NorthWestern Energy Group, Inc.

for joining Northwestern Energy Group's financial results webcast for the quarter-ended September 30th, 2023. My name is Travis Meyer. I'm the Director of 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, President and Chief Executive Officer, and Crystal Lael, Chief Financial Officer. All participant lines are currently muted after the presentation. We have allotted time for a Q&A session. I'll provide instructions for asking questions at that time. However, if you intend to ask a question or joining us by computer, please set your Zoom identity to your first and last name and firm so we can call on you by name and 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 this morning. Please note that this company's press release, this presentation, comments by presenters, and responses to your question may contain foreign-looking statements. As such, I will direct you to the disclosures contained within our SEC filings and safe harbor provisions included in 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 today. The webcast is being recorded. The archive replay of today's call will be available for one year beginning at 6 p.m. Eastern today and can be found in the financial results section of our website. With that, I'll turn the presentation over to Northwestern CEO, Brian Bird.

Thanks, Travis. First of all, we just completed... Our board meetings for the third quarter in here in South Dakota. As a matter of fact, last night we celebrated the 100th birthday of Northwestern Public Service. Many of you may remember in 2012, we celebrated the 100th birthday of the Montana Power Company. So all of our business has achieved a 100th birthday. In fact, actually, it'll be this year November 27 would be the actual date, because back on 11-27-1923, three employees from the Elbert Emanuel Company incorporated Northwestern Public Service Corporation. And just a little bit more history there, this company owned many utilities in the Ohio, Pennsylvania, and other Midwestern states. And the reason that they named this Northwestern Public Service Company is because after its incorporation, it was the group of assets that were most Northwestern of all the assets they own. So a little bit of history to start. For the quarter, the highlights certainly have to do with providing guidance, both for 23 and 24. I think from 23's perspective, our diluted earnings per share, $3 to $3.10 per share. For 2024, $3.42 to $3.62. Crystal will give more color on the guidance of each of these and also on our long-term growth rates. Regarding those long-term growth rates, we are increasing our long-term, think five years, rate base and earnings per share growth rate targets to 4% to 6%. Much of this now hinges upon a unanimous approval of a constructed multi-party settlement in the Montana Rate Review. resulting in electric and natural gas increases of 67.4 million and 11, excuse me, 14.1 million respectively. Those rates go in effect November 1st, 2023. And I know Crystal will talk about this more, but I want to stop for a second just to point out, first and foremost, I think we had a very constructive settlement between all of those intervening parties that provided revenue requirement testimony and rate review. So that was also constructive in and of itself. But I think how the commission handled this case, and certainly if you have the opportunity to listen in or listen in on Wednesday or have an opportunity to listen in by connecting to a link, You should listen in. We were extremely impressed with the slide presentation that was provided to the commission and just the comments from the commissioners in terms of the sincerity, how they look at their jobs and their role to balance the needs of not customers for sure, but also the needs, the financial health of the utility community. And noting that there are federal and state statutes associated with that, and in many aspects that go into their decision making, it was impressive and well done. So we feel very, very good about it. I think you've heard me say in the past, I feel good about the alignment, certainly in the governor's office, legislature and the commission. I think what's happening from my perspective There's certainly an observation by all of those parties how important it is the product or service that we provide our customers from electric and gas perspective. And the many challenges that we face to provide that service in the future in terms of capacity and other needs. And I think people understand in order for to do that we have to be a financially strong company. And I think yesterday or excuse me Wednesday's outcome. Certainly, that resonated with me as I heard the commissioners vote it wasn't lost on us to that it was a unanimous Bible vote so we feel very very good about that outcome. Earlier in the year, we got also approval to move forward with the holding company from all our jurisdictions, including Montana. And we actually, during the quarter, we effectuated the first phase of that holding company reorganization. Talk a little bit more about that later on in the presentation. During the quarter, we also finished up our ATM program. We issued 63 million of the remaining 75 million, closing on our equity distribution agreement. And we declared dividends of $0.64 per share payable December 29, 2023 for shareholders of record as of December 15, 2023. And with that, I'm going to hand it over to Crystal to walk through the financial matters.

Thank you, Brian. And I echo your comments on coming up on the 100-year anniversary. We've been here for about 20 years of that, feel pretty privileged to work here and work with this team. So that's a pretty cool accomplishment and getting to celebrate with those in the community and here on last night was wonderful. So with that, my comments today, I will discuss our third quarter results. I will also provide more commentary, as Brian alluded to, with regard to our release of 2023 and 2024 earnings guidance, along with a bit of detail on our financing plans and how we're thinking about that going forward. So slide five, first for the quarter, on a gap basis, we had an improvement of 1.9 million for a one cent increase. On a non-gap basis, that was an improvement of 4.2 million for five cents or 11.4% versus the quarter in 2022. To give you a bit more detail on that, turning to the quarterly variance, I'll take you to slide eight. Among the major items, when you look at the drivers for the quarter, you see margin improvement, which added $0.11. And that was offset by the continuing trends between depreciation and interest expense. And importantly, also $0.03 of dilution from our share issuance. For a bit more detail on the quarter and how margin that $0.11 shaped up, I'll move you to slide 9. You can see we had an improvement of 10 cents driven by interim rates in Montana. I would also tell you for the quarter, we saw cooler summer weather. It was also wet across our surface territories. A bit of variance there between the months, but I would remind you that last year in Q3, us and much of the Pacific Northwest saw very warm, hot weather. So definitely a variance driving the year-over-year results here. On the silver lining of that, I would tell you that that provided some tailwinds on our PCAMP. There's two pieces to that PCAM. If you recall last year, for the full year, that was about 10 cents of drag to us. But in Q3, we definitely saw detriment there. The absence of that detriment this year was helpful. And also importantly, and I'll speak to the rate review in a bit more detail coming up here, but the adjustment to that PCAM base, even through interim rates, was very significant for us. So all of that resulted in, from a PCAM perspective, 5 cents of improvement over the quarter of in 2022. But the other side of that weather is it also impacted driving lower sales volumes for us versus prior year, and notably also lower demand for our transmission. Think about demand across our lines, moving power to the west of us, south and west, north and west, less demand for that this quarter. So between those two, that's about a six cent drag to our earnings. So offsetting some of that improvement from interim rates. Turning to slide 10 on operating costs, you will see that we were relatively flat for the quarter versus the prior year. And you'll note that going through the first six months of the year, we had seen a bit of increase there. So that's putting our year to date back in line with our expectations of how we expected the year to shape up. Slide 11 really gives you a full look of how we perform for the quarter, adjusting out that non-GAAP piece. I just mentioned how weather in Q3 for us this year was unfavorable. So you'll see we've added back on a net income basis about $700,000. So $29.3 million of GAAP earnings adjusted to $30 million on a non-GAAP basis. And remind you that in prior year, That was favorable weather we were adjusting out. So that creates a 4 cent swing in results for the year. And you can see there on a non-GAAP basis, again, a $4.2 million increase or 16.3% for the quarter. Slide 12 provides a bit of detail on our cash flows. And I would note here we've been committed to our investment grade credit ratings. improving our FFO to debt. And you can see certainly a significant improvement in cash flow from operations here with important changes to our PCAM and also the base rates even captured from an interim rate basis. And you can see that improvement of less cash outflows, think of it that way, versus 22 is very significant as we move back toward delivering growth and making sure our balance sheet is strong to where it should be. So That leads me to slide 13 and talking about the Montana rate review. Brian already mentioned how critical that was and also how constructive the work session was. We expect based off that draft order that the final rates will be effective November 1st and we've made a compliance filing to trigger that with the commission. Those final rates will be an adjustment from interim rates increasing. So I think interim rates are detailed previously a little over 30 million. We'll go to the final adjustment on a base rate basis of 81.5 million between electric and gas. And we are pleased with that outcome while we acknowledge that we don't receive a true up back to the day of interim rates increasing. We do keep the interim rates. So think the 30 million that we've been collecting along. I think there's been a bit of confusion as to how that would work. So making sure we're clarifying here that effective November 1st, we go to the final rates incorporating the 81.5 million. And there's no adjustment to the interim rates that we collected so far on a base rate basis. We are certainly pleased with the outcome. And again, how the commission went about working through the order. and working through what we believe was a very constructive settlement amongst the intervening parties. We do need to see a final order, however, but once we see that and based off the draft order that we have reviewed and the tenor of the work session at this point, we don't expect that we would appeal the outcome of that docket. But we also think And very importantly, that it provides a solid foundation for how we move forward. And I'll address that in a couple of minutes here on how we're thinking about our growth and outlook. But that is certainly what allowed us to give guidance here this quarter with our update to you and to move forward. And with that, I will also talk about our South Dakota rate review, which we filed earlier this year in June. Slide 14. You've seen the details of this. And the update here is that we are working with commission staff in South Dakota. Commission staff is advocacy staff. We've been answering data requests, great questions from them on our operations and testing us appropriately as to the costs that we've included. And I would tell you that we expect we're winding down that rate or the data request process and should be moving into hopefully settlement discussions here as we're into Q4. I would also remind you that in South Dakota, there's a six month waiting period before interim rates close. would be available to us, which would put us sometime in mid-December. And we're hoping to work with the commission prior to that to move this case along. And that case is critical to our outlook as we think about 2024 and moving forward. So with that, I would turn you to slide 15. And thinking about our earnings outlook here, we are initiating guidance for 2023, as Brian mentioned, with a range of $3 to $3.10. And for 2024, a range of $3.42 to $3.62. Importantly, at the same time, we're also revising our long-term growth outlook, increasing our earnings growth range on a long-term basis to 4% to 6%. And I would frame that growth in two pieces. One is we're deploying capital, growing rate base that supports our customers and does the right thing. to keep them in the service that they would expect and delivering capital deployment as we should, while we're also focused on improving our earned returns and our jurisdictions and focusing on delivering to shareholders. So both of those pieces are how we will drive growth moving forward. I would also tell you how we're thinking about the capital plan here. And we do expect to provide more of an update on that. But critically in this environment, our current capital plan is sized to contain no equity in the current five-year plan, absent any opportunities incremental to that plan. So our financing of the plan will be driven by cash from operations and debt. But again, no equity in this plan in the current five-year plan as contemplated. And part of what that is, is We are firmly committed to maintaining our investment credit ratings and targeting FFO to debt of greater than 14% in 2024. And the thing that I would mention here is we certainly have plenty of capital to deploy and our discipline around that capital allocation is focused on what we need to do on the system balanced by our balance sheet and maintaining strong financial health and also delivering earnings at the same time. So to conclude my comments, I've, Note that we've provided substantive updates to how we're thinking about our outlook, followed upon solid regulatory execution. The headwinds that we've had in the last couple of years, we've navigated those and have stabilized with concluding our 2023 results here. And you can see the midpoint of our 2024 guidance provides what we believe is a stable platform for growth and to achieve our long-term growth that we're laying out here. We also believe we offer a solid return potential with our earnings growth and dividend yield, with a fundamental driver being the things that should be, which is continued investment in the system to serve our customers and focusing on improving our earned returns. So with that, I will turn it back to Brian.