see the lower electric and retail volumes, both electric and natural gas. I would tell you that we underlying see customer growth there. But in a shoulder season, you can also see the impacts to what ultimately ends up being margin. I would also mention we have irrigation loads. And that's something that with a cool wet spring, we didn't see come through. And so impact there and also a little bit of softness in the industrial side. We do have some Bitcoin miners on our And we saw a little bit lower loads there. So overall, again, a bit of favorable on the utility margin that falls to the bottom line, but a lot of moving pieces in there for the quarter. I'll move on to slide nine and talk about our operating administrative and general costs. And again, I think us and everyone else is impacted by pressures of these lines. We are focused on maintaining a sustainable level of operating costs. And I think managing a lot of the business in a very reasonable way, you see the largest impact here is really the compensation and benefits of our people. That cost of labor impacts us and everyone else, and it's something we certainly expected for 2023. And you can see that is the most significant driver in our operating costs versus 2022. Slide 10, again, I highlighted this at the beginning, but this is our reconciliation non-gap for hopefully you to get a picture of what the weather piece that we adjust out. And again, our weather model isn't perfect. You'll see that there's cooling degree days and heating degree days, both in a shoulder season like this. But while it may not be perfect, it is consistent. And we try to give you our best view into our estimate of weather impacts to us. You'll see in 2023, 32 cents on a gap basis, adjusting out unfavorable weather of 3 cents gets us to 35 cents. And then what I mentioned earlier in bridging that 7 cents gap in Q2 of 22, we had 4 cents of favorable weather that we backed out. And then moving on to slide 11, I'll just mention our cash flows and financing plans. Again, the impact of interim rates has been significant to us at both the base rates that we will earn on and also adjustment to that PCAM mechanism. You can see some favorable cash flows here. We had also previously announced our plans for $75 million of equity using our ATM remaining availability there in 2023. We did start that program up in Q2. and issued approximately 10.8 million. And we do expect to issue the remainder in 2023. With that, I'll move to slide 12. And again, reiterate that while you're all awaiting a full update from us, and we do expect to do that, we are awaiting the commission's decision, and it is a very significant outcome for us. So with that, we won't be providing a broader update at this point. But while Q2 results are certainly impacted by weather, The results were otherwise consistent with our expectations, and we await the Montana Commission's decision to provide that update. But as you can see with the cost of our business, that settlement is critically important to us in the sense of being able to cover the cost to serve our customers. And we feel good about what we placed in front of the commission. And we will be checking in with you after we receive that update. And with that, I will turn it to Brian.