NorthWestern Energy Group, Inc. · NASDAQ:NWE
NorthWestern Energy — Williams Capital Utility Seminar 2014
50 slides from NorthWestern Energy's conference presentation, Mar 20, 2014
Slide 1: Williams Capital Utility Seminar
Williams Capital Utility Seminar | March 20, 2014
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS During the course of this presentation, there will be forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future business and financial
Slide 3: About NorthWestern: Vision, Mission, Values
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: 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 $43.32 Jurisdiction and Service Date (1) (2) Return Equity Level Outstanding Share
Slide 5: 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 6: 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 7: Solid Economic Indicators
SOLID ECONOMIC INDICATORS Unemployment Rate Write-Off to Revenue Ratio (as reported in December each year) US National Average Montana 1.00% South Dakota Nebraska 0.80% 12% 10% 8% 0.60% 6% 0.40% 4% 2% 0.20% 0% 0.25% 0.30% 0.25% 0.29% 0.26% 0.21% 0.22% 2009 2010 2011 2012 2013 0.00% Source: US Depart
Slide 8: 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 9: 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 10: 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 11: 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 12: 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 system to provide safe, reliable, Enterprise Value Market Cap $4,000 environmentally responsible and cost-effective $3,500 service for our customers will pr
Slide 13: 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 14: 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 15: 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 16: Net Investment in Existing Business
NET INVESTMENT IN EXISTING BUSINESS $250 Maintenance Capex vs. Depreciation $200 $150 $100 ($millions) $50 $0 ($50) ($100) ($150) 2009 2010 2011 2012 2013 Distribution System Infrastructure Project (DSIP) Capital Maintenance capex Depreciation Cumulative capex in excess of depreciation Maintenance c
Slide 17: Investment Opportunity Outlook
INVESTMENT OPPORTUNITY OUTLOOK Energy Supply – Pending hydro transaction – Big Stone pollution control – Other vertical integration opportunities for Montana natural gas reserves Transmission – Network upgrades – Jack Rabbit - Big Sky 161kV line – Carbon - Stillwater 100kV Distribution – Distr
Slide 18: Investment Project Summary
INVESTMENT PROJECT SUMMARY ($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 $40 $95 to $110 SDPUC SD - Neal pollution control equipment High
Slide 19: Montana Baseload Electric Opportunity
MONTANA BASELOAD ELECTRIC OPPORTUNITY 140.0% Electricity - Percentage of Owned Resources for Retail Use 120.0% 100.0% Peer Average 80.0% 60.0% 99% 40.0% 20.0% 44% 31% 0.0% WR GXP EE CNL UNS NWE IDA EDE VVC ALE AVA UIL MGEE PNM BKH POR NWE NWE SD MT Source: 2012 FERC Form 1 - Sources and Disposition
Slide 20: Montana Hydro Acquisition
MONTANA HYDRO ACQUISITION • Announced, in September 2013, the acquisition of eleven baseload hydroelectric generating facilities representing 633 megawatts of capacity and one storage reservoir from PPL Montana • These assets are consistent with our vision of providing safe and reliable energy for o
Slide 21: 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 22: Hydro - Owned & Contracted Resources
HYDRO – OWNED & CONTRACTED RESOURCES Montana Annual Production NorthWestern Owned Facilities (Excludes Kerr Dam1) 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 Flath
Slide 23: 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 off-peak need but we will need additional resource to
Slide 24: Meeting Customer Demands
MEETING CUSTOMER DEMANDS We expect to be able to provide nearly all the power during the light load periods with some flexibility to use market purchases or other resources to meet demand during heavy load periods. Light Load hours 500,000 400,000 Conveyance of Kerr Dam to CSKT MWhs 300,000 200,000
Slide 25: Hydro - Montana Generation Profile
HYDRO - MONTANA GENERATION PROFILE Owned Resources for Retail Use as 12/31/2012 (Percentage by MWh) 140% 93% Peer Average 120% 100% 127% 122% 120% 80% 105% 102% 98% 97% 91% 60% 84% 78% 77% 40% 64% 60% 60% 53% 20% 44% 0% WR GXP EE CNL UNS IDA EDE VVC ALE AVA UIL MGEE PNM BKH POR NWE Owned Resources -
Slide 26: Hydro - Financing Strategy
HYDRO - FINANCING STRATEGY • Financing Plans – Plan to close into permanent financing up to $500 million of debt, up to $400 million of equity, and up to $50 million of free cash flows. – If capital market access is limited we have the option of closing into the $900 million committed Bridge Facilit
Slide 27: Hydro - Process and Timeline
HYDRO – PROCESS AND TIMELINE • Transaction announced on September 26, 2013 • Pre-filing informational meeting with the Montana PSC on October 18, 2013 • Bridge facility – entered into a $900 million 364-day senior bridge credit facility on November 12, 2013 • Filed Application for Approval to Purcha
Slide 28: 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 29: 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 30: 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% (3-4 Bcf of natural gas annually)
Slide 31: 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 32: 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 33: 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 34: Appendix
r APPENDIX North ort Weent 34 Delivering « Bright Future
Slide 35: 2012 and 2013 Adjusted EPS Schedule
2012 AND 2013 ADJUSTED EPS SCHEDULE Q1 Q2 Q3 Q4 2013 2013 Reported GAAP diluted EPS $1.01 $0.37 $0.40 $0.68 $2.46 Non-GAAP Adjustments: Weather (0.02) (0.02) (0.01) $ (0.05) Hydro Transaction related legal and professional fees 0.05 0.06 $ 0.11 DSM lost revenue recovery - portion related to 2012 (0.
Slide 36: 2014 Earnings Guidance
2014 EARNINGS GUIDANCE 2014 broad earnings drivers 2014 guidance affirmed Bridge 2013 Reported GAAP $ 2.46 2014 guidance range of $2.60-$2.75 and 2013 Non-GAAP adjustments: a midpoint of $2.68 based upon, but not Weather (favorable) $ (0.05) limited to, the following major Hydro Transaction professi
Slide 37: Consolidated Statement of Income
CONSOLIDATED STATEMENT OF INCOME Three Months Ended Twelve Months Ended (in millions, except per share) December 31, December 31, 2013 2012 2013 2012 Operating Revenues $319.1 $280.8 $1,154.5 $1,070.3 Cost of Sales (Gain on CELP artibration decision) (47.9) ($47.9) Cost of Sales (Other) 136.1 115.4
Slide 38: 12 Month Earnings Reconciliation
12 MONTH EARNINGS RECONCILIATION NORTHWESTERN CORPORATION Twelve Months Ended December 31, 2013 ($millions, except EPS) Other permanent or flow through adjustments, Plant and depreciation of flow through items Operating expenses recovered in trackers Operating expenses recovered in trackers Gain on
Slide 39: Consolidated Statement of Cash Flows
CONSOLIDATED STATEMENT OF CASH FLOWS Twelve Months Ending December 31, (in millions) 2013 2012 This $57.5 million decrease in operating cash flows is primarily Operating Activities due to a decrease in collection Net Income $ 94.0 $ 98.4 of receivables from customers of Non-Cash adjustments to net i
Slide 40: Consolidated Balance Sheet
CONSOLIDATED BALANCE SHEET (in millions) As of December 31, 2013 2012 Cash $ 16.6 $ 9.8 Restricted cash 6.9 6.7 Accounts receivable, net 174.9 143.7 Inventories 55.6 54.2 Other current assets 67.0 88.8 Goodwill 355.1 355.1 PP&E and other non-current assets 3,039.2 2,827.3 Total Assets $ 3,715.3 $ 3,
Slide 41: Effective Tax Rate Reconciliation
EFFECTIVE TAX RATE RECONCILIATION Twelve Months Ended (in millions) December 31, 2013 2012 Variance Income Before Income Taxes $108.3 $116.5 ($8.2) Income tax calculated at 35% federal statutory rate 37.9 40.8 (2.9) Permanent or flow through adjustments: State income, net of federal provisions (3.1)
Slide 42: 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 43: 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 44: Well Rounded Board of Directors
WELL ROUNDED BOARD OF DIRECTORS E. Linn Draper Jr. - Retired Chairman, President and Chief Executive Officer of American Electric Power Co., Inc. Director since 2004 Stephen P. Adik - Retired Vice Chairman of NiSource, Inc. Director since 2004 Dorothy M. Bradley - Retired District Court Administrato
Slide 45: Strong Executive Team
STRONG EXECUTIVE TEAM Robert C. Rowe - President and CEO. 21 years of utility and regulatory experience (including 12 years on the Montana Public Service Commission); current position since 2008 Brian B. Bird - VP - CFO. 28 years financial management experience with energy and other large industrial
Slide 46: 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 47: FERC's ALJ Ruling - We Got the Crust
FERC’s ALJ RULING – WE GOT THE CRUST Relying on the regulatory process to provide an equitable outcome should be as American as…. apple pie. NorthWestern entered the construction of Dave Gates Generating Station with full confidence our investors would be made whole. FERC 20% MPSC FERC Total 15% Ret
Slide 48: 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 49: 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 50: Delivering a Bright Future
Upetivering a bright future NorthWestern Energy
NorthWestern Energy Group — Williams Capital Utility Seminar 2014 on 6ix