Good afternoon, and thanks for joining NorthWestern Corporation's Financial Results Webcast for the year ending December 31, 2021. My name is Travis Meyer.

I'm the Director of Corporate Finance and Investor Relations Officer for NorthWestern. Joining us today to walk you through the results and provide an overall update are Bob Rowe, Chief Executive Officer; Brian Bird, President; Chief Operating Officer; and Crystal Lail, Vice President and Chief Financial Officer.

We do have other members of the management team joining us today on the call today to address your questions as appropriate. [Operator Instructions] NorthWestern's results have been released and the release is available on our website at northwesternenergy.com.

We've also released our 10-K premarket last Friday 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 will direct you to the disclosures contained in 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. This webcast is being recorded.

The archived replay of today's webcast will be available for one year, beginning at 6:00 PM Eastern today, and can be found in the financial results section of our website. With that, I'll hand the presentation over to NorthWestern CEO, Bob Rowe.

Good afternoon. Thank you all for joining us.

Travis, why don't you click back to the cover slide for just a second? Just a bit of history tying into our modern service territory.

This is readers' alley in Helena. This was built in 1870 -- in 1870s, originally it was housing for minors for immigrants from as far away as Georgia and from across the Pacific Ocean.

Today, they're non-profits located here. There's a great little Vietnamese restaurant, just out of the picture to the left and up the hill and a wonderful little bakery to the right, just out of the picture.

Helena doesn’t get quite the attention or focus that the Bozeman big sky area does, but this is also very much a growing and dynamic community in our service territory, right below the continental divide and then on the shores of the Missouri River, two of our dams, Holter and Hauser, which has seen a lot of work and investment over the years -- over the recent years are just north of here downstream on the Missouri. So, there's a little infomercial on one of the wonderful communities we serve.

And going back to what you really want to hear about are the 2021 highlights. Starting with the financial results, net income of $186.8 million -- can I call that $187 million or $3.60 diluted EPS.

Non-GAAP EPS to $3.51 is what very much within our guidance range and 4.8% increase over non-GAAP results the previous year. We expect long-term EPS growth rate of between 3% and 6%.

2021 was a record year for our capital investment. This is exciting, because it's us living up to our commitments to our customers and the communities that we serve.

We've had a 12% CAGR in capital investment over the last five years, 2017 to 2021. This really is an all aspect of our business.

We anticipate making a Montana electric rate filing later this year to recover the significant investment since our last test year of 2017. And we expect long-term rate-based growth between 4% and 5%.

In terms of balance sheet, we're committed to maintaining investment grade ratings. And as you know, in November of last year, we under took a forward, which should address our equity needs into 2023.

And we've maintained our commitment to a sustainable long-term dividend that we've -- the Board has approved a quarterly dividend increase of 1.6% to $0.63 per share. This marks the 17th consecutive year of increases and the CAGR would be 5.6% since 2004.

So, moving from the highlights into the details, I'll turn it over to our Chief Financial Officer, Crystal Lail.

Thank you, Bob and good afternoon, everyone. And for those of you who know Bob, if you need a small baker reference, pretty much anywhere in the U.S.

or outside of it, hit him up, he can help you with that.

I'm here to serve.

With that, I'll hit the highlights of our 2021 solid full year financial results, and then comment on a bit going forward. As Bob noted, for 2021 net income of $168.8 million as compared with $155.2 million in 2020, that's an improvement of $31.6 million or 20.4%.

On a diluted earnings per share basis, $3.60 as compared with $3.06. That performance improvement really driven by improvement at the margin line, with both transmission revenues and volumes that I'll get into in a little bit more detail here.

Meanwhile, setting the base on operating costs at a sustainable level, going forward, offsetting that a little bit. And then as Bob alluded to, importantly, in closing out 2021 financial performance was also executing on the financing plan that we had announced late in 2021, as far as supporting our ongoing growth and ongoing capital and investment in the system by executing on the equity issuance and Q4.

with that a forward transaction involved in that allows us flexibility to support our CapEx spend in 2022, which we'll get into in a bit here. As far as record levels there on top of closing out 2021 record levels and with that allowing us flexibility and not needing equity again into 2023.

With that, I'll transition you to slide five and speak a bit to our margin results. Margin up $54.3 million or 6.1%.

Of that you'll see at the top line is increase -- increased transmission, so driven by a couple things. One our formula rate in Montana, overall higher rates and demand, and recognition of some deferred revenue in there.

We saw that trend continue throughout 2021 with higher volatility, driving needs to transport across our lines favorable to our results. Also, $17.1 million of improvement in electric retail volumes.

This is a combination of customer growth. Again, strong growth in our service territory.

Also higher usage rebounding, particularly on the commercial and industrial side off of 2020's COVID impacted results. And also while from an overall perspective, we have unfavorable weather, which I'll get into here.

It was favorable compared to the prior period in that electric retail volumes line. Also the absence of in the prior period in 2020, we'd had disallowance of supply costs from the MPSC.

So the period-over-period results favorable driven by that. The other piece I'll touch on in offsetting that as increased Montana electric supply costs of $5.3 million.

Those reflects our PCCAM tracker, which for costs above the baseline, we absorb 10% of those costs. 90% are recovered through a deferral mechanism.

With that we saw higher sustained level prices and certainly higher volatility driving a $5.3 million increase in those costs, offsetting the other favorable margin items. Moving into, slide six gives you an overall picture of our weather.

The thing I will tell you there is through Q3, we had favorable weather think colder, winter weather, and some warmer summer weather in Q4. We gave all that back plus more, a very warm October, November, into December.

So from a full year weather perspective -- and you all know we non-GAAP that out consistently, we estimate overall unfavorable weather resulted in a $1.1 million pretax detriment as compared to normal. However, that was an $8.7 million benefit as compared with 2020.

Obviously, 2020's weather was significantly unfavorable to us in that period. So with that, I'll close out margin and move on to operating cost.

You'll see on slide seven, from an increase in operating expenses of $14.8 million or 2.3%. Of that $13.1 million falls to the bottom line.

These costs were in line with our plan and expectations for the year. Drivers really the top line labor and benefits think, stronger financial performance leads to increase incentive costs, medical costs back to what is more of a normal basis for us off of 2020.

Additional costs include $4.6 million of generation maintenance and $2.4 million of technology implementation and maintenance costs. The thing I would highlight here is, again, in line with our plan and consistent with our desire to get back to a sustainable level of operating costs as we move forward and file a rate case in Montana based off 2021 results.

With that slide eight, operating income, again, $275.7 million as compared to $236.2 million, which is a $39.5 million improvement, driven by the results at the margin line that we discussed, offset by a bit of increased operating costs in our structure. Below that you'll see interest expense $3.1 million lower than the prior period.

Other income of $3.4 million compared to that period, both of those driven by AFUDC and the ongoing construction projects that we have currently, driving the improvement in both of those lines. From a income tax perspective, increase in income tax is driven by favorable revenues and operating income there with a little bit lower flow through repair deductions in 2021.

Closing out, net income and moving into cash flow perspective. Slide nine.

You'll see cash flow from operations of $220 million as compared with $352.1 million in 2020. The decrease there really driven by an under collection of energy supply costs.

You'll recall us discussing the impact of winter storm Uri and an increase in natural gas and electric costs in Q1. And then we saw sustained higher pricing, and more volatile pricing both on the electric side in Q3, into Q4, and also with broader natural gas costs.

As I'll remind everyone, we entered into agreements to recover those natural gas costs in both Nebraska and South Dakota, and recover that through a tracker in Montana on the natural aside, and then the electric costs are recovered through our PCCAM mechanism. So that's really what's driving the lower cash flows from operations for 2021.

I will point you to the bottom of the slide though, with funds from operations. So backing out the working capital impacts.

FFO of $340.6 million compared to $304.1 million, reflecting that improvement in net income performance. With that slide 10, GAAP earnings that we've just discussed $3.60 or $186.8 million.

The adjustments from a non-GAAP basis include unfavorable weather, add back of $1.1 million and then our QF liability adjustment. You'll recall we consistently non-GAAP out.

Those impacts resulting in net income of $182.4 million or $3.51. That is right in the midpoint of the guidance range that we had announced for 2021, with that $3.51 compared to non-GAAP earnings in 2020 of $3.35, that's a $0.16 improvement or 4.8% again, solid financial performance as we close out 2021 and right in the midpoint of our previously announced guidance range.

With that, I'll transition you to slide 11, and our previously announced 2022 earnings bridge guiding down to $3.20 to $3.40. We are reiterating that guidance driven by improvement at the net income line, while offset by the dilution of the equity transaction we just announced to support our ongoing growth and increase capital investment.

Also with that pressure includes sustainable cost structure as we move forward. The thing I would reiterate as we close out this section is our long-term commitment to a 3% to 6% growth rate off of a 2020 base year.

And also as Bob mentioned, as we started their comments, our ongoing commitment to the dividend. So with that, Bob, I will hand it back to you.

Thank you, Crystal. I'll say just a little bit about the capital budget at a high level, and then turn it over to Brian.

First of all, we're coming off of our largest base capital budget ever, and Brian in his role as COO working with the operational vice president successfully, manage that despite all the challenges of supply chain and everything else, so we feel very good about where we are. What see here is a five-year look ahead that contemplates $2.4 billion of low risk capital investment.

As we tell you virtually every quarter, the -- those stairsteps down do fill in with important investment projects. And we certainly expect that to continue.

But nonetheless here, what we have is, base investment across transmission distribution, generation, gas and electric. We expect to finance this with a combination of cash from operations, first mortgage bonds and the equity issuances under existing forward contracts, of course, financing plans are subject to change.

So this is an important commitment to invest in our service territory. Brain, could you provide some more detail and then also provide us an update on progress in taking some of the risk out of the Montana capacity deficit?

Yeah. Thanks Bob.

A couple things. First of all, the $2.4 billion is substantial amount of capital over the next five years.

Bob just talked about our busiest capital years ever last year. So we continue that tradition here.

On the right hand chart there, that 2.4, nearly 75% of that spend is in the T&D space and less controversial acknowledge. I'd also tell you the remainder, a good portion of that generation investment is maintaining our existing generation.

Also some BGS [ph] spend is in there this year and then hydro upgrades, as we continue to increase the capacity of our hydro facilities. The only new construction in here is the 175 megawatt Montana gas plant.

And so as Bob pointed out, low risk from that perspective. He did also point out, it's declining slope that you see over that five-year period.

As you've followed NorthWestern over time, that's typically what our five-year look is. But if you look at historically how things actually build out, as we learn more and more about our system, and we go through different layers of the engineering on projects, those back years are apt to fill in.

And, of course, there's no additional general in there at this point in time. And there could be as soon as 2026 or sooner potentially for South Dakota.

And with that, I'll turn you to the next page. Bob mentioned, kind of derisk in our Montana business.

We've demonstrated for years, having 725 megawatt deficit from a capacity standpoint, our electric side of our business. And that's -- as you know, it's a significant risk to this company.

The RFP that we did some time ago, allowed us to take out 300 megawatts on a capacity basis off the table. Obviously, we need to build those plants and enter into contracts and get approval if you will, with the battery contract.

But once those are taken care of that, takes care of 300 of the 725 megawatt deficit. We do see potential QFs coming on board and there is discussion in the Pacific Northwest about increased accredited capacity for existing resources going up.

And with that, that also helps resolve some of our capacity constraints. The combination of those two, we're projecting to be about 200 megawatts.

And lastly, particularly thinking about this heating season and what we saw in Texas last year, we really wanted to solve some of our capacity constraints immediately. And we entered into combination of short and medium term capacity contracts to help us with the coming heating season and beyond.

Obviously, these things helped us from a reliability standpoint. We also entered into these with the expectation as we talk about going into a rate case to capture these contracts in the PCCAM and the going forward basis.

And it also gives us some time as we resolve what's happening with Colstrip. And obviously, we'll speak to Colstrip arbitration in terms of how that could have an impact here as well.

Taking that all into consideration, we still expect to submit an updated IRP by the end of 2022 or early 2023, again, hoping we get some clarity around Colstrip during that time period. And with that, what to be included in that, obviously if there's any outcome on Colstrip, we'll take that into consideration, but looking at, for instance, the 100 megawatt five-year capacity contract with Powerex, obviously that will expire in the next five years.

And there'll be a portion of those short, medium term contracts, that'll roll off as well. And so that will be included in potentially anything that has to do with Colstrip at that time.

And with that, Bob, I'll turn it back to you.

Thank you, Brian. And with that, we are eager for your questions and discussion.

Thank you, Bob. Thank you, Brian and Crystal.

[Operator Instructions] All right. It looks like we have our first question in the queue from Ryan Greenwald from Bank of America.

Ryan, your line should be open.

Good afternoon. Can you hear me?

Hey, Ryan. Yeah, we can.

We can.

Awesome. Appreciate the time.

Maybe starting with the investment plan. So, you guys firmed it up adding $300 million late last year, a lot of moving pieces, obviously with the discontinuation of Aberdeen, some additional spend elsewhere.

Looks like you guys came in a little light on 2021. Can you just talk a bit about overall confidence in executing on the five-year plan, which spend might be most at risk and ability to backfill projects and maintain cost discipline, given the inflationary backup?

I speak to that, and then I'm sure that Brian and possibly Crystal will as well. Given the size of the budget, and as you indicated the number of moving pieces, I think, 2021 was huge success.

So, I feel good about -- that I also feel very, very good about what Brian and the operations people have done in terms of continuing to build a lot of discipline and good productive process around our operational capital investments. Going forward, I expect that you will hear -- we will share more about capital initiative as they become much more concrete.

There's a lot of work that any electric or gas company serving a growing area needs to undertake. I think to keep current with needs for capacity, older infrastructure and meeting what are continually evolving customer and public policy expectations.

I feel very good about where we are going forward. Also, I think, our operations folks have done a very nice job managing supply chain and particularly dealing with inflation.

Brian?

Yeah. Thanks Bob.

I can think couple things too. First of all, you might be -- Ryan, you might be looking at cash.

So think $430 million of capital spend and on accrual basis, we actually -- our budget, we came in around $450 million, which was very close to budget. And then on top of that, the Montana gas plant, in terms of the timing around full notice to proceed and the capital spend associated that we were a little bit behind on that at, in 2021.

So that -- those are the big differences from our perspective. We pretty much finished everything in our budget, other than that.

Great. Appreciate that.

And maybe just hitting on Laurel specifically. Obviously, a number of obstacles that have came up that you guys kind of alluded to.

But just in terms of the process and milestones to watch from here and overall confidence in keeping that project on time and on budget.

Brian, do you want to take that?

Sure. I think, two things.

Right now, we're working on a gas line. And there are some challenges there from permitting perspective, but we expect to work through those.

And we expect to be -- obviously working on the site here in the spring. So, I think the April timetable to be starting in the site and the gas doesn't need to be there for some time.

We'll continue to work through that, but we'll be turning dirt possibly as soon as April.

Awesome. I'll leave it there.

Thank you, guys.

Thank you.

Thanks Ryan.

We'll take our next question from the line ending in -- sorry -- 5990.

A mystery caller.

If you can please identify yourself once you unmute your line. We have you unmuted here.

Hi. Good afternoon.

This is Sophie Karp with KeyBanc. How are you guys?

Good, Sophie.

Doing great.

Great. Thank you for taking my question.

Just a quick one, if I may, on Colstrip. Is there any update you can share on how those conversations are progressing?

I can start it and probably Brian will want to weigh in as well. The interesting thing is that at one point or another during 2021, virtually every party requested arbitration.

We initiated an arbitration request underneath the agreement. The other utility owners issued a separate arbitration request State Court in Washington, and then Talen also requested arbitration in Montana.

Ultimately, all the pieces of litigation were consolidated in Federal Court in Montana. The most recent action was, we renewed our request for arbitration with the court, and have requested oral argument.

So it seems that there's a strong agreement. There ought to be the basis for a strong agreement that arbitration is appropriate and it will allow all of us to define the rules of the game really.

We'll know what our obligations are and can proceed from there. Meanwhile, the asset continues to be extremely important to us to meet our responsibilities to our customers, as other assets continue to -- as other technologies continue to be developed.

Brian?

Bob, I wish I could weigh in some more, but I think you covered it.

One footnote, and this is highlighted later in the deck. But in terms of our actual estimated rate base Col overall has declined to about 10% in terms of last authorized rate base about 14%.

So it's a small, but in terms of serving our customers, continues to be a very important set of assets.

Got it. Understood.

Thank you for this comment. And if I may, another question, when you thinking about the derisk in the Montana capacity deficit, are there transmission solutions to that?

Or are we looking strictly at procuring more generations potentially or capacity on that front? Or is there a potential for solution that involve just supplier in the region?

At a -- well, first of all, we are very interested in the efficient operation of the overall western transmission system. We do participate in western initiative, obviously the imbalance market, and then even more importantly, the resource adequacy work of the power pool.

Transmission in the west tends to be very long lines. It's not a dense system, such as on the eastern interconnect tends to be increasingly congested.

So, yes, we do look to transmission solutions, but those are limited, and constrained. And, of course, a transmission solution depends on generation existing somewhere.

And what we've seen is that in terms of meeting peak, that generation is really problematic region-wide. Brian?

Yeah. Sophie, I think I'd add is from an IRA perspective, resource adequacy, I think, there's an expectation -- I'll go about the opposite way.

I don't think people are going to be too crazy about us leaning on their capacity. There's an expectation that we're going to be providing our own capacity to participate.

And so, we do believe that collectively that group will help us certainly from a transmission perspective, but we're going to need to continue to contribute capacity in the generation side as part of it.

All right. understood.

Thank you so much.

Thank you, Sophie. With that, we do not have more queue or questions in the queue.

Apparently everybody's making Valentine's Day reservations for dinner tonight. So, with that, I'll hand it back to Bob.

I cannot recall a quarterly call so short. As always, we appreciate the discussion.

We appreciate the support for the company and we'll be seeing a number of you in-person over the coming months. So, Travis, I guess the only thing left to say is happy Valentine's Day.

Great. Thank you very -- thanks for joining.

That concludes the call.