NorthWestern Energy Group, Inc. · NASDAQ:NWE
NorthWestern Energy — 2016 AGA Financial Forum
47 slides from NorthWestern Energy's conference presentation, May 16, 2016
Slide 1: 2016 AGA Financial Forum
Artist – Monte Dolack Black Eagle dam Madison – Missouri RiverRiver – Montana at Three Forks, MT 2016 AGA Financial Forum 8-K on May 16, 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: 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 4: 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 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 See “Non-GAAP Financial Measure” slide in appendix for Net Debt and EBITDA reconciliation
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: 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 3.3% Notes: - ROE
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: 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
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
Slide 13: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity 13
Slide 14: 2016 Updated Earnings Guidance
2016 Updated Earnings Guidance $2.60 - $3.20-$3.35 $2.75 Our updated 2016 guidance range of $3.20 - $3.35 per diluted share is based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service territories; • Excludes any potent
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
Slide 16: 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 17: 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 18: 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
Slide 19: 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 20: 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 21: 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 22: 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 23: 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 24: DGGS Update – Denied Rehearing Request
DGGS Update – Denied Rehearing Request 24 Note: Please see Regulatory Matters footnote and Risk Factors section of our recent Form 10-K and Form 10-Q for additional disclosures.
Slide 25: Regulatory Update
Regulatory Update Regulatory Item Current / Anticipated Action FERC April 2014 order regarding cost allocation at DGGS May 10, 2016 we received denial of rehearing request between retail and wholesale customers. that was filed in May 2014. We will be appealing the decision to the United States Court
Slide 26: Conclusion
Conclusion Pure Electric and Gas Utility Best Practices Solid Utility Corporate Foundation Governance Attractive Strong Future Earnings and Growth Cash Flows Prospects 26
Slide 27: Appendix
Appendix 27
Slide 28: Summary Financial Results (First Quarter)
Summary Financial Results (First Quarter) 28
Slide 29: Gross Margin (First Quarter)
Gross Margin (First Quarter) (dollars in millions) Three Months Ended March 31, 2016 2015 Variance Electric $ 157.7 $ 172.1 $ (14.4) (8.4%) Natural Gas 59.4 61.5 (2.1) (3.4%) Gross Margin $ 217.1 $ 233.6 $ (16.5) (7.1%) Decrease in gross margin due to the following factors: $ 8.6 South Dakota electr
Slide 30: Weather (First Quarter)
Weather (First Quarter) Minimum Temperature from Normal Maximum Temperature from Normal Over a 122 year history, the first three months of 2016 was the 2nd warmest period in Montana, the 3rd warmest in South Dakota and the 4th warmest in Nebraska. 30 Source: NOAA National Centers for Environmental I
Slide 31: Operating Expenses (First Quarter)
Operating Expenses (First Quarter) (dollars in millions) Three Months Ended March 31, 2016 2015 Variance Operating, general & admin. $ 79.9 $ 81.1 $ (1.2) (1.5%) Property and other taxes 35.4 32.8 2.6 7.9% Depreciation and depletion 39.9 35.8 4.1 11.5% Operating Expenses $ 155.2 $ 149.7 $ 5.5 3.7% I
Slide 32: Operating to Net Income (First Quarter)
Operating to Net Income (First Quarter) (dollars in millions) Three Months Ended March 31, 2016 2015 Variance Operating Income $ 61.9 $ 83.9 $ (22.0) (26.2%) Interest Expense (24.5) (23.1) (1.4) 6.1% Other Income 3.1 0.6 2.5 417.0% Income Before Taxes 40.5 61.4 (20.9) (33.9%) Income Tax Expense (2.5
Slide 33: Balance Sheet
33 (dollars in millions) Cash Restricted cash Accounts receivable, net Inventories Other current assets Goodwill PP&E and other non-current assets Total Assets Payables Current maturities of long-term debt & capital leases Short-term borrowings Other current liabilities Long-term debt & capital leas
Slide 34: Cash Flow
Cash Flow $15.3 million increase in cash provided by operating activities is primarily due to an $18.4 million settlement of interest rate swaps during the first quarter of 2015. 34
Slide 35: Income Tax Reconciliation (First Quarter)
Income Tax Reconciliation (First Quarter) Income tax expense was $7.5 million lower primarily due to lower pretax income. 35
Slide 36: Non GAAP Adjusted Earnings (First Quarter '16 vs '15)
Non GAAP Adjusted Earnings (First Quarter ‘16 vs ’15) The non-GAAP measures presented in the table above are being shown to reflect significant items 36 that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determin
Slide 37: Non-GAAP Adjusted EPS
Non-GAAP Adjusted EPS The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a 37 substitute for financial results and measures determined or calculated in accordance w
Slide 38: 2015 to 2016 Reconciliation (First Quarter)
2015 to 2016 Reconciliation (First Quarter) Three Months Ended March 31 Pre-tax Net EPS (1) ($millions, except EPS) Incom e Incom e Diluted 2015 reported $61.4 $51.4 $ 1.09 Gross Margin South Dakota electric rate increase 8.6 5.3 0.11 Natural gas retail volumes 0.2 0.1 - MPSC disallow ance (Colstrip
Slide 39: Big Stone and Neal Air Quality Projects
Big Stone and Neal Air Quality Projects Big Stone Power Plant Neal Power Plant 39
Slide 40: 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 41: Meeting Montana Customer Demands
Meeting Montana Customer Demands Light Load Hours (MWh's) 400,000 Conveyance of Kerr Dam to Confederated Salish and Kootenai Tribes 300,000 MWh's 200,000 100,000 - Hydro Contracted Owned Generation Light Load Demand Heavy Load Hours (MWh's) 500,000 Conveyance of Kerr Dam to Confederated Salish and K
Slide 42: 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 43: 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
Slide 44: 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
Slide 45: 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 46: Non-GAAP Financial Measures
Non-GAAP Financial Measures The data presented above includes financial information prepared in accordance with GAAP, as well as another financial measure, Gross Margin, Free Cash Flows, Net Debt and EBITDA, but is considered a “Non-GAAP financial measure.” Generally, a Non-GAAP financial measure is
Slide 47: Upetivering a
Upetivering a bright future NorthWestern Energy