Q4 2023 Northwest Natural Holding Company Earnings Call
Operator: Hello, and welcome to today's NW Natural Holdings Company Q4 2023 earnings call. My name is Bailey, and I'll be your moderator for today.
Hello, and welcome to today's NW Natural Holdings Company Q4, 2023 earnings call. My name is Bailey and I'll be your moderator for today.
Operator: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to our host today, Nikki Sparley, Director of Investor Relations. Please go ahead.
All lines will be needed joined the presentation portion of the call with an opportunity for questions you know because at the end.
Would like to ask a question. Please press star followed by one on your telephone keypad.
The pass the conference over to our host today Nikki Spotty director of Investor Relations. Please go ahead.
Nikki Sparley: Thank you, Bailey. Good morning, and welcome to our 4th quarter 2023 earnings call. As a reminder, some things that will be said this morning contain forward-looking statements. They are based on management's assumptions, which may or may not occur.
Thank you Barry good morning, and welcome to our fourth quarter 2023 earnings call.
A reminder of some things that will be said this morning contain forward looking statements. They are based on management's assumptions, which may or may not occur.
Nikki Sparley: For a complete list of cautionary statements, refer to the language at the end of our press release. We expect to file our 10K later today. As mentioned, this teleconference is being recorded and will be available on our website following the call. 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 503-721-2530. Media may contact David Roy at 503-610-7157.
Please read the cautionary statements refer to the language at the end of our press release, we expect to file. Our 10-K later today as mentioned this teleconference is being recorded and will be available on our website. Following the call. Please.
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 500 370, 125 30 years media May contact David Roy at 503, 610 70 157.
Nikki Sparley: Speaking this morning are David Anderson, Chief Executive Officer, and Brody Wilson, CFO, Vice President, Treasurer, and Chief Accounting Officer. David and Brody 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. Thanks, Nikki, and good morning and welcome, everybody.
Speaking this morning are David Anderson, Chief Executive Officer, and Greg Roth.
CFO, Vice President Treasurer, and Chief Accounting Officer, David <unk>, our 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 Thanks, Mickey and good morning, and welcome everybody I'll start today by walking through 2024.
David Hugo Anderson: I'll start today by walking through 2024 guidance and priorities, and then I'll turn to a few comments about 2023 before I hand it over to Brody to cover the financials in more detail. And finally, I'll wrap up the call with an update on our strategic priorities. Turning to 2024, as you know, earnings growth is not always linear, and in certain years, the focus will be on investments and initiatives that set the stage for future growth. And quite frankly, 2024 is such a year for us. While we continue to maintain strong credit ratings, a solid balance sheet, and a long-term earnings growth outlook of 4-6%, our earnings guidance for 2024 reflects a combination of lag related to our capital investments and inflationary pressures that we are experiencing simultaneously. I'll describe these two factors in more detail.
Guidance and priorities and then I'll turn to a few comments about 2023 before I hand, it over to Bob to cover the financials in more detail and finally I'll wrap up the call with an update on our strategic priorities.
Turning to 2024 as you know earnings growth is not always linear and in certain years, the focus will be on investments and initiatives that set the stage for future growth.
Quite frankly, 2024 is such a year for us.
While we continue to maintain strong credit ratings are solid balance sheet and long term earnings growth outlook of 4% to 6% our earnings guidance for 2024 reflects the combination of lag related to our capital investments and inflationary pressures that we are experiencing simultaneously I'll describe these two factors in more detail.
David Hugo Anderson: First, our gas utility has continued to make necessary investments in safety, reliability, and technology at record levels. The regulatory recovery lag associated with these investments is exacerbated in 2024 due to the increased level of investment and the shorter-lived nature, or, if you will, higher depreciation expense, associated with our cybersecurity and technology assets. Frankly, this is relatively new to us at these levels due to this level of technological investment that we have had to make to replace aging systems so quickly.
Our gas utility has continued to make necessary investments in safety reliability and technology at record levels. The regulatory lag recovery lag associated with these investments is exasperate exacerbated in 2024 due to the increased level of investment and the shorter lives nature or if you will higher depreciation.
Associated with our cyber security and technology assets.
Frankly, this is relatively new to us at these levels due to this level of technology investment and we have we have.
I had to make.
That we've had to make to replace aging systems. So quickly.
David Hugo Anderson: Second, like many other companies, our gas utility is contending with inflationary pressure on operating expenses primarily due to the renewal of several multi-year O&N contracts, higher personnel costs, the amortization of cloud computing technology investments, and higher pension expenses. These are all reasons, frankly, why we decided to file a rate case in Oregon late last year. Our other operations are experiencing inflationary pressure also, but the magnitude of the items listed above in our gas company has resulted in 2024 earnings guidance being about 30 cents per share lower than our 2023 earnings. Our team has done all it can to reduce costs and operate as efficiently as possible while maintaining a safe and reliable system.
Second like many other companies our gas utility is contending with inflationary pressure on operating expenses, primarily due to the renewal of several multiyear O&M contracts higher personnel costs, the amortization of cloud computing technology investments and higher pension expenses.
These are all reasons frankly, why we decided to file a rate case in Oregon late last year.
Our other operations are experiencing inflationary pressure also but the magnitude of the items listed above on our gas company has resulted in 2024 earnings earnings guidance being about <unk> 30 per share lower than our 2023 earnings.
Our team has done all they can to reduce cost and operate as efficiently as possible, while maintaining a safe and reliable system.
David Hugo Anderson: For example, to help mitigate the near-term effects, we've extensively reviewed our entire organization and instituted aggressive cost-saving measures. All these regulatory lag items will be addressed in the Oregon general rate case that will conclude later this year. And as you may recall, Oregon rate cases are adjudicated over a 10-month period with our filing at year-end.
For example to help mitigate the near term effects.
Extensive extensively reviewed our entire organization and instituted aggressive cost saving measures.
All of these regulatory lag items will be addressed in the Oregon General rate case that will conclude later this year and as you may recall, Oregon rate cases are adjudicated over a 10 month period with our filing at year end, we expect new rates to be in effect November one.
David Hugo Anderson: We expect new rates to be in effect on November 1st. The gas utility request includes a revenue requirement increase of $154.9 million based on a 50-50 cap structure, a ROE of 10.1%, and a cost of capital of 7.406%. This request includes an increase in the average rate base of $381 million since the last rate case. The components of the revenue requirement increase are fairly straightforward, roughly 45% related to investments in the system, higher property taxes, and an updated depreciation study resulting in new depreciation rates. 35% due to operations and maintenance expenses, with the remainder related to the cost of capital and income tax.
The gas utility request includes a revenue requirement increase of $154 9 million based on a 50 50 cap structure.
Our OE of 10, 1% and a cost of capital at 740, 6%.
This request includes an increase in average rate base of $381 million since the last rate case.
The components of the revenue requirement increase are fairly straightforward.
45% related to investments in our system higher property taxes, and an updated depreciation study, resulting in a new depreciation rates.
35% due to operations and maintenance expenses with the remainder related to cost of capital and income taxes, we carefully considered this rate filing and the effect on our customer bills and the good news is that all on average, Oregon residential customers saw a 9% drop in the rates last November and today customers are paying.
David Hugo Anderson: We carefully considered this rate filing and the effect on our customer bills, and the good news is that, on average, Oregon residential customers saw a 9% drop in their rates last November, and today, customers are paying 7% less for their total natural gas bill than they did 15 years ago. Although we're laser focused on our gas utility rate case, we're also working hard to refresh rates at multiple water utilities in 2024, including our largest one in Arizona that we filed late or filed last year. These cases are largely related to capital investments.
<unk> percent less for their total natural gas bill than they did 15 years ago.
Although we're laser focused on our gas utility rate case, we're also working hard to refresh rates at multiple water utilities in 2024.
Including our largest one in Arizona that we filed late filed last year. These cases are largely related to capital investments. We continue to find these systems need substantial investments to meet current drinking water standards treated effluent standards and to support our growing communities.
David Hugo Anderson: We continue to find these systems need substantial investments to meet current drinking water standards, treated effluent standards, and to support our growing communities. These rate cases are a critical step in building a strong foundation of earnings for that business. We believe over the longer term, our business and investments will drive earnings and cash flow growth and solid returns. 2024 is a building year and reflects the magnified effect of the normal recovery lag in our highly regulated gas and water utility business model, turning to Northwest Natural Renewables. Construction was completed in 2023 on two facilities that we're investing in with EDL that are designed to convert landfill waste gases to renewable natural gas. While raw gas volumes are flowing for both projects at the expected levels, which is good, full commissioning has not occurred due to a technical issue with the conditioning equipment. After troubleshooting issues last year, our partners and their technical teams report that they have identified the solutions to resolve the remaining issues, and they expect both facilities to be online later this year. However, our investment of $25 million per facility will only be made upon achieving full commercial operation.
These rate cases are a critical step in building a strong foundation of earnings for that business.
We believe over the longer term, our business and investments will drive earnings and cash flow growth and solid returns 2024 is a building year and reflects the magnitude would be magnified effect of the normal recovery lag and our highly regulated gas and water utility business model.
Turning to northwest natural renewables.
Construction was completed in 2023 on two facilities that we're investing in with EDI L better designed to convert landfill waste gases to renewable natural gas.
While raw gas volumes are flowing for both projects at the expected levels, which is good full commissioning has not occurred due to a technical issue with the conditioning equipment. After troubleshooting issues last year, our partners and their technical teams report that they have identified the solutions to resolve the remaining issues and I expect both.
<unk> to be online later this year, our investment of $25 million per facility will only be made upon achieving full commercial operations and importantly, the revenue and cash flows are expected to begin promptly thereafter from long term, primarily fixed price off take agreements that we have contracted with investment grade.
David Hugo Anderson: And importantly, the revenue and cash flows are expected to begin promptly thereafter from long-term, primarily fixed-price off-take agreements that we have contracted with investment-grade counterparties. We remain committed to this business and see strong long-term growth opportunities here. However, I'm very disappointed with where we are on this project.
Counterparties.
We remain committed to this business and see strong long term growth opportunities here. However, I am very disappointed with where we are on this project. We had plan for some earnings and cash flows from this business in 2023 and for a full year in 2020 for the long term financial returns of these projects remained largely intact, but are unfortunately.
David Hugo Anderson: We had planned for some earnings and cash flows from this business in 2023 and for a full year in 2024. The long-term financial returns of these projects remain largely intact but are unfortunately delayed. And despite this disappointment, I am very excited with the new leadership at our renewables company. Anna Chittum was recently announced as the new president and already has hit the ground running.
And despite the disappointment I am very excited with new leadership at our renewables company Anna Cheatham.
It was recently announced as our new President and already has hit the ground running we are anxious to get through the startup issues. This year on those assets and are confident that Anna and her team can find other growth opportunities for us soon.
David Hugo Anderson: We are anxious to get through these startup issues this year on those assets and are confident that Anna and her team can find other growth opportunities for us soon. Moving on, a few comments on 2023. Last year was a tremendous yet challenging year for us.
Moving to a few comments on 2023 last year was a tremendous yet challenging year for us.
David Hugo Anderson: Northwest Natural was once again recognized for customer satisfaction and scored second for large utilities in the western United States, according to J.D. Powers Gas Utility Residential Customer Satisfaction Study. At the same time, we grew our gas and water utilities, began operation of our second renewable natural gas facility under Oregon's landmark Senate Bill 98 legislation, integrated our largest water and wastewater acquisition today, and launched a water services business. For the second year in a row, Ethosphere recognized us as one of the world's most ethical companies, which I greatly value, and we also increased our dividends for the 68th year, an outstanding legacy. For 2023, we reported net income of $93.9 million, or $2.59 per share. That's an increase of $7.6 million compared to net income of $86.3 million, or $2.54 per share, in 2022.
Nautilus Nashville was once again recognized for customer satisfaction and scored second for large utilities in the western United States. According to J D power gas utility residential customer satisfaction study at the same time, we grew our gas and water utilities.
<unk> operation of our second renewable natural gas facility under Oregon Land Oregon's Landmark Senate Bill 98 legislation integrated our largest water and wastewater acquisition to date and launched a water services business for the second year in a row Ethisphere recognized us as one of the world's most ethical companies, which I greatly value and we also increased the dividend.
<unk> for the 68 year and outstanding legacy.
For 2023, we reported net income of $93 9 million or $2 59 per share that's an increase of $7 $6 million compared to net income of $86 $3 million or $2 $52 with 54 cents a share in 2020 to higher revenues from new rates in Oregon drove results at the natural gas.
David Hugo Anderson: Higher revenues from new rates in Oregon drove results for the natural gas utility, along with customer growth and lower pension expense, offset by financing costs. A couple of quick notes on customer growth. Despite interest rates putting a damper on the national and local housing market, Northwest Natural Gas added approximately 4,800 new customers during the last 12 months for a growth rate of 0.6%.
Utility along with customer growth lower pension expense offset by financing costs.
Couple of quick notes on customer growth.
Despite interest rates, putting a damper on the national and local housing market northwest natural gas added approximately 4800, new customers. During the last 12 months for a growth rate of <unk>, 6%.
David Hugo Anderson: In January 24, January 2024, we reached a milestone and served 800,000 gas utility customers. Our water and wastewater utilities also continue to grow both organically and through four acquisitions that we closed. Northwest Natural Water added 10,400 customers in 2023 for an average overall growth rate of 12.7% and an organic growth rate of 2%.
On January 24 January.
January 2024, we reached a milestone for 800000 gas utility customers.
Our water and wastewater utilities also continue growing both organically and through four acquisitions that we closed northwest natural water added 10400 customers in 2023 for an average overall growth rate of 12, 7% and an organic growth rate of 2% we.
David Hugo Anderson: We also launched a water services business with two acquisitions, and today that business supports nearly 20,000 connections. This is a strong platform that we believe can be scaled in the coming years. I'm very pleased to serve over 892,000 customer connections across five states through our three businesses.
We also launched the water services business with two acquisitions and today that business supports nearly 20000 connections. This is a strong platform that we believe can be scaled in the coming years.
I'm very pleased to serve over 892000 customer connections across five states through our three businesses in summary, while 2024 reflects a convergence of challenges. These are primary related to lag intrinsic in our regulated utility I believe we've taken the right actions to minimize the lag going forward in that.
David Hugo Anderson: In summary, while 2024 reflects a convergence of challenges, these are primarily related to lag intrinsic to a regulated utility. I believe we've taken the right actions to minimize the lag going forward and that we're making the right investments today to set the stage for long-term growth. Our objective is to grow earnings while continuing to maintain our strong credit ratings and solid balance sheet, and I'm confident in the value and future of this 165-year-old company. That's why today we are reaffirming our four to six percent long-term earnings per share growth rate, and the base year for that calculation on the five-year window is 2022, with earnings per share that were $2.54. With that, I'll turn it over to Brody for remarks on the financials. Thank you, David, and good morning, everyone.
We're making the right investments today to set the stage for long term growth. Our objective is to grow earnings while continuing to maintain our strong credit ratings and solid balance sheet and.
And I'm confident in the value and future of this 165 year old company. That's why today, we are reaffirming our 4% to 6% long term earnings per share growth rate and the base year for that calculation on a five year window is 2022 with earnings up with.
Earnings per share that were $2 54.
With that I'll turn it over to Brody for remarks on the financials.
Thank you David and good morning, everyone I'll begin by discussing the highlights for the fourth quarter and full year 2023 results and conclude with guidance for 2024.
Brody Wilson: I'll begin by discussing the highlights for the fourth quarter and full year 2023 results and conclude with guidance for 2024. As a reminder, Northwest Natural's earnings are seasonal, with the majority of revenues and earnings generated in the first and fourth quarters during the winter feeding month. Also, our segment reporting includes natural gas distribution, or the NGD segment, and other, which includes our interstate storage services and asset management services, Northwest Natural Water, Northwest Natural Renewables, and holding company expenses beginning with fourth quarter results. We reported net income of $44.6 million, or $1.21 per share, compared to net income of $47.9 million, or $1.36 per share, for the same period in 2022. On a quarterly basis, our gas utility's net income declined $600,000, mainly from increases in operating costs, including depreciation.
As a reminder, northwest Natural's earnings are seasonal with a majority of revenues and earnings generated in the first and fourth quarters during the winter heating months.
Also our segment reporting includes natural gas distribution or <unk> segment, and other which includes our Interstate storage services and asset management services northwest natural water northwest natural renewables and holding company expenses.
Beginning with fourth quarter results.
We reported net income of $44 $6 million or $1 21 per share compared to net income of $47 $9 million or $1 36 per share for the same period in 2022.
On a quarter basis, our gas utility net income declined $600000, mainly from increases in operating costs, including depreciation.
Brody Wilson: Other posted a decline of $2.7 million in the fourth quarter of 2023 compared to last year's results. That decline is primarily due to higher interest expense. Now, a few more details on the gas distribution segment's quarterly results. Margin increased $6.5 million, mainly from new rates, a gain on gas cost sharing, and customer growth. Utility O&M increased $9.2 million, reflecting higher payroll costs from additional employees that were part of the previous rate case, information and technology costs, including cloud amortization, as well as increased contract labor costs and the amortization of deferrals. Utility depreciation and general taxes increased $1.5 million due to higher property plant equipment. Other income increased $4.8 million, primarily from lower pension expense and higher equity AFEDC interest. Interest expense at the gas utility increased $1.6 million due to a higher debt balance.
Other posted a decline of $2 $7 million in the fourth quarter of 2023 compared to last year's results that decline was primarily due to higher interest expense.
Now a few more details on the gas distribution segment's quarterly results.
Margin increased $6 5 million, mainly from new rates again on gas cost sharing and customer growth.
Utility O&M increased $9 $2 million, reflecting higher payroll costs from additional employees that were part of the previous rate case information and technology costs, including cloud amortization.
Amortization as well as increased contract labor costs.
And the amortization of deferrals.
Utility depreciation and general taxes increased one $5 million due to higher property plant and equipment.
Other income increased $4 8 million.
Primarily from lower pension expense and higher equity AFDC interest.
Interest expense at the gas utility increased $1 $6 million.
Due to higher debt balances.
Brody Wilson: Turning now to full-year results, for 2023, we reported net income of $93.9 million, or $2.59 per share, compared to net income of $86.3 million, or $2.54 per share, for the same period in 2022. The $7.6 million increase in net income was largely the result of a $14.4 million increase in our gas utility related to new rates in both Oregon and Washington, partially offset by higher depreciation and O&M in our gas distribution business and interest expense in our other businesses. Earnings per share was also affected by the issuance of common stock in 2023.
Turning now to full year results for 2023, we reported net income of $93 9 million or $2 59 per share compared to nine compared to net income of $86 3 million or $2 54 per share for the same period in 2022.
The $7 6 million.
Increase in net income was largely the result of a $14 $4 million increase in our gas utility related to new rates in both Oregon and Washington.
Partially offset by higher depreciation and O&M in our gas distribution business and interest expense and our other businesses.
Earnings per share was also affected by the issuance of common stock in 2023.
Brody Wilson: Now, a bit more detail on the gas utility's annual results. Utility margin increased $69.1 million, related to new rates in Oregon and Washington, which contributed $56.7 million. The utility also benefited from gains on gas cost sharing, which increased $9.4 million, and customer growth provided $4.6 million. Gas utility O&M increased $40 million. This larger-than-normal increase reflected many costs which were planned in the rate case for which revenues were collected beginning November 2022. First, we had an increase in payroll costs driven by a higher average number of employees. Second, we incurred higher information technology costs, including cloud amortization, as well as increased costs associated with cybersecurity efforts.
Now a bit more detail on the gas utilities annual results.
Utility margin increased $69 $1 million related to new rates in Oregon, and Washington, which contributed $56 $7 million. The utility also benefited from gains on gas cost sharing which increased $9 4 million and.
<unk> growth provided $4 6 million.
Gas utility O&M increased $40 million.
This larger than normal increase reflected many costs, which were planned in the rate case for which revenues were collected beginning November 2022.
First we had an increase in payroll costs driven by higher average number of employees.
We incurred higher information technology costs, including cloud amortization as well as increased costs associated with cyber security efforts.
Brody Wilson: Finally, we had an increase from the amortization of deferral balances totaling $7.7 million. Most of the O&M increases in 2023 were anticipated in the forward test year of our rate case that went into effect on November 1st, 2022. Utility depreciation and general taxes increased $11.4 million due to additional capital investments, about half of which relates to capital investments in core infrastructure for safety and reliability, and the remaining relates to an increase in technology investments, which have a shorter depreciable life. Other income increased $15.8 million, driven by $5.8 million of lower pension costs, $5.5 million of higher interest income, and $4.1 million of increased equity AFEDC interest. Interest expense for our gas utility increased $14.3 million due primarily to incremental long-term debt financing.
Finally, we had an increase in from the amortization of deferral balances totaling $7 $7 million most.
Most of the O&M increases in 2023 were anticipated in the forward test year of our rate case that went into effect on November one 2022.
Utility to depreciation and general taxes increased $11 $4 million due to additional capital investments about half of which relates to capital investments in core infrastructure for safety and reliability and the remaining relates to an increase in technology investments, which have a shorter depreciable life.
Other income increased $15 8 million driven by a $5 8 million of lower pension costs $5 5 million of higher interest income.
And $4 1 million of increased equity BDC interest.
Interest expense for our gas utility increased $14 3 million due.
Due primarily to incremental long term debt financing.
Brody Wilson: For 2023, cash provided by operating activities was a record $280 million. We invested $327 million in our systems related to safety and reliability and technology. Nearly 90% of those capital expenditures were for our gas utilities. We also deployed $8.5 million for water and wastewater acquisition. Cash provided by financing activities was $64 million.
For 2023 cash provided by operating activities was a record $280 million.
We invested $327 million and our systems related to safety and reliability and technology nearly.
Nearly 90% of those capital expenditures were for our gas utility.
We also deployed $8 5 million for water and wastewater acquisitions.
Cash provided by financing activities was $64 million, we raised $66 $5 million from the issuance of common stock and issued $240 million of incremental long term debt to support our gas utility.
Brody Wilson: We raised $66.5 million from the issuance of common stock and issued $240 million of incremental long-term debt to support our gas utility. Northwest Natural Holdings also executed a $150 million note purchase agreement in December, which is expected to close in early March. We intend to use the proceeds to refinance $150 million of holding company and water company debt due in March of 2024, taking care of our expected long-term debt needs for this year. Moving toward a liquidity position and financing needs We have ample liquidity, and our credit ratings remain strong. In October 2023, S&P initiated an A-plus rating for our holding company. Our ratings for the gas company have remained unchanged.
Northwest Natural holdings also executed a $150 million note purchase agreement in December which is expected to close in early March we intend to use the proceeds to refinance $150 million of holding company and water company debt due in March of 2020 for taking care of our expected loss.
Long term debt needs for this year.
Moving to our liquidity position and financing needs.
We have ample liquidity and our credit ratings remained strong in October 2023, S&P initiated an a plus rating for our holding company our ratings for the gas company has remained unchanged looking.
Brody Wilson: Looking forward, we expect to continue targeting a capital structure at Northwest Natural of 50% equity and 50% long-term debt in keeping with our regulated capital structure in Oregon. Our objective remains to keep our balance sheet strong with ample liquidity to support working capital needs and growth. For 2024, gas utility capital expenditures are expected to be in the range of $350 to $400 million, which includes significant projects related to meter modernization, safety, and reliability, and technology upgrades. For our existing water utilities, we expect 2024 CapEx to be approximately $40 million.
Looking forward, we expect to continue targeting a capital structure at northwest natural a 50% equity and 50% long term debt and keeping with our regulated capital structure in Oregon.
Our objective remains to keep our balance sheet is strong with ample liquidity to support working capital needs and growth.
Turning to our capital expenditure guidance.
For 2020 for the gas utility capital expenditures are expected to be in the range of $350 million to $400 million, which includes significant projects related to meter modernization safety and reliability and technology upgrades.
For our existing water utilities, we expect 2020 for capex to be approximately $40 million.
Brody Wilson: As a result of the increased capital investments at our gas and water utilities, we have increased our five-year consolidated CapEx range midpoint to $1.6 billion from $1.5 billion last year. As David discussed, these capital investments, coupled with higher forecasted expenses, drove our decision to file the Oregon rate case this past December. Lag is expected to be alleviated as new rates for Northwest Natural are anticipated on November 1st, 2024. At the water utilities, we're experiencing similar regulatory lag. We filed a rate case at our largest water utility and expect to file several more this year, with new rates expected by the end of 2024.
As a result of the increased capital investments at our gas and water utilities, we have increased our five year consolidated capex range midpoint to $1 6 billion from one $5 billion last year.
As David discussed these capital investments.
With higher forecasted expenses drove our decision to file the Oregon rate case this past December.
<unk> is expected to be alleviated as new rates for northwest natural our anticipated on November one 2024 at.
The water utilities, we're experiencing similar regulatory lag we filed a rate case at our largest water utility and expect to file several more this year with new rates expected by the end of 2024.
Brody Wilson: I would like to emphasize that while the utility regulatory lag has put near-term earnings pressure on the business, these are important investments that are expected to translate into long-term earnings once rates are updated. Finally, our renewables business is poised to provide long-term earnings once the two R&G facilities are operational, but it is not expected to make a significant earnings contribution until after 2024. Consistent with these business drivers, the company initiated 2024 earnings guidance today in the range of $2.20 to $2.40 per share, or about a $0.30 per share decline from the $2.59 per share 2023 earnings. The decrease is primarily related to the regulatory lag we have described.
I would like to emphasize while the utility regulatory lag does put near term earnings pressure on the business.
These are important investments that are expected to translate into long term earnings once rates are updated.
Finally, our renewables business is poised to provide long term earnings once the two R&D facilities are operational but are not expected to make a significant earnings contribution until after 2024.
Consistent with these business drivers the company initiated 2024 earnings guidance today in the range of $2 20 to $2 40 per share or about <unk> 30 per share decline from the $2 59 per share 2023 earnings.
The decrease is primarily related to the regulatory lag we have described.
Brody Wilson: Guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or outcomes, or significant changes in laws, legislation, or regulations. In the long term, we continue to project solid growth in our natural gas and water utilities and see value and growth from our renewable natural gas business. As a result, we continue to target a long-term earnings per share growth rate of 4 to 6 percent compounded annually from 2022 to 2027. Our base year for that view is 2022, when earnings per share were $2.54. With that, I'd like to turn it back over to David. Thanks, Brody.
Guidance assumes continued customer growth average weather conditions and no significant changes in prevailing regulatory policies.
<unk> or outcomes or significant changes in laws legislation or regulations.
Long term, we continue to project solid growth in our natural gas and water utilities and see value in growth from our renewable natural gas business as.
As a result, we continue to target a long term earnings per share growth rate of 4% to 6% compounded annually from 2022 to 2027.
Our base year for that view is 2022 when earnings per share was $2 54.
With that I'd like to turn it back over to David.
Thanks, Bryan, we'll turn now to our strategic pillars, and an update on our growth initiatives core to our strategy is to drive profitable growth for our investors across our gas water and renewable energy business in support of our company's long term earnings growth target that Brody just discussed.
David Hugo Anderson: We'll turn now to our strategic pillars and an update on our growth initiatives. Core to our strategy is to drive profitable growth for our investors across our gas, water, and renewable energy businesses in support of our company's long-term earnings growth target that Brody just discussed. Turning to our gas utility, as Brody outlined, we anticipate continued investments in our gas utility system and storage facilities for safety and reliability over the next five years. And we're finding needed investments on all fronts, including modernizing core infrastructure like meters, upgrading technology, maintaining our valuable storage facilities, and a keen focus on safety and reliability spending. I'm encouraged by the opportunities and rate-based growth of 5-7% over the next five years. With this level of investment, we're balancing the best approach for customers and the company. That's why, in our most recent rate filing in Oregon, we propose multi-year rate cases be considered in the future. This strategy has been successful in Washington State, helping to smooth increases, allowing customers to understand future rates, and providing the company with more certainty. We look forward to engaging with the Oregon Commission, staff, and interveners on this topic.
Turning to our gas utility is probably outlined we anticipated we anticipate continued investments in our gas utility system and storage facilities for safety and reliability over the next five years and we're finding medium investments on all fronts, including modernizing core infrastructure like meters operating technology, maintaining our valuable storage.
<unk> and a keen focus on safety and reliability spend.
Encouraged by the opportunities and rate base growth of 5% to 7% over the next five years.
With this level of investment we're balancing the best approach for customers and the company.
That's why in our most recent rate filing in Oregon, we propose multiyear rate cases to be considered in the future. The strategy has been successful in Washington state, helping smooth, helping to smooth increases, allowing customers to understand future rates and providing the company more certainty we look forward to engaging with the Oregon Commission staff.
<unk> on this topic.
David Hugo Anderson: An update on gas utility decarbonization efforts. We believe climate change requires rapid innovation and action. We also need to approach the energy transition in a way that ensures the energy system's reliability and affordability. Just last month, we were reminded once again of the importance of peak planning and the critical life safety and energy reliability benefits that a natural gas system provides. Starting January 13th, a winter storm brought frigid temperatures, severe wind, and snow to the Pacific Northwest and resulted in a record-breaking weekend for our gas system.
Now an update on the gas utility de carbonization efforts, we believe climate change requires rapid innovation in action. We also need to approach the energy transition in a way that insurers.
Energy systems reliability and affordability.
Just last month.
We were reminded once again of the importance of peak planning and a critical life safety and energy reliability benefits of our natural gas system provides.
Starting January 13th a winter storm brought frigid temperatures severe wind and snow to the Pacific Northwest and resulted in a record breaking weekend for our gas system.
David Hugo Anderson: We hit a new peak day record on Saturday, January 13th, delivering 8 million firms of natural gas to sales customers. That's 100,000 firms more than our previous record in 2022 and double our average daily winter spend, our daily winter spend outside level. If we include our transportation customers, we delivered 9 million therms that day. And for those of you familiar with megawatt hours, that's equivalent to 250,000 megawatt hours. For comparison, the largest local electric utility in our service territory delivered 84,000 megawatt hours on that same day.
Hit a new peak day record on Saturday January 13th delivering 8 million firms of natural gas to sales customers and Thats 100000 firms more than our previous record in 2022 and.
And double our average daily winter spend our daily winter send out levels.
If we include our transportation customers, we delivered 9 million firms that day and for those of you familiar with megawatt hours thats equivalent to 260000 megawatt hours.
For comparison, the largest local electric utility in our service territory delivered 84000 megawatt hours on that sandburg, our mist storage gas storage facility.
David Hugo Anderson: Our mist storage gas storage facility delivered a new record volume that same Saturday, and the facility provided essential support for the entire region's energy system throughout the event. I'm pleased to report that our employees rose to the occasion, braved dangerous conditions, and ensured that our system performed well, supporting additional demand when our region needed it the most. Providing reliable energy is the result of disciplined investments in the system over many decades, and this consistent investment is why today we operate one of the tightest and most modern systems in the nation, and we use that system to deliver 50% more energy than any other gas or electric utility in Oregon. It's why our system is an energy powerhouse for the communities that we serve, and we believe that two integrated systems, gas and electric, are better than one.
New record volume that same Saturday and the facility provided essential support for the entire region's energy system throughout the event.
I'm pleased to report that our employees rose to the occasion braid dangerous conditions and ensure that our system performed well supporting additional demand when our region needed it the most.
Providing reliable and energy is the result of disciplined investments in our system over many decades and is consistent investment is why today, we operate one of the tightest and most modern systems in the nation and we use that system to deliver 50% more energy than any other gas or electric electric utility in Oregon.
That's why our system is an energy powerhouse for the communities that we serve.
And we believe that two integrated systems gas and electric are better than one that's a starting point for our climate strategy as we leverage our system, that's already in place and new innovative ways to drive emissions down even further.
David Hugo Anderson: It's a starting point for our climate strategy as we leverage our system that's already in place in new, innovative ways to drive emissions down even further. And to that end, I'm proud to announce that Northwest Natural has signed agreements with Waste Management, doing business as WM, that provide us with exclusive rights to construct a renewable natural gas facility at WM's landfill in East Wenatchee, Washington.
To that end I'm proud to announce that northwest natural has signed agreements with waste management doing business with Wm that provides us exclusive rights to constructive renewable natural gas facility at WNS landfill and each one achieved Washington, we expect that facility could begin generating <unk> in late 2025.
David Hugo Anderson: We expect the facility could begin generating RNG in late 2025, providing a 20-year supply of R&G from the facility once constructed. This would be Northwest Natural's third R&G facility investment and the first facility located in the Pacific Northwest. We'll continue to work on multiple fronts to advance decarbonization efforts for our customers. A few comments on Northwest Natural Water
Providing a 20 year supply of R&D from the facility. Once constructed this would be northwest Natural's third R&D facility investment in the first facility located in the Pacific Northwest will continue to work on multiple fronts to ensure advanced de carbonization efforts for our customers.
A few comments on northwest natural water since our water strategy began in 2017 with growing through more than 30 acquisitions, what started with water utilities quickly turned to opportunities in wastewater. We took an additional step in 2023 by launching the water services company and expect that this new business will complement our water acquisition strategy.
David Hugo Anderson: Since our water strategy began in 2017, we've grown through more than 30 acquisitions. What started with water utilities quickly turned to opportunities in wastewater. We took an additional step in 2023 by launching the Water Services Company and expect that this new business will complement our water acquisition strategy. Today, Northwest Natural ranks among the 20 largest privately-owned water utilities in the United States based on Customer Gap Account.
Today Northwest natural ranked among the <unk>.
<unk> largest privately owned water utilities in the United States based on customer account.
David Hugo Anderson: And this is an impressive, impressive achievement, in my opinion. Acquisition by acquisition, system by system, year by year, we built this into a meaningful business. There is no shortcut to consolidating a fragmented sector. Patience, discipline, and ingenuity are the keys to success, and we are committed to this area for the long term. We've been successful at professionalizing the systems we've acquired, setting up safety programs, enhancing customer service, putting structured capital expenditure expenditure planning in place and executing on those plans. And since 2018, our property plant, and equipment assets have grown from $3.6 million to almost $150 million at the end of 2023. And we're not done. What we found is a tremendous amount of investment needed to ensure clean and safe water and wastewater services for our customers.
And this is an impressive oppressive achievement in my opinion acquisition by acquisition system by system year by year, we built this into a meaningful business.
There is no shortcut to consolidate in a fragmented sector patience discipline and ingenuity are the keys to success and we are committed to this area for the long term.
We've been successful that reflect professionalizing the systems, we've acquired standing up safety programs enhancing customer service, putting structured capital expenditure expenditure planning in place and executing on those plans and since 2019, our property plant and equipment assets have grown from $3 $6 million to almost 150 million.
At the end of 2023, and we're not done.
What we found is a tremendous amount of investment needed to ensure clean and safe water and wastewater services to our customers and while that Capex has created regulatory lag in the near term.
David Hugo Anderson: And while that capex has created regulatory lag in the near term, we know in the long term, it will benefit customers and investors alike. I continue to believe in the diversification and long-term earnings and cash flow power of this business. Our focus is on smart acquisitions and follow-on investments, as well as executing rate cases as necessary. In summary, I'm pleased with all the accomplishments our employees and this management team achieved in 2023. We've made substantial progress on all strategic initiatives.
On the long term and will benefit customers and investors alike.
Continue to believe the diversification and long term earnings and cash flow power of this business. Our focus is on smart acquisitions and follow on investments as well as executing rate cases as necessary.
In summary, I'm pleased with all the accomplishments our employees on this management team achieved in 2023, we've made substantial progress on all strategic initiatives 2024 is challenging due to the larger than usual.
David Hugo Anderson: 2024 is challenging due to the larger than usual regulatory lag that we are experiencing, but it will also bring additional opportunities. I can assure you that our leadership team and employees are highly engaged to ensure success, not only this year, but in 2025 and years to come. That's why we're reaffirming our 46% long-term earnings per share growth rate off the 2022 base year of $2.54.
The larger than usual regulatory lag that we're experiencing.
But it also will bring additional opportunities.
Can assure you that our leadership team and employees are highly engaged to ensure success not only this year, but in 2025 and years to come that's why we're reaffirming our 46% long term earnings per share growth rate. After 2022 base year of $2 54.
David Hugo Anderson: Thanks for joining us this morning and listening to us go through quite a few remarks here, Bailey. With that, I think we're ready to open it up for questions. Thank you. If you would like to ask a question, please press the star followed by one on your telephone keypad. If, for any reason, you would like to remove a question, please press the star followed by two.
Thanks for joining us this morning, and listening to US go through quite a few remarks here daily with that that I think we're ready to open it up for questions.
Thank you.
I would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to I mean is that a question. Please press star followed by two again to ask a question. Please press star followed by one.
Operator: Again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question and please do ensure that you have unmuted it. Our first question today comes from the line of Salman Akyol from Stiefel. Please go ahead; your line is now open. Good morning.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question I am pleased to ensure that you have on muted.
Our first question today comes from the line of Selman <unk> from Stifel. Please go ahead. Your line is now open.
Good morning, good morning.
Salman Akyol: Good morning, um, Let's just start off, in terms of the rate case that you filed, how is it being received, and can you talk about anything that's contentious or you think you're going to get all that you're asking for? Thank you, Selman. We are in the early stages. We filed at the end of December, and so we're obviously in the middle of February here.
Let's just start off with in terms of the rate case that you filed up how is it being received and can you talk about anything thats contentious or you think youre going to get.
That you're asking for.
Yeah.
Yeah. Thank you settlement we are in the early stages, we filed at the end of December and so we're obviously in the middle of February here.
David Hugo Anderson: You know, we're, in fact, some negotiations will be coming up soon, but there's really been nothing that's been filed from the other side or anything that gives us any indication of where we're at. So it's just very early days. And so it's a little early to all pine on whether we'll, what level we think we're going to be at, whether it's going well or not. This was well telegraphed. The commission and the staff, we've been working with them on a regular basis to know what our situation is with lag, just like we do with all of our rate cases. So this did not come to us as a surprise to anybody that follows us closely in Salem. Um, and then it sounds like this.
And in fact, some negotiations will be coming up soon but there's really been nothing thats been filed from the other side or anything that gives us any indication on where we're at so it's just very early days.
And so it's a little early to opine on whether it will.
What level, we think we're going to be at whether its going well or not this was well telegraphed. The commission on the staff, we've been working with them on a regular basis to know what our situation is with lag just like we do with all of our rate cases. So this did not come to us as a surprise to anybody that follows us closely in Salem.
Got it.
And then it.
It sounds like the two facilities.
David Hugo Anderson: The two facilities, EDL, looks like it's being pushed to the right. I guess, I'm curious, how much was in your planning for that for in 24 hours? I think it sounds like it's going to be more incremental and pushed out to 25, you want to take that one? Yeah, sure. Thank you for the question. We did have some earnings in 23 that we expected, and then we've moderated that for 24. We do expect that the facilities will come online kind of late 24 and provide some level of earnings, but we don't view that to be material.
It looks like it's being pushed to the right I guess I'm curious how much was in your planning for that for in 'twenty, four and it sounds like it's going to be more incremental and pushed out to 'twenty five.
Yes.
Bert do you want to take that one yeah sure. Thank you for the question.
We did have some earnings in 'twenty three that we expected and then we've moderated that for 'twenty four we do expect that the facilities will come online late 'twenty four and provide some level of earnings, but we don't view that to be material and then we expect full year earnings starting in 'twenty five and we've.
Brody Wilson: And then, you know, we expect full-year earnings starting at 25, and we've not given any specific guidance on numbers at this stage. Got it. But when I think about 24 and I think about the reduction in guidance, can you, I don't know, give some indication of how much was due to that being pushed to the right? Yeah, I mean, I think that, again, if the part year versus full year, you could probably think about, you know, there being about a dime of movement out into the outer years there associated with that. Again, most of the decrease, 23 to 24, is due to the lag in the gas utility. That's the big driver of the...
Not.
Given any specific guidance on numbers at this stage.
Got it but when I think about 24 and I think about the reduction in guidance can you I don't know give some indication of how much was due to that being pushed to the right.
Yes, I mean I think.
Again.
If the part year versus full year, you could probably think about there being about a dime.
Movement out into the outer years, there associated with that.
Again, most of the decreased 24%, 23% 24 is due to the lag in the gas utility Tony Thats, the big driver of that.
Brody Wilson: I totally understand that, and I'm appreciative of that. Okay, let me just leave it there for now. Thank you. Thank you so much.
Totally totally understand that and appreciative on that.
Okay. Let me just leave it there for now thank you.
Thanks Alan.
Salman Akyol: Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. Well, Bailey, it's Friday. It looks like it's pretty quiet out there.
Thank you as.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
While daily it's Friday, it looks like it's pretty quiet out there.
Operator: I don't think we have any other questions that we need to ask. So I really do appreciate everybody on the line that listened to where we are. As always, if you have any questions, please follow up with Nikki Sparley, and she'll be able to walk you through anything that you might have questions on.
I don't think we have any other questions that we say so.
We do appreciate everybody on the line that.
But listen to where we're at.
As always if you have any questions. Please follow up with making sparkling and her she'll be able to walk you through anything that you might have questions on and of course, we look forward to seeing you all soon.
Operator: And, of course, we look forward to seeing you all soon. With that, take care. Have a great weekend, everybody. This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.
That take care have a great weekend everybody.
This concludes today's conference call. Thank you all for your participation you may now disconnect your lines.
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Yes.
Yes.
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