Northwest Natural Holding Company Price & Performance (NWN)

Or significant changes in loss, legislation, or regulations. As a reminder, our segment reporting includes our natural gas distribution, or NGD segment and other which includes our interstate storage services and asset management services, Northwest Natural Water, Northwest Natural Renewables, and holding company expenses. We expect to file our 10 ks Please note, these calls are designed for the financial community If you are an investor and have additional questions after the call, please contact me directly at 503721253 News media may contact David Roy at (503) 610-7157. Moving to Slide three, With us today are David Anderson, Chief Executive Officer Justin Pelferman, President and Ray Kazuba, Senior Vice President and Chief Financial Officer. David and Ray have prepared remarks and then will be available along with other members of our executive team to answer your questions. With that, I will turn it over to David on Slide four. Thanks, Nikki, and good morning and welcome. This past January, we celebrated the one hundred and sixty six anniversary of the founding of our company in 1859. Over this impressive span of years, the company has been unwavering in its dedication to delivering safe, reliable and affordable utility services to better the lives of the communities we serve.

It is this reputation that drew me to Northwest Natural in 02/2004 when I joined the company. At that time, we were known in our industry for operating the premier gas utility in the Pacific Northwest with a legacy of ingenuity safety, superior customer service, I immediately found that reputation to be well earned. In 2016, I was honored to be given the responsibility as CEO to uphold that reputation, while also growing the company and continuing to create long term shareholder value. As I address you this final time, I am pleased to report that we have been successful on that path. In my time as CEO, we have evolved from one utility to four strong businesses serving nearly 1,000,000 customers across seven states that are growing meaningfully and sustainably dedicated to our hallmarks of service and safety. This past year was one of achievements 2024 adjusted earnings came in at the upper end of the guidance range due to successfully executing our plans to offset regulatory lag from capital investments and inflation.

To mitigate those pressures longer term, we completed the largest Oregon gas utility [indiscernible] and also concluded a number of water and wastewater utility rate cases last year. We did not lose sight of affordability. Today, our Northwest Natural customers are paying less for their natural gas service than they did twenty years ago. At the same time, our water and wastewater customer base grew at a clip of 4.6% last year, including organic growth and acquisitions. In addition, our two renewable natural gas facilities with EDL went into operations. These facilities and our related offtake contracts are already providing steady cash flows and earnings that we expect for decades to come. But we did not stop there. We also announced the acquisition of a high growth natural gas utility in Texas Sea Energy.

This transaction, which closed last month, represents one of the most significant drivers of long term growth for our company. All of these accomplishments in 2024 put us back on track and further support our 4% to 6% long term earnings per share guidance. And that's why today, we are able to initiate 2025 adjusted earnings guidance in the range of $2.75 per share to $2.95 per share. Turning to more detail on our Pacific Northwest Gas utility on Slide five. As I mentioned, we successfully completed an Oregon general rate case in October of last year with new rights effective on November 1. Under the order, Northwest Natural's revenue requirement increased $93,300,000 and rate base increased $334,000,000 to $2,100,000,000 It is important to remember that we prioritize safe, reliable service and make investments to support that critical mission. In January, we were reminded once again of the importance of peak planning the natural gas system during cold weather events. We delivered 9,000,000 therms on our new peak day last year. Our gas system provided 55% more energy the largest electric utilities in Portland, Oregon combined over the cold sap. In fact, the region narrowly avoided rolling Blackhouse during the January twenty twenty four storm because widespread outages in the Willamette Valley dramatically reduced electric regional load.

That is according to the Clark Public Utility District Supply and resource adequacy snapshot. This just clearly illustrates the [indiscernible] of natural gas. Voters in our service territory have repeatedly agreed with us The most recent data shows that voters want a diversified set of energy solutions citing reliability and affordability concerns. With increasing concern about power outages, 81% of voters say we need both electricity and natural gas to reliably meet our energy needs.

We appreciate voters' understanding of the essential role the natural gas system plays. Is why we believe Washington voters in November 2024 repealed laws that favor electrical usage over the direct use of natural gas. And why we believe that two integrated systems gas and electric are better than one. In order to continue that critical mission of safe reliable gas service, we filed an Oregon general rate case at the December. The gas utility request included a modest revenue requirement increase of $59,400,000 or 5.8% over current rates. The increase is based on a 52% equity and 48% long term debt capital structure and a return on equity of 10.4 and a cost of capital of approximately 7.7%. This request includes an increase in average rate base of $2.00 $4,000,000 since the last rate case and an updated depreciation study resulting in a $10,000,000 increase revenue requirement. [indiscernible] As you may recall, Oregon rate cases are adjudicated over a ten month period. So we expect new rates starting November one of this year. We carefully considered this rate case filing and the effect on customers' bills. Our team is done all they can to reduce cost and operate as efficiently as possible while maintaining a safe and reliable system.

Moving to Slide six, and an update on our gas utility in Texas. Sea Energy. We are thrilled to close the Sea Energy acquisition on January 7. And add a rapidly growing natural gas utility in Texas to our portfolio.

The transaction meets all of our investment criteria. It is a regulated utility in a rapidly expanding region with constructive regulation and a long runway of growth opportunities plus an excellent management team. Sea Energy has produced strong customer growth of 22% from 2021 to 2024 compounded annually. We believe C Energy's double digit growth will continue and the acquisition continues our platform of further scaling our business. In summary, we have a strong year of execution and are well positioned to continue delivering on our financial and strategic objectives. I am proud of the achievements across all four of our growing businesses. With that, let me turn it over to Ray to cover the financials.

Thank you, David.

Good morning, everyone. Turning to full year results on Slide seven. On an adjusted basis, the company achieved net income of $90,600,000 or $2.33 per share compared to net income of $93,900,000 or $2.59 per share for the same period in 2023. The $3,300,000 decrease in adjusted net income is largely the result of regulatory lag for the first ten months of 2024 until new Oregon gas utility rates were effective on November 1. Earnings per share was also affected by the issuance of common Turning to the Natural Gas Distribution segment's annual results. Utility margin increased $26,300,000 mainly due to new rates [indiscernible] Gas utility O and M decreased $2,100,000 excluding the effects of a regulatory disallowance as a result of lower contractor costs and bad debt expense. Utility depreciation and general taxes increased $12,100,000 due to additional capital investments. Other income decreased $18,200,000 driven by higher pension costs and lower interest income. Interest expense for our gas utility increased $2,800,000 due primarily to higher short term debt financing. Our other businesses net income increased $3,600,000 excluding expenses related to the Sea Energy transaction primarily due to $4,400,000 of higher net income from the Water and Waste water utility business.

For 2024, cash provided by operating activities was $200,000,000 We invested $394,000,000 in systems related to safety, reliability and technology. Nearly 90% of those capital expenditures were for the gas utility. These were planned and included in our rate case Northwest. We deployed $30,000,000 for water and wastewater acquisitions. Cash provided by financing activities was $227,000,000 Moving to our financial outlook on Slide eight. The company initiated annual 2025 adjusted earnings guidance today in the range of $2.75 to $2.95 per share. Our 2025 guidance reflects strong contribution from our other businesses. We expect Sea Energy and Northwest Natural Water to each provide a approximately $0.25 to $0.3 at EPS over the year in 2025. We also expect a long term earnings per share growth rate of 4% to 6% compounded annually from 2025 adjusted EPS. Turning to our capital expenditure guidance. For 2025, consolidated capital expenditures are expected to be in the range of $45,500,000,000 anchored by significant projects at our gas utilities in the Pacific Northwest system reinforcement and gas storage upgrades.

Our range also includes sea energy and investments to support growing communities in Texas as well as water and wastewater CapEx. As a result of the increased capital investments, which is largely related to adding sea energy to our portfolio, we have increased our consolidated CapEx range to $2,500,000 to $2,700,000,000 through 02/1930. A nearly 40% increase from our previous trajectory. Our CapEx projection only includes line of sight projects that have been specifically identified and estimated. It doesn't include any future acquisitions.

As we announced in November, our utilities combined annual rate base growth target has increased from 5% to 7% to 6% to 8%. Related to customer growth, last year on a consolidated basis, our utilities grew 1.1%. From 2025, we are projecting 2% to 2.5% customer growth. This acceleration is largely based on 20% or higher customer growth from C Energy. Our customer growth projections for C Energy are backstop by an impressive backlog of nearly 190,000 connections under contract. Our water customer growth projections are rooted in the strong economic growth in the regions they serve. While we expect to continue to execute on tuck in acquisitions, we haven't included incremental water acquisitions in our projections. We will remain disciplined in our approach to deploying capital and are focused on maintaining our strong credit ratings and a solid balance sheet. We see modest regular common equity financing needs in 2025 with equity issuances expected to be in the range of $65,000,000 to $75,000,000 That's lower than the $90,000,000 issued through the ATM program in 2024. Despite increasing our capital expenditures by an average of $115,000,000 per year through 02/1930, we don't see a proportional increase in equity issuances due to the strong underlying operating cash flow that supports a healthy balance sheet.

We financed the Sea Energy acquisition last month with a committed term loan. Our plan is to add junior subordinated notes to our financing portfolio with the goal of maintaining a healthy investment grade credit rating. This would also allow us to expand our financing channels while meeting our financial [indiscernible] We continue to review our options but our plan is to issue permanent financing this spring. Moving to Slide nine. For Sea Energy, we anticipate total meter sec growth of approximately 20% over last year.

That translates into rate base growth of 20% to 25% from 2025 to 2027 and an expected net income growth of 32% to 37% compounded annually over the same time period with further growth beyond. We'll support this growth and our priority to provide safe reliable service with a with a constructive regulatory strategy. We're evaluating options for regulatory recovery and using supportive mechanisms such as the gas reliability Infrastructure Program or GRIP the Texas jurisdiction. A few comments on Northwest Natural Water. We've seen a tremendous amount of investment needed in our water utilities to ensure clean and safe water and wastewater services to our customers. Based on near term needs, we expect water and wastewater rate base to grow 10% to 15% from 2025 to 2027 and net income to grow at that same level. We are excited about the long term earnings power of both Sea Energy and Water. To provide additional information, we also expect to begin separately disclosing North West Natural Water and Sea Energy financial results with our first quarter twenty twenty five earnings. With that, I'll turn it over to David.

Thanks, Rod.

Moving to Slide 10, Let me outline our initiatives for 2025.

We are focused on reaching constructive completion of the Oregon General Rate case to allow the gas utility to continue earning a strong return on its invested capital. Second, capturing the growth from C Energy is a priority. We see double digit growth next year and for years to come from this business. Third, the water and wastewater utilities have a robust growth trajectory with both organic and acquisition opportunities. We will continue to evaluate acquisitions to ensure they fit our portfolio and assess rate case filings as necessary to recover crucial safety investments. As always, we will keep affordability at the center of our strategy. Finally, I'm excited that Northwest Natural Renewables first projects are up and running. Generating steady revenues and cash flows. We are contracted to receive increasing allocations of RNG from these facilities over the next several years. In summary, I am pleased with all the accomplishments our employees this leadership team achieved in 2024. We've made substantial progress on all [indiscernible] And I look forward to what the team will do this year and for years to come. Last year was especially significant for me personally as I announced my intent to retire in April of twenty twenty five.

In my time as CEO, we have evolved from one strong utility to four thriving businesses creating value for all stakeholders today and I believe well into the future. Are at a pivotal time of growth and transformation. In Northwest Natural Holdings and this leadership team are well prepared. Continued growth. It is important to ensure a smooth leadership transition in the Board and IRx excited that Justin will be succeeding me. It has been an honor and an enormous privilege to lead Northwest Natural Holdings and the talented and deeply committed people who work here. With that, we'll open it up to questions.

Thank you. David, we will now begin the question and answer session. We have the first question from [indiscernible] Good morning, everybody. Good morning. Good morning. The David, lots been going on in Washington, and you can't throw a rock without hitting a story about data centers. So strategic thoughts about what's happening in Washington and how you feel that will influence the business? And two, with the amount of electric load growth people are talking about how do you see that as an opportunity for say missed or just the business [indiscernible] Justin, would you like to type that on? Sure. Good morning, Chris. Thank you for the question. So regarding data centers, the we are looking at a number of potential opportunities both in the Pacific Northwest and in Texas evaluating connecting these to our systems.

For the Pacific Northwest, we've received inquiries from several data centers in various stages of development, all of which would need to firm a their on-site electricity demands. We can connect these loads through our system, but we're evaluating size of the loads and doing analysis on the system impacts We do have some pipeline constraints as you're probably aware in our region and so we're evaluating how we might be able to serve that. But it does does seem like an interesting opportunity. Your question around Washington, I'm not sure if you're referring to the federal level, but we are monitoring that closely. Obviously, everyone in the industry is The tariff situation is day to day. But we are well prepared there. We actually filed a deferral for our gas costs in the event that those tariffs do go into effect. We don't anticipate at the 10% level a meaningful impact in terms of cost to our customers, but we're monitoring the situation.

That's yes, I'm sorry to confuse the state and the the DC A lot of capital equipment is imported, especially from Europe and a 25% tariff might be pretty substantial. Do you think there maybe really early for this, but maybe since so much of the executive orders so far, energy related do you think there is a chance to get exemptions for say energy capital could be inserted into the tariffs. Yes. It's an interesting thought, Chris.

Our team is actively engaged with policymakers on the Hill as is AGA. And EEI as you know. So we're we're looking at that closely. Obviously, we've dealt with inflation before in recent years in the industry. And certainly a 25% tariff on materials like that could have an impact, but we're engaged and it's hard to comment on the direction that that's going to head at this time. Okay. I haven't backed into or imputed the fee energy net income growth on Slide nine, but The last time I did some poking around in their last rate case, I presume that this CAGR that you've given us is beyond the core growth at C to include things like catching up on they're pretty behind on rate base at this point as well as getting to some kind of rational cap structure [indiscernible] those CAGRs, do they include not [indiscernible] the core growth there [indiscernible] sort of resetting everything in Texas there? [indiscernible] Good morning. This is Ray. Yes, you're correct. It assumes a reasonable approach from a rate case standpoint and also from a capital structure standpoint. They are in the high 40s or so percent debt today and we think that over time that that can increase increase to more like a sixty-forty equity to debt ratio over time.

So those are the assumptions Resetting those is what is in the the CAGR that you see in the deck. Okay.

Do you have any sense of when you may make a filing for Seed to to get that sort of process rolling?

Yes, Chris, we just closed on the acquisition [indiscernible] We will be evaluating rate case timing as the year unfolds, but we don't have anything to report at this time.

Okay. All right. That's it for me. Thanks so much, David. Appreciate it. Have a great retirement. Thanks, Chris.

Really do appreciate that.

Thank you. We now have Salman Akhil with Stifel on the line. Congratulations, David. Just a quick one for me. On your CapEx, can you just unpack that exactly by gas, sea and water. On how much you're going to be investing in each one?

Sure. So for Northwest Natural, gas company, it's in the ballpark of $350,000,000 for Sea Energy, it's an $80,000,000 range and for Water, it is in the $60,000,000 Range. For a total of the range that we mentioned on the call, dollars $450,000,000 to 500,000,000 for 2025. Got it. All right. Great. So much. Thanks, Tom. Thanks, Salmi.

Thank you. We currently have no further questions.

So I would like to hand it back to David Anderson for some final comments.

Well, thank you very much. And thank you for everybody for joining us today.

As always, if you have follow-up questions, Nikki will be available online or by telephone. We look forward to talking and seeing you soon. Take care, everybody.

Thank you all for dialing in for the no West Natural Holdings Company Q4 twenty twenty four Earnings Call. I can confirm today's call has now concluded. Please enjoy the rest of your day.