NorthWestern Energy Group, Inc. · NASDAQ:NWE
NorthWestern Energy — Baird Utility Corporate Access Day 2014
49 slides from NorthWestern Energy's conference presentation, Sep 10, 2014
Slide 1: Baird Utility Corporate Access Day
Baird Utility Corporate Access Day Chicago, IL | Sept. 10, 2014
Slide 2: Forward Looking Statements
Forward Looking Statements Company Information Forward Looking Statements NorthWestern Corp. dba: NorthWestern Energy During the course of this presentation, there will be forward- www.northwesternenergy.com looking statements within the meaning of the “safe harbor” provisions of the Private Securit
Slide 3: About NorthWestern
About NorthWestern Our Vision: Enriching lives through a safe, sustainable energy future Our Mission: Working together to deliver safe, reliable and innovative energy solutions Our Values: S - safety E - excellence R - respect V - value I - integrity C - community E - environment 3
Slide 4: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term We’re a fully-regulated and financially solid utility; with – Diversity across states, service type and customer segments – A 100 year history of competitive customer rates, system reliability and customer satisfaction – A strong track record of significant earni
Slide 5: Strong Corporate Governance
Strong Corporate Governance Fortnightly 40 NorthWestern Energy was recently recognized as one of the top 40 best energy companies in the United States by Fortnightly 40. The report compares shareholder value performance by looking at uniform data sets among the leading publicly traded electric and g
Slide 6: Solid Economic Indicators
Solid Economic Indicators Unemployment Rate Write-Off to Revenue Ratio (as reported in June each year) 1.00% US National Average Montana 0.80% South Dakota Nebraska 12% 10% 0.60% 8% 0.40% 6% 4% 0.20% 2% 0.25% 0.30% 0.25% 0.29% 0.26% 0.30% 0.21% 0.22% 0% 0.00% 2010 2011 2012 2013 2014 2007 2008 2009
Slide 7: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility The “80/20” rules of NorthWestern Gross Margin in 2013: Electric: $506M Natural Gas: $167M Gross Margin in 2013: Other $ 2M Montana: $561M South Dakota: $103M 75% Electric Nebraska: $ 11M 25% Natural Gas 83% Montana 83% Residential 15% South Dakota 16% Commerci
Slide 8: Strong Utility Foundation
Strong Utility Foundation System Average Interruption Customer Average Frequency Index (SAIFI) Interruption Duration Index "Typical Bill" Residential Rate Comparison (CAIDI) 150 $140 1.50 $120 National Average 125 National Average 1.25 $100 EEI – 2nd $80 1.00 Quartile 100 Interruptions Minutes Perfo
Slide 9: 2014 Earnings Guidance
2014 Earnings Guidance Diluted Earnings Per Share $3.00 GAAP Diluted EPS $2.75 Initial Guidance Range $2.60-$2.75 $2.50 Non-GAAP "Adjusted" EPS $2.25 $2.00 $1.75 $2.02 $2.14 $2.53 $2.66 $2.46 $1.50 2009 2010 2011 2012 2013 $- 2014E 2014 guidance range of $2.60-$2.75 based upon, but not limited to, t
Slide 10: Track Record of Delivering Results
Track Record of Delivering Results 12.0% Return on Equity 10.0% 11.0% 11.0% 8.0% 9.5% 9.6% 9.6% 9.8% Return on Equity within 6.0% 9.5% - 11.0% band over 4.0% the last 5 years. 2.0% 0.0% Annual dividend 2009 2010 2011 2012 2013 2014E increases since emergence in 2004. $1.60 Dividend Per Share and Pay
Slide 11: Hard Assets Providing Real Value
Hard Assets Providing Real Value Property Plant and Equipment vs Market Value Gross PP&E Net PP&E (Left) We believe continued investment in our Enterprise Value Market Cap system to provide safe, reliable, $4,000 environmentally responsible and cost-effective $3,500 service for our customers will pr
Slide 12: Investment for Our Customers' Benefit
Investment for Our Customers’ Benefit $3,000 Rate Base and Earnings per Share $3.00 Over the past 5 years we $2,750 $2.75 have been reintegrating Rate Base - Millions $2,500 $2.50 our Montana energy EPS - Dollars $2,250 $2.25 supply portfolio and $2,000 $2.00 invested to enhance $1,750 $1.75 system
Slide 13: Strong Cash Flows
Strong Cash Flows $300 Components of Free Cash Flow $250 $200 (1) While maintenance capex and total $150 (2) dividend payments have continued to $100 grow since 2009 (4.1% and 4.6% Millions $50 $- CAGR respectively), Cash Flow from $(50) Operations has continued to outpace $(100) $(150) maintenance
Slide 14: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity Credit Ratings 60% Debt to Capital Ratio Senior Senior Secured Unsecured Commercial 50% Rating Rating Paper Outlook Fitch A- BBB+ F2 Positive Watch 54.0% 55.5% 54.8% 54.3% 53.8% 40% Moody's A1 A3 Prime-2 Stable S&P A- BBB A-2 Stable 30% 2009 2010 2011 2012 2013 A
Slide 15: Net Investment in Existing Business
Net Investment in Existing Business $250 Maintenance Capex vs. Depreciation $200 $150 $100 ($millions) $50 $0 ($50) ($100) ($150) 2009 2010 2011 2012 2013 Distribution System Infrastructure Project (DSIP) Capital Maintenance capex Depreciation Cumulative capex in excess of depreciation Maintenance c
Slide 16: Investment Project Summary
Investment Project Summary ($Millions) Capital Total Project Energy Supply Spent * Capital Opportunity Low High Jurisdiction MT - pending hydro asset acquisition High $0 $900 to $900 MPSC SD - Big Stone pollution control equipment High $56 $95 to $105 SDPUC SD - Neal pollution control equipment High
Slide 17: Montana Hydro Acquisition - Update
Montana Hydro Acquisition - Update • Announced, in September 2013, the $900 million acquisition of eleven baseload hydroelectric generating facilities representing 633 megawatts of capacity and one storage reservoir from PPL Montana. • On September 4, 2014, after a yearlong process, the Montana Publ
Slide 18: Hydro – Next Steps
Hydro – Next Steps • It is anticipated the Montana Public Service Commission (MPSC) will approve the written order at either the September 18th or 23rd work sessions. Upon approval, we will be seeking authority from FERC to issue securities in connection with the transaction. We anticipate a Mystic
Slide 19: The Hydro Facilities
The Hydro Facilities Overview of Hydro Facilities(1) Net FERC 5-Yr Avg. Capacity License Capacity Plant (MW) Ownership% COD River Source Expiration Factor(2) Black Eagle 21 100% 1927 Missouri 2040 73.6% Cochrane 69 100% 1958 Missouri 2040 49.1% Hauser 19 100% 1911 Missouri 2040 79.3% Holter 48 100%
Slide 20: Hydro - Supporting Our Values
Hydro - Supporting Our Values Our Vision Statement: Working together to deliver safe, reliable and innovative energy solutions that create value for our customers, communities, employees and investors. • Opportunity to acquire clean, reliable, long-lived generation assets near the bottom of commodit
Slide 21: Hydro – Owned and Contracted Resources
Hydro – Owned and Contracted Resources Montana Annual Production (Excludes Kerr Dam1) NorthWestern Owned Facilities Pro forma for Hydro Transaction Missouri Missouri Missouri River Missouri Missouri Missouri River River River River Clark Clark Clark ClarkFork Clark Clark Fork Fork Fork Fork Fork Fla
Slide 22: Hydro - Montana Generation Profile
Hydro - Montana Generation Profile Owned Resources for Retail Use as 12/31/2012 140% 120% 127% 122% 120% Peer Average - 93% 100% 80% 105% 102% 98% 97% 91% 84% 78% 60% 77% 64% 60% 60% 40% 53% 44% 20% 0% WR GXP EE CNL UNS IDA EDE VVC ALE AVA UIL MGEE PNM BKH POR NWE Owned Resources – NWE 2012 Actual O
Slide 23: Meeting Customer Demands
Meeting Customer Demands Light Load Hours (MWh's) 400,000 Conveyance of Kerr Dam to CSKT 300,000 MWh's 200,000 100,000 - Hydro Owned & Contract Light Load Demand Heavy Load Hours (MWh's) 500,000 Conveyance of Kerr Dam to CSKT 400,000 MWh's 300,000 200,000 100,000 - Hydro Owned & Contract Heavy Load
Slide 24: Hydro - A Great Fit at the Right Time
Hydro - A Great Fit at the Right Time • Existing resources with no development risk. • Location within the service territory eliminates need for additional transmission to serve our customers. • Excellent fit for our portfolio’s needs. Meets our light-load need but we will need additional resources
Slide 25: Big Stone and Neal Air Quality Projects
Big Stone and Neal Air Quality Projects Big Stone Neal Big Stone Power Plant Location Northeast South Dakota Northwest Iowa Ownership 23.4% of 475 MW coal plant 8.7% of 644 MW coal plant Subject to comply with Subject to Best Available national ambient air quality Retrofit Technology (BART) standard
Slide 26: Southern Bear Paw Transaction
Southern Bear Paw Transaction • Finalized acquisition of Bear Paw South – On December 2, 2013, we finalized the purchase of 63 Bcf proven reserves and 82% interest in Havre Pipeline Company for $68.7 million. – Our largest natural gas reserves acquisition to date adding 29 employees to our 14 existi
Slide 27: Natural Gas Reserves Opportunity
Natural Gas Reserves Opportunity We continue to pursue opportunities to secure low cost gas reserves for our customers. • Remaining 18% unfilled position to reach our targeted 50% owned supply. • Other potential opportunities to procure reserves to provide up to 50% (or 3-4 Bcf of natural gas annual
Slide 28: Distribution System Infrastructure Project
Distribution System Infrastructure Project • Montana Distribution System Infrastructure Project (DSIP) to maintain a safe and reliable electric and natural gas distribution system. – The primary goals: reverse the trend in aging infrastructure, maintain reliability, proactively manage safety, build
Slide 29: Capital Spending
Capital Spending $300 Capital Spending Capital spending projections do not include potential future electric or natural gas energy supply additions, maintenance capital associated with our pending hydro $29 $250 $38 acquisition, or capital related to our electric and gas TSIP*. $50 $200 $52 $50 $50
Slide 30: Dave Gates Generating Station Update (DGGS)
Dave Gates Generating Station Update (DGGS) • We operate a transmission system and balancing authority within Montana and are responsible for providing safe and reliable electric services to both retail and wholesale customers, or face stiff penalties for non-compliance. • DGGS was designed and cons
Slide 31: Conclusion
Conclusion Strong track Strong cash Realistic Fully- Best practices record of flows aided by investment regulated corporate earnings and Net Operating opportunities utility governance dividend Loss (NOL) to invest Free growth carryforwards Cash Flow Aberdeen Peaker Plant Ribbon Cutting July 23, 2013
Slide 32: Appendix
r Appendix NorthWesternt Energy 32 Deltvecing 6 Bright Future
Slide 33: 2013 and 2014 Adjusted EPS Schedule
2013 and 2014 Adjusted EPS Schedule Q1 Q2 Q3 Q4 2014 2014 Reported GAAP diluted EPS $ 1.17 $ 0.20 $1.37 Non-GAAP Adjustments: Weather (0.05) 0.01 $ (0.04) Hydro Transaction related legal and professional fees 0.04 0.04 $ 0.08 2014 Adjusted diluted EPS $ 1.16 $ 0.25 $ - $ - $1.41 Q1 Q2 Q3 Q4 2013 201
Slide 34: Income Statement
Income Statement Three Months Ended Six Months Ended (in millions, except per share) June 30, June 30, 2014 2013 2014 2013 Operating Revenues $270.3 $260.2 $640.0 $573.2 Cost of Sales (Other) 112.5 106.9 279.9 239.1 Gross Margin 157.8 153.2 360.1 334.1 Operating Expenses Operating, general & adminis
Slide 35: EPS Reconciliation (Qtr 2014 vs 2013)
EPS Reconciliation (Qtr 2 2014 vs 2013) ($millions, except EPS) Permanent and flow-through adjustments Nonemployee directors deferred Natural gas production expense Natural gas production Margin DSM lost revenue recoveries Impact of higher share count Natural gas retail volumes Hydro Transaction cos
Slide 36: EPS Reconciliation (YTD through Qtr 2014 vs 2013)
EPS Reconciliation (YTD through Qtr 2 2014 vs 2013) ($millions, except EPS) Permanent and flow-through adjustments Natural gas and electric retail volumes Montana natural gas rate increase Nonemployee directors deferred DSM lost revenue recoveries Impact of higher share count Hydro Transaction costs
Slide 37: Cash Flow
Cash Flow Six Months Ending June 30, (in millions) 2014 2013 Operating Activities Net Income $ 53.3 $ 52.2 Non-Cash adjustments to net income 95.4 87.6 Changes in working capital (6.4) 4.6 Other (17.8) (14.6) Cash provided by operating activities 124.6 129.8 Investing Activities PP&E additions (112.
Slide 38: Balance Sheet
Balance Sheet (in millions) As of June 30, As of December 31, 2014 2013 Cash $ 16.9 $ 16.6 Restricted cash 15.6 6.9 Accounts receivable, net 130.3 174.9 Inventories 52.9 55.6 Other current assets 74.9 67.0 Goodwill 355.1 355.1 PP&E and other non-current assets 3,146.0 3,039.2 Total Assets $ 3,791.8
Slide 39: Effective Tax Reconciliation
Effective Tax Reconciliation Three Months Ended Six Months Ended (in millions) June 30, June 30, 2014 2013 2014 2013 Income (Loss) Before Income Taxes $9.0 $16.4 $62.5 $59.4 Income tax calculated at 35% federal statutory rate 3.1 5.8 21.9 20.8 Permanent or flow through adjustments: State income, net
Slide 40: NorthWestern Energy Profile
NorthWestern Energy Profile Rate Base as of 12/31/2013 TICKER: NWE Rate Base Estimated Rate Base Authorized Overall Authorized Authorized Implementation (in millions) (in millions) Rate of Return on Equity Stock Price $52.19 Jurisdiction and Service Date (1) (2) Return Equity Level Outstanding Share
Slide 41: 2013 System Statistics
2013 System Statistics Energy Supply Transmission Distribution Electric (MW) MT SD Total 2013 Tx for Others MT SD Total Demand MT SD / NE (1) Total Base load coal 222 254 476 Electric (GWh) 10,300 100 10,400 Daily MWs 750 179 929 Wind 40 40 Natural Gas (Bcf) 22.8 - 22.8 Peak MWs 1,730 326 Other reso
Slide 42: Well Rounded Board of Directors
Well Rounded Board of Directors From the left: Dana J. Dykhouse – Chief Executive Officer of First PREMIER Bank. Director since 2009 Dorothy M. Bradley – Retired District Court Administrator for the 18th Judicial Court of Montana. Director since 2009 Denton Louis Peoples – Retired CEO and Vice Chair
Slide 43: Strong Executive Team
Strong Executive Team From the left: Michael R. Cashell – VP of Transmission. 27 years utility industry experience; current position since 2011 Curtis T. Pohl – VP of Distribution. 27 years utility industry experience; current position since 2003 Patrick R. Corcoran – VP of Government and Regulatory
Slide 44: Our Commissioners
Our Commissioners Montana Public Service Commission Commissioners are elected in statewide elections from each of five districts. Chairperson is elected by fellow Commissioners. Commissioner term is 4 years, Chairperson term is 2 years. Began Term Name Party Serving Ends Kirk Bushman R Jan-13 Jan-17
Slide 45: FERC's April 17, 2014 Order
FERC’s April 17, 2014 Order Relying on the regulatory process to provide an equitable outcome should be as American as…. apple pie. 45
Slide 46: The Back Story on DGGS
The Back Story on DGGS Background •NorthWestern Energy operates a transmission system and balancing authority within Montana Project Timeline: and is charged with the responsibility of providing safe and reliable electric service to all of its customers. This includes retail and wholesale customers.
Slide 47: The Back Story on DGGS (continued)
The Back Story on DGGS (continued) Support for DGGS (continued) • On April 29, 2010, NorthWestern made a filing with FERC proposing to collect costs associated with DGGS under the same cost allocation methodology and for the same magnitude of Regulating Resource as had been previously approved by FE
Slide 48: Non-GAAP Financial Measures
Non-GAAP Financial Measures Use of Non-GAAP Financial Measures - Free Cash Flow - 2009 to 2013 (in millions) 2009 2010 2011 2012 2013 Cash flow from operations $ 116.8 $ 218.9 $ 233.8 $ 251.2 $ 193.7 The data presented above includes financial information prepared in accordance with Adjustments * 88
Slide 49: Upetivering a
Upetivering a bright future NorthWestern Energy
NorthWestern Energy — Baird Utility Corporate Access Day 2014 on 6ix