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spk02: Good afternoon and thank you for joining Northwestern Energy Group's financial results webcast for the quarter ended March 31st, 2024. 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've allowed time for a Q&A. I'll provide instructions for asking questions at that time. However, if you intend to ask a question and are joining us by computer, please set your Zoom identity to your first and last name 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 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 the safe harbor provisions included in the second slide of the presentation. Also, please 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 today and can be found in the financial results section of our website. With that, I'll hand the presentation over to Brian Bird for his opening remarks. Thanks, Travis.
spk01: Well, we were in South Dakota this week. Actually, we were in Brookings earlier in the week. had the fortunate event of having a valve turning on the first renewable natural gas coming onto our system. As a matter of fact, with five more of those projects, two-thirds of our residential customers in South Dakota will be receiving renewable natural gas. So that's in 2025. So we have a handful more of those projects coming on. We're very excited about that. It's certainly helpful for our net zero by 2050 goal. We were in Brookings in the latter half of the week also for a board meeting, which we finished up this morning and had the annual meeting. And at that annual meeting, it was our board chair's last meeting. Dana Dykhaus turned out after 15 years on our board. He's been a fantastic person. board member and he is a icon in the state of South Dakota. We've been very, very fortunate to have him on our board and we will miss him dearly. With that, I'm going to talk about the recent highlights for the quarter. We reported gap diluted EPS of $1.06, non-gap diluted EPS of $1.09. We're affirming our 2024 diluted EPS guidance of $3.42 to $3.62 for 2024. We're affirming our long-term rate base and earnings per share growth rate targets of 4% to 6%. We've completed our debt financing needs for 2024. And we declared a dividend of $0.65 per share payable June 28, 2024 to shareholders at record as of June 14, 2024. We also have Montana Electric and gas rate review filings anticipated for the third quarter of 2024. And that will, for Montana Electric, will include the prudence review of Yellowstone County Generating Station. We also will be publishing here shortly in May our wildfire mitigation plan. That plan will include our new public safety power shutoff. PSPS process and the plan recognizes and addresses the unique needs of our customers, communities, and first responders. I'll speak to that more in a moment. Our Northwestern value proposition, I think with a 5% dividend yield sitting here today and following through on our base capital plan of $2.5 billion, and Crystal will speak to that more later in the presentation, But that 5% dividend yield plus a 4% to 6% EPS growth rate gets you to 9% to 11% total growth rate return. On top of that, we have some incremental opportunities. We continue to explore some transmission investments, incremental generating capacity necessary in both jurisdictions from an electric perspective. We're evaluating some QF contracts and PPAs for potential buyouts. and just to continue electrification that we're seeing in most jurisdictions, of course, in the U.S. that support economic development. And with those incremental opportunities, we'd see a higher than 11% total growth in return for investors. With that, I'll pass it over to Crystal for comments on the court.
spk06: Thank you, Brian. My comments today will cover our financial performance for the first quarter and a bit of an update on our overall financing plans and balance sheet in addition to where we're at on the capital execution side for the year. As Brian noted, we delivered strong financial performance here in the first quarter of 2024 with EPS of $1.09 compared to $1.05 last year. These quarterly results were driven by new rates, importantly, and solid expense management. They were tempered a bit by milder weather and a few one-time items impacting the quarter, which I will provide a bit more details on in a minute. From a net income basis for the quarter, that led to, from a gap perspective, a $2.6 million improvement or 4.2%. On a non-gap adjusted basis, $4.2 million of an increase or 6.7% increase versus the fourth quarter of 2024. Moving to slide seven. This slide highlights for you the after-tax drivers of change in our diluted earnings per share for Q1 2024 as compared to 2023. You'll note, importantly, the strength of our higher utility margin of 15 cents, really driven by the regulatory execution that we talked about quite a few times with the Montana Electric and Gas Rate Review and what we will have as a full year impact of new rates for 2024 in addition to that. We also concluded the South Dakota electric rate review and received final rates there in January. So you see a significant driver of results here in the first quarter for us. In addition to that, you'll note O&M expenses increased about five cents versus the first quarter. of 2023, I would highlight for you that included in that five cents of detriment at the O&M line is a litigation outcome and also an impairment impact. Together, those items were six cents. So if you remove that, subtract the six cents of impact from that litigation outcome and the impairment impact sitting in the O&M line, you would actually see solid cost management there, which would result in one cent lower of O&M versus the first quarter of last year. Also note that depreciation interest expense also increased each 4 cents versus the first quarter of 2023. In addition, we had 3 cents of dilution impact from additional shares outstanding, all that leading to $1.06 of earnings on a gap diluted basis and on an adjusted basis, $1.09. Moving to slide eight, a bit more detail on our utility margin. For the quarter, higher margin was driven by 25 cents of new rates and 4 cents of improvement from transmission services. These were offset a bit by lower volumes of about 8 cents driven primarily by milder weather and 4 cents from an impact from our Montana PCAM, and that was driven by the January cold weather event. I think we spoke with you about that at our February call, but we saw power prices drop over 1,000 box a megawatt hour to procure and serve our customers in that storm event. You see that impact in our peak cam noted here at the 4 cents of detriment in Q1. Slide 9, we provide the details of our adjusted earnings to highlight a couple of things that I just covered in our bridge detail. So you'll note that on the left-hand side of this in Q1 2024, we start with $1.06 of earnings. add back one cent of unfavorable weather, and then netting the two items, which is the impairment of the energy storage-related investment offset by the reversal of a penalty, netting to a two-cent add-back gets you to $1.09 of earnings in the first quarter of 2024. When you compare that to last year in the first quarter, notably, we had significantly more favorable weather. So think about where we live. It was really cold last year in Q1 in Montana, South Dakota, Nebraska. And this year it was certainly a lot milder and we all noticed it. So you saw a five cent add back last year. So notably, that was a six cent swing and earnings impact to us versus the two quarters last. And then also you see that we had a tax item that we had adjusted last year. All that being said to say $1.09 of earnings compared to $1.05 of adjusted earnings in the prior quarter, which is a 4 cent increase or 3.8%. Moving to slide 10, a key strategic objective for us has been further strengthening our balance sheet. We have been very disciplined about our regulatory execution, which we've talked about and the impact of that to our utility margin and importantly to our cash flows. in addition to discipline capital allocation, such that I am happy to say here at the end of Q1 closing out the quarter that our FFO to debt metric, as we concluded, is over 14%. And many of you that follow us know that that is our downside threshold from a credit rating agency perspective. So we're really happy to see the disciplined execution in the last couple of years, leading us to a point where we're very happy about where we are from a balance sheet perspective. In addition to that, During Q1, we had announced our financing plans for the year, which include no equity, but some debt financing needs. We have executed on that and have closed out our financing needs for 2024. I will turn you to slide 11 and reiterate, Brian has already noted earlier that we are affirming our guidance for the year. So in Q1, we are reaffirming our 2024 guidance of $3.42 to $3.62. And that is consistent with our long-term earnings guidance of 4% to 6% from an earnings per share growth rate. And we feel good about where we are from those targets and where we are with solid execution in Q1, setting up a base for the rest of 2024. Slide 12, I'll highlight our capital forecast for 2024 includes over $500 million of investment driven by our base system and really supporting our customer needs and making sure we're serving them well. But also and importantly, the completion of the Yellowstone County Generating Station. We've talked about this many times, but resources such as Yellowstone County are incredibly critical to our ability to serve our customers when they need it most. We're happy to say that our capital forecast here is on track. and importantly on track for what we think are the most critical investments to serve our customers. So with that, I will turn it back to Brian.
spk01: Thanks, Crystal. You know, just one page here just to talk about wildfire plan. And when we meet many of you at AGA and beyond, we'll talk in more detail about the plan after we release it here in early May. I think the main thing to talk about first and foremost before this plan, I think our last plan we just put in front of the commission not too long ago on our last rate review, really captured everything we've been doing from a wildfire mitigation perspective for decades, actually, in terms of system hardening in the 2010 through 2020 time period, hazard trees, and dealing with many other forest-related issues, and just putting in place very, very good procedures to deal with that. The one area where we felt we needed more work was in system monitor, situational awareness, if you will, And we have done a tremendous amount within the last year, adding technologies and other process to do a much better job on that. And we continue to think about public communication and outreach and then all be addressed in this upcoming plan. One major difference between this plan that you'll see here shortly And the plan from a couple years back is we are now going to be executing public safety power shutoff on a going forward basis. And again, we have our segments have been down to very, very, I would say there's so many segments, the amount of customers potentially impacted by PSPS is going to be significantly different than you might see from some other utilities. We'll manage that in pretty fine detail. One other thing I should point out on this particular page is, you know, we assess each of our segments in terms of risk. And as we sit here today, only 6% of our distribution and about 7% of our transmission are in the highest risk category for Montana electric acid. So that's also helpful. But we know that wildfires can start in many different spots and we'll continue to really look at our system as a whole and manage that accordingly. We look forward to talking about this more in May after we release the plan. One of the reasons we're waiting to May to release it, we will be meeting with the Montana Public Service Commission on May 6th, as well as the Montana governor to get a preview of the plan we'll be releasing shortly after this. So we're very excited about the steps we've taken thus far. and continued progress on this. And obviously, we, like the rest of the industry, trying to mitigate this risk as best we can, not just for our customers, but all of our stakeholders. And with that, just from a concluding standpoint, again, appreciate the support of the company. And we're making great strides in 23. And we continue, as you noted here, thinking about rate reviews from our perspective. We're just really trying to capture, recover the investment we're making to serve our customers. And I think making sure that those increased customers are seeing are going to be manageable in line with inflation on a going forward basis. And with that, we'll turn it over to Mr. Meyer to handle any questions.
spk02: Thank you, Brian. Thank you, Crystal. If you're joining us by computer today and would like to ask a question, please signal your intent by using the raise hand button typically found within the toolbar at the bottom of your screen. You can also press Alt Y on a PC or Option Y on a Mac to raise your hand. Please ensure your microphone is unmuted if you're in the queue to ask a question. If you're dialed in by phone, you can press Star 9 to raise your hand and Star 6 to unmute your line. Again, that's Star 9 to raise your hand or Star 6 to unmute your line. If you haven't provided your name and your Zoom ID or dialed in by phone, please be listening for us to announce your Zoom ID or the last four digits of your telephone number to notify you that your line is open and ready for a question. With that, we'll just give it a minute in the queue. We'll take our first call from Jeremy Tonette at JP Morgan. Jeremy, your line should be open.
spk00: Hello, can you hear me?
spk01: Hey, Jeremy.
spk00: Hi, good afternoon. Glad to connect here. Just want to start off, I guess, you know, EPA had some new announcements yesterday and wanted to just, you know, follow up, I guess, on, you know, the thoughts that you provide and the press release there. You know, how do you think this impacts NWE going forward at this point, given what's known?
spk01: Yeah, I would say this. I think from our perspective, when you say impacts NWE, I'm primarily concerned about how this impacts our customers to start. From our perspective, we have a capacity shortfall in Montana as we start. And adding incremental coal strip was going to certainly help us drive that. And we believe that still makes great sense. But I think this news obviously was not good. I think the decision puts a significant risk on our ability to reliably serve our customers. And I think it ultimately could force us to make short term decisions that could impact the affordability. for our customers instead of long-term cost-effective solutions to provide more capacity for our customers. And again, I think I want to make sure everyone's aware here. We, like every other company in the utility space, we obviously want to go down the direction of promote cleaner generation resources to serve our customers, but we want to be able to do that in a way with proven technology that's cost-effective. And unfortunately, these rules, and I think, by the way, to be able to do that, be it small modular reactors or what have you, that's 10 years in the making. From my perspective, those resources are available and certainly cost effective. But making us make changes here are probably going to result in short-term decisions that, again, are going to impact customers from a reliability standpoint and an affordability standpoint. And trying to have anybody do something within four years around these rules makes absolutely no sense. So, Jeremy, if you think I feel strongly about this, you're absolutely right.
spk00: That's helpful there. Just curious, to the extent you might be able to comment, whether you think there could be, I guess, legal challenges here in how that might unfold if you're able to comment there.
spk01: Yeah, I think. From our perspective, we feel very strongly, particularly around the mats, that we expect litigation around that. I believe based upon the first blush of the rules, I think the industry as a whole is going to think about this from a litigation perspective on all the rules for that matter. So it will be interesting to see how this plays out.
spk00: Got it. Thank you. Thank you very much for that. And then I guess, you know, pivoting back to just Montana itself and just wanted to get your thoughts, I guess, for the next, for the next rate case, you know, it seems like there's, there's going to be some changes in the commission, just wondering with, with elections and termouts, what have you, if the next rate case will be under the current composition or, or changes in composition or any thoughts, I guess, on Montana, you know, regulatory strategy at this point, given, given the moving pieces.
spk01: Now, I think when you say regulatory strategy, and again, we appreciate the current commission, and obviously there can be changes. We certainly know there's two positions that will change. President Brown's not seeking reelection, and Commissioner O'Donnell is leaving the commission he's termed out. So there's going to be change, but that doesn't change our regulatory strategy in one iota. It doesn't necessarily matter to sitting in those chairs. From our perspective, we want to come forth what we believe makes sense, obviously, for us, but also for our customers. And that's a point of also working with commissioners to ultimately achieve good outcomes, regardless of sitting in those seats.
spk00: Got it. That makes sense there. Thank you. And then just finally, in addition to the wildfire mitigation filings, Are there any key state or federal legislative changes that you're watching with regards to wildfire risk in your service territory and how conversation has been stakeholders trending? And really, do you see, I guess, the potential for national policy coordination here?
spk01: Great question, Jeremy. I would tell you this. I think obviously the industry has been focused on this quite a bit, and I appreciate EEI and many of their electric utilities trying to address this issue at the federal level. You mentioned state as well. We will be working with other utilities and co-ops in Montana to regarding legislation around wildfire mitigation. It's early innings to determine what that would look like, but we certainly plan in the 2025 session to be bringing that forward. And obviously, I think we'll be working in many different means to try to mitigate this risk on a going forward basis. But yep, we expect to see something in early January around that issue.
spk00: Got it. That's very helpful. I'll leave it there. Thanks. Thanks, Jeremy. Thank you, Jeremy.
spk02: We'll take our next question from Alex Mortimer at Mizuho. Alex, your line should be open. I suppose it could be Anthony, too. Just dialed in under Alex.
spk05: Hi, good afternoon. Sorry, can you hear me? There we go. We got you. Yep, we sure can. Sorry about that.
spk04: I guess just given load growth sort of being the topic of the year right now, sort of industry-wide, can you touch on anything you're seeing from that perspective? And then as well as given potentially incremental load, sort of any upside to CapEx in your – or potentially in your plan?
spk06: It's Crystal. I'll take that question. I think a couple of things when it comes to low growth come to mind. First of all, I would go back to Brian's comments on the EPA and the importance of getting our Yellowstone County facility done, which is we sit in a unique position of being at a deficit to be able to serve our existing customers. So the criticality of executing on completing our Yellowstone County facility and addressing these issues with the EPA, I think would enable the next steps of investment that would allow for getting us to resource adequate, and then to be thinking about what are the options around load growth. Obviously, there's a lot of commentary in the sector on what's going to happen with the things that are driving the broader trends, whether that's onshoring or AI or EVs or all those things. We're very focused on the capital execution to support our current load. And then also working with the governor of Montana and South Dakota are both economic development drivers, and we want to be a partner in that. So we think there is a lot of opportunity there. But our first blocking and tackling is serving our existing load, and we're obviously pretty short of that. And the EPA may have just made us far shorter of that in a very short amount of time.
spk04: Understood. Thank you. And then pivoting back to wildfire and the upcoming rate case, you mentioned attaching the wildfire plan to the case or filing it in addition to it. Does the commission approve the wildfire plan or accept or reject? Like, can you just go through sort of the fundamentals of what that process is going to look like?
spk01: Yeah, I think it's too early to say whether they'll effectively approve the plan or not. I mean, obviously we want support of the plan. And if that's an approval, that'd be fantastic. But we want to make sure that all the stakeholders that are going to be involved with this, be it the Forest Service and many, many other stakeholders, that we're going to need to work with our fire mitigation plan and the commission as well. Obviously, recovery of costs associated with that. We're going to need people to support the plan.
spk06: And I would just add on to that, if you're probably aware, we filed our plan previously in our last Montana electric rate review. We achieved deferral of incremental O&M costs in that plan, so support of spending as it related to executing upon and accelerating spending in that plan. Obviously, that discussion of, as Brian alluded to, cost recovery will continue in our upcoming filing.
spk04: Perfect.
spk02: Thanks so much. I'll leave it there. Thank you, Alex. And we do not have any other questions in our queue. So with that, I'll turn it back to Brian for some closing remarks. Well, hold on one moment. It looks like Mr. Crowdell snuck in and wants to ask a follow-up question potentially.
spk03: Yeah, I don't know if you can hear me. Just a quick follow-up, and you may not want to answer it. Just curious if the company has an embedded interest rate forecast. as we go through the year. You know, we're not sure if rates are going lower, are they going higher? I'm just curious if you guys have any embedded forecasts of interest rates. And that's all I have. Thanks.
spk01: First of all, Crystal, do you want to not answer because it's Anthony or do you not want to answer it because of any other reason? That's the question I think we need to answer first.
spk06: Well, since it's Anthony, I will answer it that way. And then my first comment, I won't tell you what that embedded number is, but I will tell you we here at the Northwestern have had the higher for longer view, maybe a little, maybe less embedded. upside potential than the market thought on interest rate cuts. So where we sit from a financing plan perspective and assumptions, we feel good about where things are today. And obviously, Jay Powell signaled that he may not have, may not decide to cut rates as soon as some others may have thought. But I would just tell you, we were in the hire for longer camp and have managed our plan consistent with that.
spk03: Great. And then just, again, I apologize for hitting the well again. Just before you file a rate case, I think there's some like, unique with parties, I don't know if the right term is, it's not testimony, but you kind of get all the policymakers together. Any feedback you could give us, especially related to Yellowstone, that you're getting from the parties?
spk01: You know, effectively, we'll file this and then start talking with stakeholders associated with that around those issues.
spk03: Great. Well, thanks a lot. I hope you guys have a great weekend.
spk02: Thanks, Anthony. Thanks, Anthony. And with that, we have no other questions in the queue. And so, Brian, any closing remarks?
spk01: No, I just appreciate the continued support. And we're going to forge ahead and obviously plan to hit our guidance here for the end of the year. Thank you. Thank you.
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