NorthWestern Energy Group, Inc.

Good afternoon and thank you for joining Northwestern Energy Group's financial results webcast for the quarter ended June 30th, 2024. My name is Travis Meyer. I'm the Director of Corporate Development and Investor Relations Officer for Northwestern. Joining us today to walk 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 allowed time for Q&A. I'll provide Instructions for asking questions at that time, however, if you intend to ask your question and are joining us by computer, please send 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 questions may contain forward-looking statements. As such, I'll direct you to the disclosures contained in our SEC financials and safe harbor provisions included in the second slide of this 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. 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 opening remarks.

Thanks, Travis, and greetings to all of you from Great Falls, Montana. We had a board meeting here this week, and we had an opportunity to... tour some of our hydro facilities. That was great fun and I had the opportunity to meet with Energy West employees this morning here in Great Falls. So we'll talk about that a bit later. Our recent highlights, as noted on page three, is we reported gap diluted EPS at 52 cents, share and non-gap diluted EPS at 53 cents, We're affirming our 2024 diluted EPS guidance of $3.42 to $3.62. We're affirming our long-term five-year rate-based earnings per share growth rate targets of four to 6%. And we declared a dividend for the quarter 65 cents per share payable September 30th, 2024 to shareholders of record as of September 13, 2024. I'm sure that you've seen that we filed rate reviews Montana Electric and Gas, and South Dakota Natural Gas, Nebraska Natural Gas, those three jurisdictions within two months. And matter of fact, if you consider the South Dakota Electric rate review we filed last year, it's the first time in certainly the 20 years that we've had the Montana power assets and the Northwestern Public Service assets, certainly since that merger that we filed in all jurisdictions in this short period of time. And really, and Crystal certainly will talk about this later, It's an effort we continue to invest high levels in all jurisdictions, obviously in a rising cost environment. We need to make these rate review filings. We need to earn closer to our authorized rate of return. She certainly will speak to that more as well. I'll get an opportunity to talk about two strategic transactions, and the first being we've entered an agreement to acquire Energy West Montana's natural gas distribution system, serving 33,000 customers for $39 million. And we've entered an agreement to acquire Puget Sound's 370 megawatt ownership interest in coal strip units three and four, and like the Avista transaction, at no cost. Take a look at our Northwestern value proposition. I mean, we are still providing a 5% dividend yield today. And when you consider just our base capital plan, and you're going to see a 4% to 6% percent EPS growth on top of that, providing a 9 to 11 percent total growth. And when you can take into consideration incremental opportunities for transmission, incremental generating capacity, QFs or other power purchase agreement buyouts, electrification, supporting economic development, and like these two transactions today, we are endeavoring to grow this business and provide a better value proposition for our shareholders, And much like these acquisitions provide better outcomes for our customers as well. With that, I'm going to hand it over to Crystal to talk about the second quarter financial results.

Thank you, Brian. In my comments today, I will discuss our financial performance for the first half of the year with focus on Q2 here and also discuss our outlook for the remainder of the year. Also, my comments will address the rate reviews that Brian alluded to, to give you a bit more detail on those and how we're thinking about them. But importantly, I would mention that being here in Great Falls is fortuitous timing. We plan our board meetings well in advance. Our board likes to be out with our employees and our management team as well. To happen to align with the announcement that I will turn it back to Brian to talk to you at the end is a pretty cool thing. So with slide six, you'll see the results that Brian alluded to with strong financial performance in Q2 with earnings per share of 52 cents. And that's compared with 32 cents in Q2 of 2023. So really significant improvement in performance there. I'll take you to slide seven for a bit more detail on the quarter results. gap net income of 31.7 million. Again, that's 12.6 million in improvement or 66% since Q2 of 2023 on an adjusted basis. And I'll speak to that a little bit more later in detail, but the only adjustment in Q2 here is weather. So on an adjustment basis, that's 11.8 million or 58% improvement. Slide eight, again, most of my comments today will be addressed on the quarter, but I would be remiss to not cover our first half of the year performance. And we are pleased with that financial performance with earnings of 96.7 million or $1.58 on a gap basis, which is a 21 cent increase or 15%. Moving to slide nine, you see our results for the quarter and the details as to what's really driving those. You will see that the left side of this, the key driver here is really that focus on regulatory execution and outcomes driving 26 cents of improvement from a margin perspective based off that. Those were offset in part by some operating cost pressures, including as with everyone else, labor, if you think about that piece of it embedded within the 5 cents of detriment at the OAMG line, and then also some cyclical planned generation maintenance. And then you also see some offsets with depreciation and interest expense, again, leading to 52 cents on a gap basis and 53 cents on a non-gap diluted basis. Slide 10 breaks out that margin detail. and provides really the drivers for the quarter with 20 cents of improvement driven by regulatory outcomes. I would mention that from a volumetric perspective that was tempered a bit by milder weather in Q2. You all know that's our most shoulder season that we experienced, seeing a bit lower residential usage driven by weather, somewhat offset by industrial usage overall. You also note that we saw five cents of contribution quarter over quarter from our Montana transmission assets. We continue to believe fundamentally they're very strategically located and important to driving both results in this quarter, but also our growth in the future. These are also offset in part by, if you'll recall, the QF liability adjustment that we've talked about with you many times. Last year we adjusted that out, but that was a more favorable QF adjustment in Q2 2023. impacting obviously the quarter over quarter results, the absence of that favorable adjustment here. In addition, I'd also talk about our PCAM just briefly. You can see a detriment here from a PCAM perspective of about a penny. The way you should think about that is that PCAM was quite favorable to us last year in Q2, and while it was favorable here in Q2 of 24, it was less favorable. driving one cent of detriment. But again, and I'll allude to, Brian's going to talk about another strategic transaction, taking out volatility for our customers and being able to serve them with own resources is just a critical part to being able to serve them in the right sorts of ways. So again, overall, from a utility margin improvement, the driver there is execution from regulatory outcomes. Slide 11, again, many of you know us, but as we think about what we adjust out from a quarter perspective, we had a couple of noisy items, I'll call them one-timers in Q1. Here in Q2, you'll see only the impact of weather. I mentioned we had some milder weather in Q2. So you see only a penny of adjustment out of unfavorable weather with ad back. And when you think about last year in Q2, that was compared to a 3 cent ad back. of unfavorable weather. So overall, you adjust that and you have 53 cents on a non-GAAP basis compared to 35 cents in the prior quarter. And again, that's an 18 cent improvement over 2023. Slide 12, we talked about at the end of Q1, really executing on our strategy of strengthening our balance sheet and being where we need to be from both a financing perspective and driving strength in our ability to continue investing for our customers. We had executed on our financing plan when we talked to you by the end of April, and we were also above our 14% targeted target. threshold for FFO. And I'm happy to say we continue to be above that. And that is consistent with the guidance we've given you maintaining strength there. So you'll see 14.8% closing out on a twirling 12 month basis, the first half of 2024. I'm very happy to be over that level. So with that on slide 13, you'll see our disclosures here are consistent with what we shared with you previously. We are pleased with our financial performance for the first half of the year and on track to deliver solid results for 2024, really driven by those constructive regulatory outcomes where we're investing to be able to serve our customers. We also believe that we are uniquely positioned with no equity needs in our current capital plan while we're still deploying substantial investment in our capital jurisdictions, which I'll talk more, which is my next thing to talk about, which is our regulatory filings during the quarter, really driven by what I just alluded to as our capital plan and investing on our customers behalf. So with that, I will transition from discussing the impacts of the quarter to what we view as strategic to driving our growth going forward here and what we look at in the next year or so. You'll note that our teams have been busy here in Q2, as Brian alluded to, submitting rate reviews in each of our jurisdictions. You will also note on slide 15, each of these filings is driven by critical capital investment to meet our customer needs and reflect our focus on, while doing that, earning our returns to drive consistent growth, consistent with the strategy that we've laid out for you. We are confident in each of these cases that we can work with our interveners and commissions to achieve constructive outcomes and continue to be able to invest in infrastructure in each of these states. You'll note the Montana filing, both electric and gas, is laid out on the left-hand side of the slide. While we just concluded a rate review in Montana in late 2023, we are continuing to invest to meet our customers' needs with over a billion of investments since that time. So when you think about by the end of 2024, the filing includes a known immeasurable period. In 2023 and 2024, we will have invested a billion dollars to serve customers in Montana. Importantly in that case, we were also talking about mechanisms to help support ongoing critical needs, particularly around wildfire mitigation and what we need to do to provide safe, reliable service to our customers and the importance of that to those in Montana that we serve to support Montana generation investment and also technology needed to continue to serve our customers. The other thing I would touch upon in that filing that is significant is the Yellowstone Generating Facility. It is a key part of our focus on customer affordability is that importance of owned generation. So while we are seeking to recover in this case an investment of approximately $300 million, that investment is providing price stability and a Montana resource that is more cost effective than the market. We've talked many times about impacts in our PCAM. Being on the market, we need to serve our customers most, and we're really happy to be in the homestretch of bringing that facility online to serve our customers. We understand the potential for the rate impacts of that, and you'll note that the recovery of this facility is offset by a reduction in costs in our PCAM. And importantly, it aligns the timing of that recovery with the value that customers are receiving from the facility. And as it relates to the South Dakota and Nebraska gas filings on the right-hand side of this slide, you'll note it's been a while since we've filed in each of those jurisdictions. Lots of reasons for that, but critically, we are focused on capital investment that needs to be recovered from those customers and also being in to update the basis of rates there. And again, we certainly believe that we'll be able to work constructively and paint a very clear picture of efficient, cost-effective service and investments that are needed to serve our customers in each of those jurisdictions. With each of these filings, we are working to develop timelines with the appropriate interveners and commissions to work through the process with them to achieve critical outcomes. You will also note, importantly, back to the growth outlook slide and our outlook for 2024 earnings guidance, that we do assume an amount of rate relief related to certain interim rate assumptions. So with that, I will turn it back to Brian to discuss our two key announcements.