NorthWestern Energy Group, Inc. · NASDAQ:NWE

NorthWestern Energy — Investor Presentation (September 2016)

49 slides from NorthWestern Energy's investor presentation, Sep 8, 2016

  1. Slide 1: Investor Update September 2016

    Artist – Monte Dolack Black Eagle dam Madison – Missouri RiverRiver – Montana at Three Forks, MT Investor Update September 2016 8-K on September 8, 2016

  2. 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

  3. 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

  4. 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

  5. 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

  6. Slide 6: NorthWestern Energy Profile

    NorthWestern Energy Profile Financial and Company Statistics 6

  7. 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

  8. 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

  9. Slide 9: 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

  10. 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

  11. Slide 11: 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), 11 OGE (OGE Energy), OTTR (Otter Tail Power), PNM (PNM Resources), POR (Portland Electric),, VVC (Vectren), WR (We

  12. Slide 12: 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

  13. Slide 13: Balance Sheet Strength and Liquidity

    Balance Sheet Strength and Liquidity 13

  14. Slide 14: 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

  15. Slide 15: 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

  16. Slide 16: 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

  17. Slide 17: 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

  18. 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

  19. Slide 19: Capital Spending Forecast

    Capital Spending Forecast .0M * Current estimated cumulative capital spending for 2016 through 2020 is $1.66 billion. This reflects a $187 million increase from the capital plan included in our 2015 10-K; approximately $122 million increase for internal combustion (IC) units in Montana and $65 milli

  20. Slide 20: 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

  21. Slide 21: 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

  22. Slide 22: 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

  23. Slide 23: Regulatory Update

    Regulatory Update Regulatory Item Current / Anticipated Action FERC / DGGS: April 2014 order regarding cost allocation at DGGS FERC denied our request for rehearing and required us to make between retail and wholesale customers. refunds. Refunds were made in June 2016. Also in June 2016, we filed a

  24. Slide 24: 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

  25. Slide 25: Conclusion

    Conclusion Pure Electric and Gas Utility Best Practices Solid Utility Corporate Foundation Governance Attractive Strong Future Earnings and Growth Cash Flows Prospects 25

  26. Slide 26: Appendix

    Appendix 26

  27. Slide 27: Summary Financial Results (Second Quarter)

    Summary Financial Results (Second Quarter) 27

  28. Slide 28: Gross Margin (Second Quarter)

    Gross Margin (Second Quarter) (dollars in millions) Three Months Ended June 30, 2016 2015 Variance Electric $ 176.2 $ 155.5 $ 20.7 13.3% Natural Gas 35.2 35.6 (0.4) (1.1%) Gross Margin $ 211.4 $ 191.1 $ 20.3 10.6% Increase in gross margin due to the following factors: $ 12.6 Lost revenue adjustment

  29. Slide 29: Weather (Second Quarter)

    Weather (Second Quarter) The tables on the top represent the variances for the quarter from historical average and prior year. The 2nd quarter is Heating Degree Days as Compared to Historical Average primarily a heating degree period in our service territory – 25.0% 7.1% 38.3% 2nd quarter typically

  30. Slide 30: Operating Expenses (Second Quarter)

    Operating Expenses (Second Quarter) (dollars in millions) Three Months Ended June 30, 2016 2015 Variance Operating, general & admin. $ 72.6 $ 61.7 $ 10.9 17.7% Property and other taxes 35.2 32.5 2.7 8.3% Depreciation and depletion 39.9 35.7 4.2 11.8% Operating Expenses $ 147.7 $ 129.9 $ 17.8 13.7% I

  31. Slide 31: Operating to Net Income (Second Quarter)

    Operating to Net Income (Second Quarter) (dollars in millions) Three Months Ended June 30, 2016 2015 Variance Operating Income $ 63.7 $ 61.1 $ 2.6 4.3% Interest Expense (26.4) (22.9) (3.5) 15.3% Other Income 1.2 1.0 0.2 20.0% Income Before Taxes 38.5 39.2 (0.7) (1.8%) Income Tax (Expense)/Benefit (2

  32. Slide 32: Balance Sheet

    Balance Sheet (dollars in millions) As of June 30, As of December 31, 2016 2015 Cash $ 9.0 $ 12.0 Restricted cash 6.6 66 Accounts receivable, net 115.8 154.4 Inventories 49.9 53.5 Other current assets 56.7 60.2 Goodwill 357.6 357.6 PP&E and other non-current assets 4,712.0 4,620.4 Total Assets $ 5,3

  33. Slide 33: Cash Flow

    Cash Flow Changes in working capital is largely attributed to the $30.8 million* refund to customers in June 2016 associated with the DGGS/FERC ruling. * $27.3 million of deferred revenues plus accrued interest of $3.5 million. 33

  34. Slide 34: Income Tax Reconciliation (Second Quarter)

    Income Tax Reconciliation (Second Quarter) Even with approximately the same pre-tax income, our income taxes are considerably lower in second quarter 2016 versus the prior year largely due to higher flow through repairs deductions, higher production tax credits related to Beethoven wind farm and a 3

  35. Slide 35: 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 35 were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or calculat

  36. Slide 36: Summary Financial Results (YTD thru Qtr 2)

    Summary Financial Results (YTD thru Qtr 2) 36

  37. Slide 37: Weather (YTD thru Qtr 2)

    Weather (YTD thru Qtr 2) Average Temperature Ranks (last 122 years) Mean Temperature from Normal For the months January through June, the 2016 period was the 2nd warmest period in Montana, the 5th 37 warmest in South Dakota and the 5th warmest in Nebraska over the last 122 years.

  38. Slide 38: 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 38 were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or calculat

  39. Slide 39: 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 substitute for 39 financial results and measures determined or calculated in accordance w

  40. Slide 40: 2015 to 2016 Reconciliation (2nd Quarter & YTD)

    2015 to 2016 Reconciliation (2nd Quarter & YTD) Three Months Ended Six Months Ended June 30 June 30 Pre-tax Net EPS Pre-tax Net EPS (1) (1) ($millions, except EPS) Incom e Incom e Diluted Incom e Incom e Diluted 2015 reported $39.2 $31.0 $ 0.65 $100.6 $82.4 $ 1.74 Gross Margin Lost revenue adjustmen

  41. Slide 41: 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

  42. Slide 42: 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), Audit • CEO and President • Director since • Independent • Director since November 1, 2004 • Director since

  43. Slide 43: 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 2008 Regulatory Affairs • Current position since 2015 • Current position since 2001 Brian B. Bir

  44. 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 2years. Non Began Term Name Party Serving Ends Kirk Bushman R Jan-13 Jan

  45. 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

  46. Slide 46: 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

  47. Slide 47: DGGS Update – Denied Rehearing Request

    DGGS Update – Denied Rehearing Request 47 Note: Please see Regulatory Matters footnote and Risk Factors section of our recent Form 10-K and Form 10-Q for additional disclosures.

  48. Slide 48: 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

  49. Slide 49: Upetivering a

    Upetivering a bright future NorthWestern Energy

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