Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — 2016 AGA Financial Forum
47 slides from Northwestern Energy's conference presentation, May 13, 2016
Slide 1: 2016 AGA Financial Forum
Madison River at Three Forks, MT Artist – Monte Dolack Black Eagle dam – Missouri River – Montana 8-K on May 16, 2016 2016 AGA Financial Forum
Slide 2: Forward Looking Statements
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
Slide 3: About NorthWestern
About NorthWestern 3 Montana Operations Electric 359,000 customers 24,350 miles – transmission & distribution lines 851 MW nameplate owned power generation Natural Gas 191,500 customers 7,200 miles of transmission and distribution pipeline 18 Bcf of gas storage capacity Owns 66 Bcf of proven natural
Slide 4: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term 4 • 100% Regulated electric & natural gas utility business • 100 year history of competitive customer rates, system reliability and customer satisfaction • Solid economic indicators in service territory • A diverse electric supply portfolio that is approximately
Slide 5: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 5 Gross Margin in 2015: Electric: $663M Natural Gas: $178M Gross Margin in 2015: Montana: $729M South Dakota: $102M Nebraska: $ 10M Average Customers in 2015: Residential: 579k Commercial: 111k Industrial: 7k NorthWestern’s ‘80/20’ rules: Approximately 80% Elec
Slide 6: NorthWestern Energy Profile
NorthWestern Energy Profile 6 Financial and Company Statistics See “Non-GAAP Financial Measure” slide in appendix for Net Debt and EBITDA reconciliation
Slide 7: Solid Economic Indicators
Solid Economic Indicators 7 • 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
Slide 8: Strong Utility Foundation
Strong Utility Foundation 8 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 Customer service satisfaction scores in line or better than survey average (JD Powers) Re
Slide 9: Track Record of Delivering Results
Track Record of Delivering Results 9 Notes: - ROE in 2011, 2012 , 2013, 2014 & 2015 on a Non-GAAP Adjusted basis, would be 10.5%, 9.8%, 9.6% ,9.4% & 9.9% respectively. - 2016 ROAE and 2016 Dividend payout ratio estimate based on midpoint of our updated guidance range of $3.20-$3.35. - Details regard
Slide 10: Investment for Our Customers' Benefit
Investment for Our Customers’ Benefit 10 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
Slide 11: Total Shareholder Return
Total Shareholder Return 11 • 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), OGE (OGE Energy), OTTR (Otter Tail Power), PNM (PNM Resources), POR (Portland Electric),, VVC (Vectren), WR (We
Slide 12: Strong Cash Flows
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 Flow per year. With the addition of production
Slide 13: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity 13
Slide 14: 2016 Updated Earnings Guidance
2016 Updated Earnings Guidance 14 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 potential additional impact a
Slide 15: The Hydro Facilities
The Hydro Facilities 15 Overview of Hydro Facilities Black Eagle 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
Slide 16: South Dakota Electric Operations
16 South Dakota Electric Operations The owned and rate-based cost of energy from the Beethoven wind project over the next 20 years is expected to be $44 million ($25 million net present value) less than the PPA alternative, thus benefitting our customers’ bills over the long-term. Beethoven Wind Pro
Slide 17: Infrastructure Projects
Infrastructure Projects 17 • 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 prima
Slide 18: Capital Spending Forecast
Capital Spending Forecast 18 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 million
Slide 19: Montana 2015 Electric Supply Resource Plan
Montana 2015 Electric Supply Resource Plan 19 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
Slide 20: Montana 2015 Electric Supply Resource Plan
Montana 2015 Electric Supply Resource Plan 20 Spending on the generation assets will be subject to the development of a plan for clear regulatory recovery. * Assumes no retirements and no additions. ** Montana supply plan would add 689MW of capacity and require approximately $1.3 billion of investme
Slide 21: Natural Gas Reserves Opportunity
Owned Owned Target Total Annual Need Natural Gas Reserves Opportunity 21 As we continue to add to our natural gas reserves portfolio, we anticipate a reduction in supply cost volatility for our customers. As a result of the October 2015 natural gas tracker order, we are required to make a filing pri
Slide 22: Highly Renewable Supply Portfolio
22 Highly Renewable Supply Portfolio Based upon 2015 delivered electric portfolio, approximately 54% of our total company owned and contracted supply is renewable or supports renewables. * Wind Owned delivered in 2015 includes a partial year of production from the Beethoven wind farm, which was acqu
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. * lbs CO2 per MWH produced CO2 Intensity* 37%
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
25 Regulatory Update Regulatory Item Current / Anticipated Action FERC April 2014 order regarding cost allocation at DGGS between retail and wholesale customers. May 10, 2016 we received denial of rehearing request that was filed in May 2014. We will be appealing the decision to the United States Co
Slide 26: Conclusion
Conclusion 26 Pure Electric and Gas Utility Solid Utility Foundation Strong Earnings and Cash Flows Attractive Future Growth Prospects Best Practices Corporate Governance
Slide 27: Appendix
Appendix 27
Slide 28: Summary Financial Results (First Quarter)
Summary Financial Results (First Quarter) 28
Slide 29: Gross Margin (First Quarter)
29 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 ele
Slide 30: Weather (First Quarter)
Weather (First Quarter) 30 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. Source: NOAA National Centers for Environmental I
Slide 31: Operating Expenses (First Quarter)
Operating Expenses (First Quarter) 31 Increase in operating expenses due mainly to the following factors: $1.2 million decrease in OG&A $ (5.6) Hydro operations - Kerr conveyance $ 3.1 Non-employee directors deferred compensation $ 0.9 Insurance reserves $ 0.4 Other $2.6 million increase in property
Slide 32: Operating to Net Income (First Quarter)
Operating to Net Income (First Quarter) 32 $1.4 million increase in interest expenses was primarily due to increased debt outstanding associated with the Beethoven wind project acquisition and lower capitalization of allowance for funds used during construction (AFUDC). $2.5 million increase in othe
Slide 33: Balance Sheet
Balance Sheet (dollars in millions) As of March 31, As of December 31, 2016 $ $ 12.0 Cash Restricted cash Accounts receivable, net Inventories Other current assets Goodwill PP&E and other non-current assets Total Assets Payables Short-term borrowings (Other current liabilities Long-term debt & capit
Slide 34: Cash Flow
Cash Flow 34 $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.
Slide 35: Income Tax Reconciliation (First Quarter)
Income Tax Reconciliation (First Quarter) 35 Income tax expense was $7.5 million lower primarily due to lower pretax income.
Slide 36: Non GAAP Adjusted Earnings (First Quarter '16 vs '15)
Non GAAP Adjusted Earnings (First Quarter ‘16 vs ’15) 36 The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determin
Slide 37: Non-GAAP Adjusted EPS
Non-GAAP Adjusted EPS 37 The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or calculated in accordance w
Slide 38: 2015 to 2016 Reconciliation (First Quarter)
38 2015 to 2016 Reconciliation (First Quarter) Three Months Ended March 31 Pre-tax Net EPS ($millions, except EPS) Income Income (1) 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 39 Big Stone Power Plant Neal Power Plant
Slide 40: EPA's Clean Power Plan (CPP)
40 EPA’s Clean Power Plan (CPP) The February 9th Supreme Court 5-4 vote to stay the EPA CPP rules • We will be working with state agencies and other stakeholders to evaluate the implications. • We hope the EPA takes this opportunity to address Montana’s serious concerns with the 47% statewide reduct
Slide 41: Meeting Montana Customer Demands
- 100,000 200,000 300,000 400,000 Hydro Contracted Owned Generation Light Load Demand Light Load Hours (MWh's) MW h's - 100,000 200,000 300,000 4 , 500,000 Hydro Contracted Owned Generation Heavy Load Demand Heavy Load Hours (MWh's) MW h's Meeting Montana Customer Demands 41 We expect to be able to
Slide 42: 2015 System Statistics
Owned Energy Supply Transmission Distribution 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 1,790 306 2,096 Hydro 442 - 442 An
Slide 43: Experienced & Engaged Board of Directors
Experienced & Engaged Board of Directors 43 Dr. E. Linn Draper Jr. • Chairman of the Board • Independent • Director since November 1, 2004 Stephan P. Adik • Committees: Audit (chair), Human Resources • Independent • Director since November 1, 2004 Dorothy M. Bradley • Committees: Human Resources, Go
Slide 44: Strong Executive Team
Strong Executive Team 44 Robert C. Rowe • President and Chief Executive Officer • Current position since 2008 Brian B. Bird • Vice President and Chief Financial Officer • Current position since 2003 Michael R. Cashell • Vice President - Transmission • Current Position since 2011 Patrick R. Corcoran
Slide 45: Our Commissioners
Our Commissioners 45 Name Party Began Serving Term Ends Kirk Bushman R Jan-13 Jan-17 Travis Kavulla R Jan-11 Jan-19 Roger Koopman R Jan-13 Jan-17 Brad Johnson (Chairman) R Jan-15 Jan-19 Bob Lake R Jan-13 Jan-17 Commissioners are elected in statewide elections from each of five districts. Chairperson
Slide 46: Non-GAAP Financial Measures
Non-GAAP Financial Measures 46 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
Slide 47: Upelivering a
Upelivering a bright future