Northwest Natural Gas Q4 2024 Earnings Report

Northwest Natural Gas EPS Results

• Actual EPS: $1.41
• Consensus EPS: $1.42
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: $1.21

Northwest Natural Gas Revenue Results

• Actual Revenue: $370.90 million
• Expected Revenue: $395.05 million
• Beat/Miss: Missed by -$24.15 million
• YoY Revenue Growth: +4.30%

Northwest Natural Gas Announcement Details

• Quarter: Q4 2024
• Date: 2/28/2025
• Time: Before Market Opens
• Conference Call Date: Friday, February 28, 2025
• Conference Call Time: 11:00AM ET

Northwest Natural Gas (NYSE:NWN), operating under Northwest Natural Holding Company, is an energy and utility company headquartered in Portland, Oregon. Its principal business is the distribution of natural gas to residential, commercial and industrial customers, along with related utility and energy services.

Through its regulated natural gas utility, Northwest Natural serves customers in Oregon and southwest Washington. The company also has expanded beyond its traditional gas-distribution operations through businesses involved in water and wastewater services, renewable natural gas and other energy-related activities.

The company traces its history to 1859 and has developed into one of the Pacific Northwest’s established natural gas utilities. Northwest Natural is led by President and Chief Executive Officer David H. Anderson.

Northwest Natural Gas Q4 2024 Earnings Call Transcript

Key Takeaways

• Completed the largest Oregon gas utility rate case with a $93.3 M revenue requirement increase and a $2.1 B rate base, supporting long-term returns.
• 2024 adjusted EPS came in at $2.33 per share (upper end of guidance) despite regulatory lag and inflation, down from $2.59 in 2023.
• Closed the Sea Energy acquisition on January 7, adding a high-growth Texas utility with 22% annual customer growth and ~$0.25–0.30 EPS contribution in 2025.
• Initiated 2025 guidance of $2.75–2.95 EPS and reaffirmed 4–6% long-term EPS CAGR, alongside $450–500 M 2025 CapEx and a $2.5–2.7 B through-2030 investment plan.
• CEO succession plan announced with CEO David Anderson retiring in April 2025 and Justin Pelfreman named as successor, ensuring a planned leadership transition.

Presentation

[Operator]

Good morning, and thank you all for attending the Northwest Natural Holdings Q4 2024 earnings call. My name is Brica, and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Nikki Sparley, Head of Investor Relations at Northwest Natural Holdings. Thank you. You may proceed, Nikki.

[Nikki Sparley, Head of Investor Relations at Northwest Natural Holdings]

Thank you. Good morning and welcome to our fourth quarter 2024 earnings call. A presentation for today's call is available on our investor relations website at ir.northwestnaturalholdings.com. Following this call, a recording will also be available on our website. Turning to slide two. As a reminder, some things that will be said this morning contain forward-looking statements. They're based on management's assumptions, which may or may not occur. For a complete list of cautionary statements, refer to the language at the end of our press release. Additionally, our risk factors are provided in our 10-Q and 10-K filings. Please note our 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.

[Nikki Sparley, Head of Investor Relations at Northwest Natural Holdings]

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-K later today. 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. News media may contact David Roy at 503-610-7157. Moving to slide three. With us today are David Anderson, Chief Executive Officer; Justin Palfreyman, President; and Ray Kaszuba, 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.

[David Anderson, CEO at Northwest Natural Holdings]

Thanks, Nikki, and good morning and welcome. This past January, we celebrated the 166th 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 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, and 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.

[David Anderson, CEO at Northwest Natural Holdings]

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 million customers across seven states that are growing meaningfully and sustainably and dedicated to our hallmarks of service and safety. This past year was one of achievements in setting the stage for future growth. 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 rate case in our history and also concluded a number of water and wastewater utility rate cases last year. We did not lose sight of affordability.

[David Anderson, CEO at Northwest Natural Holdings]

Today, our Northwest Natural customers are paying less for their natural gas service than they did 20 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. We did not stop there. We also announced the acquisition of a high-growth natural gas utility in Texas, SiEnergy. 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 4-6% long-term earnings per share guidance.

[David Anderson, CEO at Northwest Natural Holdings]

That is why today we are able to initiate 2025 adjusted earnings guidance in the range of $2.75 per share-$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 rates effective on November 1. Under the order, Northwest Natural's revenue requirement increased $93.3 million and rate base increased $334 million to $2.1 billion. It is important to remember that we prioritize safe, reliable service and make investments to support that critical mission. In January last year, we were reminded once again of the importance of peak planning in the natural gas system during cold weather events. We delivered 9 million therms on our new peak day last year.

[David Anderson, CEO at Northwest Natural Holdings]

Our gas system provided 55% more energy than the largest electric utilities in Portland, Oregon, combined over the cold snap. In fact, the region narrowly avoided rolling blackouts during the January 2024 storm because widespread outages in the Willamette Valley dramatically reduced electric regional load. That is according to the Clark Public Utilities Supply peak load and resource adequacy snapshot. This just clearly illustrates the true power 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.

[David Anderson, CEO at Northwest Natural Holdings]

It 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 end of December last year. The gas utility request included a modest revenue requirement increase of $59.4 million, 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 $204 million since the last rate case and an updated depreciation study resulting in a $10 million increase to revenue requirement.

[David Anderson, CEO at Northwest Natural Holdings]

As you may recall, Oregon rate cases are adjudicated over a 10-month period, so we expect new rates starting November 1 of this year. We carefully considered this rate case filing and the effect on customers' bills. Our team has done all they can to reduce costs 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, SiEnergy, we are thrilled to close the SiEnergy 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. SiEnergy has produced strong customer growth of 22% from 2021 to 2024 compounded annually.

[David Anderson, CEO at Northwest Natural Holdings]

We believe SiEnergy'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.

[Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings]

Thank you, David, and good morning, everyone. Turning to full year results on slide seven. On an adjusted basis, the company achieved net income of $90.6 million, or $2.33 per share, compared to net income of $93.9 million, or $2.59 per share for the same period in 2023. The $3.3 million decrease in adjusted net income was largely the result of regulatory lag for the first 10 months of 2024 until new Oregon gas utility rates were effective on November 1st. Earnings per share was also affected by the issuance of common stock during the year as we financed long-term growth capital. Turning to the natural gas distribution segment's annual results, utility margin increased $26.3 million, mainly due to new rates in Oregon. Gas utility O&M decreased $2.1 million, excluding the effects of a regulatory disallowance as a result of lower contractor costs and bad debt expense.

[Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings]

Utility depreciation and general taxes increased $12.1 million due to additional capital investments. Other income decreased $18.2 million, driven by higher pension costs and lower interest income. Interest expense for our gas utility increased $2.8 million due primarily to higher short-term debt financing. Our other businesses' net income increased $3.6 million, excluding expenses related to the SiEnergy transaction, primarily due to $4.4 million of higher net income from the water and wastewater utility business. For 2024, cash provided by operating activities was $200 million. We invested $394 million in our 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 requests. We deployed $30 million for water and wastewater acquisitions. Cash provided by financing activities was $227 million.

[Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings]

Moving to our financial outlook on slide eight, the company initiated annual 2025 adjusted earnings guidance today in the range of $2.75-$2.95 per share. Our 2025 guidance reflects strong contribution from our other businesses. We expect SiEnergy and Northwest Natural Water to each provide approximately $0.25-$0.30 of EPS over the year in 2025. We also expect a long-term earnings per share growth rate of 4%-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 $450-$500 million, anchored by significant projects at our gas utilities in the Pacific Northwest related to modernizing end-of-life meters, system reinforcement, and gas storage upgrades. Our range also includes SiEnergy and investments to support growing communities in Texas, as well as water and wastewater CapEx.

[Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings]

As a result of the increased capital investments, which is largely related to adding SiEnergy to our portfolio, we have increased our consolidated CapEx range to $2.5 billion-$2.7 billion through 2030, 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 does not include any future acquisitions. As we announced in November, our utilities' combined annual rate-based growth target has increased from 5%-7% to 6%-8%. Related to customer growth, last year on a consolidated basis, our utilities grew 1.1%. From 2025, we are projecting 2%-2.5% customer growth. This acceleration is largely based on 20% or higher customer growth from SiEnergy. Our customer growth projections for SiEnergy are backstopped by an impressive backlog of nearly 190,000 connections under contract.

[Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings]

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 million-$75 million. That's lower than the $90 million issued through the ATM program in 2024. Despite increasing our capital expenditures by an average of $115 million per year through 2030, 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 SiEnergy acquisition last month with a committed term loan.

[Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings]

Our plan is to add junior supported notes to our financing portfolio to refinance the term loan in line 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 objectives. We continue to review our options, but our plan is to issue permanent financing this spring. Moving to slide nine. For SiEnergy, we anticipate total meter set growth of approximately 20% over last year. That translates into rate-based growth of 20-25% from 2025 to 2027 and an expected net income growth of 32-37% 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 constructive regulatory strategy.

[Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings]

We're evaluating options for regulatory recovery and using supportive mechanisms such as the Gas Reliability Infrastructure Program, or GRIP, in 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 10-15% from 2025 to 2027 and net income to grow at that same level. We are excited about the long-term earnings power of both SiEnergy and water. To provide additional information, we also expect to begin separately disclosing Northwest Natural Water and SiEnergy financial results with our first quarter 2025 earnings. With that, I'll turn it over to David.

[David Anderson, CEO at Northwest Natural Holdings]

Thanks, Ray. 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 SiEnergy 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.

[David Anderson, CEO at Northwest Natural Holdings]

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 and this leadership team achieved in 2024. We have made substantial progress on all our strategic initiatives, 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 2025. 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. We are at a pivotal time of growth and transformation, and Northwest Natural Holdings and this leadership team are well prepared. Our company is in strong financial position and poised for continued growth.

[David Anderson, CEO at Northwest Natural Holdings]

It is important to ensure a smooth leadership transition, and the board and I are 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. Thank you for joining us this morning, and thank you for your support over the years. With that, we'll open it up to questions.

[Operator]

Thank you. David, we will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star, then two to remove that. It's star followed by one to register for a question. As a quick reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. We will pause here briefly while the questions are registered. We have the first question from Chris Ellinghaus with Siebert Williams Shank. Please go ahead when you're ready.

[Chris Ellinghaus, Energy Equity Analyst at Siebert Williams Shank]

Hey, good morning, everybody.

[David Anderson, CEO at Northwest Natural Holdings]

Morning, Fred.

[Chris Ellinghaus, Energy Equity Analyst at Siebert Williams Shank]

Excellent. David, there's lots been going on in Washington, and you can't throw a rock without hitting a story about data centers. Can you give us some strategic thoughts about what's happening in Washington and how you feel that will influence the business? Two, with the amount of electric load growth that people are talking about, how do you see that as an opportunity for, say, Mist or just the business in general?

[David Anderson, CEO at Northwest Natural Holdings]

Justin, would you like to take that one?

[Justin Palfreyman, President at Northwest Natural Holdings]

Sure. Good morning, Chris. Thank you for the question. Regarding data centers, 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 up their on-site electricity demands. We can connect these loads to our system, but we're evaluating the 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 we are evaluating how we might be able to serve that. It 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.

[Justin Palfreyman, President at Northwest Natural Holdings]

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 do not anticipate at the 10% level a meaningful impact in terms of cost to our customers, but we are monitoring the situation.

[Chris Ellinghaus, Energy Equity Analyst at Siebert Williams Shank]

Yeah, I'm sorry to confuse the state and the D.C. A lot of capital equipment is imported, especially from Europe, and a 25% tariff might be pretty substantial. Do you think there may be really early for this, but maybe since so much of the executive orders so far are energy-related, do you think there's a chance to get exemptions for, say, energy capital that could be inserted into the tariffs?

[Justin Palfreyman, President at Northwest Natural Holdings]

Yeah, it's an interesting thought, Chris. Our team is actively engaged with policymakers on the Hill, as is AGA and EEI, as you know. 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.

[Chris Ellinghaus, Energy Equity Analyst at Siebert Williams Shank]

Okay. I haven't backed into or imputed the SiEnergy 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 Si 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. So those CAGRs, do they include not just the core growth there, but sort of resetting everything in Texas there?

[Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings]

Yeah. 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 40% or so debt today, and we think that over time the debt can increase to more like a 60/40 equity-to-debt ratio over time. Those are the assumptions. Resetting those is what is in the CAGR that you see in the deck.

[Chris Ellinghaus, Energy Equity Analyst at Siebert Williams Shank]

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

[Justin Palfreyman, President at Northwest Natural Holdings]

Yeah, Chris, we just closed on the acquisition last month and are focused on integrating the company. We will be evaluating rate case timing as the year unfolds, but we do not have anything to report at this time.

[Chris Ellinghaus, Energy Equity Analyst at Siebert Williams Shank]

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

[David Anderson, CEO at Northwest Natural Holdings]

Thanks, Chris. Really do appreciate that.

[Justin Palfreyman, President at Northwest Natural Holdings]

Thanks, Chris.

[Operator]

Thank you. As a quick reminder, that's star followed by one to register for questions. We now have Selman Akyol with Stifel on the line.

[Selman Akyol, Managing Director and Senior Equity Analyst at Stifel]

Thank you. Good morning.

[David Anderson, CEO at Northwest Natural Holdings]

Morning, Selman.

[Selman Akyol, Managing Director and Senior Equity Analyst at Stifel]

Congratulations, David. Just a quick one for me. On your CapEx, can you just unpack that exactly by gas, SiEnergy, and water on how much you're going to be investing in each one?

[Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings]

Yeah, sure. For Northwest Natural Gas Company, it's in the ballpark of $350 million. For SiEnergy, it's in the $80 million range. For water, it is in the $60 million range for a total of the range that we mentioned on the call, $450-$500 million for 2025.

[Selman Akyol, Managing Director and Senior Equity Analyst at Stifel]

Got it. All right. Great. Thanks so much.

[David Anderson, CEO at Northwest Natural Holdings]

Thanks, Selman.

[Chris Ellinghaus, Energy Equity Analyst at Siebert Williams Shank]

Thanks, Selman.

[Operator]

Thank you. We currently have no further questions. I would like to hand it back to David Anderson for some final comments.

[David Anderson, CEO at Northwest Natural Holdings]

Thank you very much. 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.

[Operator]

Thank you all for dialing in for the Northwest Natural Holdings Q4 2024 earnings call. I can confirm today's call has now concluded. Please enjoy the rest of your day.

Participants

Executives

• David Anderson, CEO

Analysts

• Nikki Sparley, Head of Investor Relations at Northwest Natural Holdings
• Ray Kaszuba, Senior VP and CFO at Northwest Natural Holdings
• Chris Ellinghaus, Energy Equity Analyst at Siebert Williams Shank
• Justin Palfreyman, President at Northwest Natural Holdings
• Selman Akyol, Managing Director and Senior Equity Analyst at Stifel