NorthWestern Energy Group, Inc. · NASDAQ:NWE
NorthWestern Energy — EEI Financial Conference 2016
50 slides from NorthWestern Energy's conference presentation, Nov 4, 2016
Slide 1: EEI Financial Conference November 2016
Artist – Monte Dolack Black Eagle dam Madison – Missouri RiverRiver – Montana at Three Forks, MT EEI Financial Conference November 2016 8-K on November 4, 2016
Slide 2: Forward Looking Statements
Forward Looking Statements Company Information NorthWestern Corporation Forward Looking Statements 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” Corporate Support Office pr
Slide 3: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term • 100% Regulated electric & natural gas utility business Pure Electric • 100 year history of competitive customer rates, system reliability and customer satisfaction & Gas Utility • Solid economic indicators in service territory • A diverse electric supply portfo
Slide 4: About NorthWestern
About NorthWestern South Dakota Operations Electric 62,800 customers 3,550 miles – transmission & distribution lines 440 MW nameplate owned power generation Natural Gas 45,700 customers 1,625 miles of transmission and distribution pipeline Montana Operations Beethoven Electric 359,000 customers 24,3
Slide 5: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility Gross Margin in 2015: Gross Margin in 2015: Electric: $663M Montana: $729M Natural Gas: $178M South Dakota: $102M Nebraska: $ 10M Above data reflects full year 2015 results. Jurisdiction and service type based upon gross margin contribution. Average Customers i
Slide 6: NorthWestern Energy Profile
NorthWestern Energy Profile Financial and Company Statistics 6
Slide 7: Solid Economic Indicators
Solid Economic Indicators • Unemployment rates in all three of our states are meaningfully below National Average. • Customer growth rates historically exceed National Averages. Source: NorthWestern customer growth - 2008-2015 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2/1
Slide 8: Strong Utility Foundation
Strong Utility Foundation Electric source: Edison Electric Institute Typical Bills and Average Rates Report, 1/1/16 Natural gas source: US EIA - Monthly residential supply and delivery rates as of 1/29/16 System Average Interruption Duration Index (SAIDI) NWE versus EEI System Reliability Quartiles
Slide 9: 2016 Earnings Guidance
2016 Earnings Guidance $2.60 - $3.20-$3.35 $2.75 NorthWestern reaffirms our full-year 2016 adjusted (Non-GAAP) guidance range of $3.20 - $3.35 per diluted share, based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service
Slide 10: Investment for Our Customers’ Benefit
Investment for Our Customers’ Benefit Over the past 7 years we have been reintegrating our Montana energy supply portfolio and making additional investments across our entire service territory to enhance system safety, reliability and capacity. We have made these enhancements with minimal impact to
Slide 11: Track Record of Delivering Results
Track Record of Delivering Results Return on Equity within 9.5% - 11.0% band over the last 5 years. Annual dividend increases since emergence in 2004. 5 Year (2011-2015) Avg. Return on Equity: 10.4% 5 Year (2011-2015) CAGR Dividend Growth: 7.5% Current Dividend Yield Approximately 3.5% Notes: - ROE
Slide 12: Total Shareholder Return
Total Shareholder Return • 13 member peer group: ALE (Allete), AVA (Avista), BKH (Black Hills), EE (El Paso Electric), GXP (Great Plains), IDA (IDA Corp), MGEE (Madison Gas & Electric), 12 OGE (OGE Energy), OTTR (Otter Tail Power), PNM (PNM Resources), POR (Portland Electric),, VVC (Vectren), WR (We
Slide 13: Strong Cash Flows
Strong Cash Flows Components of Free Cash Flow While maintenance capex and total dividend payments have continued to grow since 2011 (16.6% and 14.8% CAGR respectively), Cash Flow from Operations has continued to outpace maintenance capex and averaged approximately $38 million of positive Free Cash
Slide 14: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity 14
Slide 15: 2016 to 2017 EPS & Dividend Bridge
2016 to 2017 EPS & Dividend Bridge Preliminary 2017 ESTIMATES Basic assumptions include, but are not limited to: • Normal weather in our electric and natural gas service territories; • A consolidated effective income tax rate of approximately 7% - 11% of pre-tax income; and • Diluted average shares
Slide 16: Regulatory Update
Regulatory Update Regulatory Item Current / Anticipated Action FERC / DGGS: April 2014 order regarding FERC denied our request for rehearing and required us to make refunds. Refunds cost allocation at DGGS between retail and were made in June 2016. Also in June 2016, we filed a petition for review w
Slide 17: Highly Renewable Supply Portfolio
Highly Renewable Supply Portfolio * Wind Owned delivered in 2015 includes a partial year of production from the Beethoven wind farm, which was acquired on September 25, 2015. Based upon 2015 delivered electric portfolio, approximately 54% of our total company owned and contracted supply is renewable
Slide 18: Infrastructure Projects
Infrastructure Projects • In Montana, our Distribution System Infrastructure Project (DSIP) and Transmission System Infrastructure Project (TSIP), both of which are currently in process, are to maintain a safe and reliable electric and natural gas distribution and transmission system. – The primary
Slide 19: Capital Spending Forecast
Capital Spending Forecast Estimated capital spending of $1.66 billion over the next 5 years, including approximately $187 million to meet a shortfall in dispatchable generation capacity in Montana and South Dakota. We anticipate issuing a request for proposal (RFP) in Montana during the first quarte
Slide 20: Natural Gas Reserves Opportunity
Natural Gas Reserves Opportunity We continue to pursue opportunities to secure Total Annual Need low cost gas reserves for our customers. • Three acquisitions totaling approximately $100 million since First ~6 Bcf annual production acquired September 2010: Owned for ~$100M • 84.6 Bcf of natural gas
Slide 21: Montana 2015 Electric Supply Resource Plan
Montana 2015 Electric Supply Resource Plan The resource initiatives and actions developed in 2015 Electricity Supply Resource Procurement Plan identify the critical future needs of our portfolio, including solutions to resolve our current negative planning reserve margin. The plan identifies how to
Slide 22: Montana 2015 Electric Supply Resource Plan
Montana 2015 Electric Supply Resource Plan Current Capacity* Economically Optimal Portfolio** * Assumes no retirements and no Spending on the generation assets will be additions. subject to the development of a plan for clear regulatory recovery. ** Montana supply plan would add 689MW of capacity an
Slide 23: Conclusion
Conclusion Pure Electric and Gas Utility Best Practices Solid Utility Corporate Foundation Governance Attractive Strong Future Earnings and Growth Cash Flows Prospects 23
Slide 24: Appendix
Appendix 24
Slide 25: Summary Financial Results (Third Quarter)
Summary Financial Results (Third Quarter) 25
Slide 26: Gross Margin (Third Quarter)
Gross Margin (Third Quarter) (dollars in millions) Three Months Ended September 30, 2016 2015 Variance Electric $ 176.9 $ 172.3 $ 4.6 2.7% Natural Gas 27.9 26.8 1.1 4.1% Gross Margin $ 204.8 $ 199.1 $ 5.7 2.9% Increase in gross margin due to the following factors: $ 9.2 South Dakota electric rate in
Slide 27: Weather (Third Quarter)
Weather (Third Quarter) Average Temperature Ranks (last 122 years) Mean Temperature from Normal While near normal for the quarter, cooler than normal late summer weather in Montana 27 had an unfavorable impact, primarily to our electric volumes.
Slide 28: Operating Expenses (Third Quarter)
Operating Expenses (Third Quarter) Three Months Ended September 30, 2016 2015 Variance Operating, general & admin. $ 68.3 $ 79.3 $ (11.0) (13.9%) Property and other taxes 40.7 35.7 5.0 14.0% Depreciation and depletion 39.8 35.7 4.1 11.5% Operating Expenses $ 148.8 $ 150.7 $ (1.9) (1.3%) Decrease in
Slide 29: Operating to Net Income (Third Quarter)
Operating to Net Income (Third Quarter) Three Months Ended September 30, 2016 2015 Variance Operating Income $ 56.1 $ 48.5 $ 7.6 15.7% Interest Expense (21.0) (22.0) 1.0 (4.5%) Other (Loss)/Income (0.1) 3.8 (3.9) (102.6%) Income Before Taxes 34.9 30.2 4.7 15.6% Income Tax Benefit/(Expense) 9.7 (6.4)
Slide 30: Balance Sheet
Balance Sheet {dollars in millions) As of September 30, As of December 31, 2016 2015 Cash $ 51 $ 12.0 Restricted cash 67 6.6 Accounts receivable, net 116.8 154.4 Inventories 54.3 53.5 Other current assets 55.4 60.2 Goodwill 357.6 357.6 PP&E and other non-current assets 4798.0 4,620.4 Total Assets $
Slide 31: Cash Flow
Cash Flow The $46.5 million decrease in operating cash flows is primarily due to refunds associated with the DGGS FERC ruling and the South Dakota electric rate case of approximately $30.8 million and $7.2 million, respectively, to customers during the first nine months of 2016. * DGGS refund of $30
Slide 32: Income Tax Reconciliation (Third Quarter)
Income Tax Reconciliation (Third Quarter) The $16.1 million improvement in income taxes is primarily driven by additional flow- through repairs deductions, as a result of a tax accounting method change with the IRS related to costs to repair generation property, and higher production tax credits. Th
Slide 33: Adjusted Earnings (Third Quarter ‘16 vs ’15)
Adjusted Earnings (Third Quarter ‘16 vs ’15) The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results 33 and measures determined or cal
Slide 34: Summary Financial Results (YTD thru Qtr 3)
Summary Financial Results (YTD thru Qtr 3) 34
Slide 35: Weather (YTD thru Qtr 3)
Weather (YTD thru Qtr 3) Northwestern’s service territory is much more impacted by variances to Heating Degree Days (HDD) than Cooling Degree Days (CDD) (i.e. approximately 16x more HDD’s than CDD’s in Montana). All three of our jurisdictions have experienced 10- 35 13% fewer HDD’s in 2016 than norm
Slide 36: Non-GAAP Adjusted Earnings (‘16 vs ’15)
Non-GAAP Adjusted Earnings (‘16 vs ’15) The non-GAAP measures presented in the table above are being shown to reflect significant items that 36 were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or calculat
Slide 37: Non-GAAP Adjusted EPS
Non-GAAP Adjusted EPS The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a 37 substitute for financial results and measures determined or calculated in accordance w
Slide 38: 2015 to 2016 Reconciliation (3rd Quarter & YTD)
2015 to 2016 Reconciliation (3rd Quarter & YTD) (1) Income Tax Benefit (Expense) calculation on reconciling items assumes normal effective tax rate of 38.5% (2) These items have offsets in operating expenses or income tax expenses that result in 38 no impact to net income.
Slide 39: 2015 System Statistics
2015 System Statistics Owned Energy Supply Transmission Distribution (2) Electric (MW) MT SD Total 2015 Tx for Others MT SD Total Demand MT SD / NE Total Base load coal 222 210 432 Electric (GWh) 11,300 100 11,400 Daily MWs 750 187 937 Wind 40 80 120 Natural Gas (Bcf) 22.5 29.5 52.0 Peak MWs 1,790 3
Slide 40: Experienced & Engaged Board of Directors
Experienced & Engaged Board of Directors Dr. E. Linn Draper Jr. Dana J. Dykhouse Robert C. Rowe • Chairman of the Board • Committees: Human • Committees: None • Independent Resources (chair), • CEO and President Audit • Director since • Director since November 1, 2004 • Independent August 13, 2008 •
Slide 41: Strong Executive Team
Strong Executive Team Robert C. Rowe Patrick R. Corcoran Crystal D. Lail • President and • Vice President – • Vice President and Chief Executive Officer Government and Controller • Current position since Regulatory Affairs • Current position since 2008 • Current position since 2015 2001 Brian B. Bir
Slide 42: 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 2years. Non Began Term Name Party Serving Ends Kirk Bushman R Jan-13 Jan
Slide 43: The Hydro Facilities
The Hydro Facilities Overview of Hydro Facilities Hydro Asset Integration • Montana Asset Optimization Study: As part of reintegrating the hydro facilities into our generation portfolio, we initiated an asset optimization study to maximize the value of our diverse generation portfolio. The study was
Slide 44: South Dakota Electric Operations
South Dakota Electric Operations Beethoven Wind Project: In September 2015, we completed the purchase of the 80 MW Beethoven wind project, near Tripp, South Dakota for approximately $143 million from BayWa r.e. Wind LLC. The SDPUC granted approval of our request on placing the assets into rate base
Slide 45: EPA’s 2030 carbon target for Montana
EPA’s 2030 carbon target for Montana NWE’s CO2 intensity* decreased by approximately 37% with the addition of the hydro facilities to our Montana generation portfolio. However EPA’s Clean Power Plan targets are statewide and not utility specific targets. CO2 Intensity* 37% * lbs CO2 per MWH produced
Slide 46: Colstrip Unit 4 / Sierra Club Litigation
Colstrip Unit 4 / Sierra Club Litigation Background • On March 6, 2013, the Sierra Club and the Montana Environmental Information Center (MEIC) (both are plaintiffs) filed suit in the United States District Court for the District of Montana (court) against the six individual Owners of the Colstrip G
Slide 47: EPA’s Clean Power Plan (CPP)
EPA’s Clean Power Plan (CPP) If the CPP rules were utility specific, NorthWestern would be in Source: www.eenews.net/interactive/clean_power_plan excellent shape…. but emission targets are established at a state level. • NorthWestern’s Montana electric supply portfolio has a low carbon emissions rat
Slide 48: DGGS Update – Denied Rehearing Request
DGGS Update – Denied Rehearing Request 48 Note: Please see Regulatory Matters footnote and Risk Factors section of our recent Form 10-K and Form 10-Q for additional disclosures.
Slide 49: Non-GAAP Financial Measures
Non-GAAP Financial Measures The data presented in this presentation includes financial information prepared in accordance with GAAP, as well as other Non-GAAP financial measures such as Gross Margin (Revenues less Cost of Sales), Free Cash Flows (Cash flows from operations less maintenance capex and
Slide 50: Upetivering a
Upetivering a bright future NorthWestern Energy