Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Investor Presentation (May 2014)
49 slides from Northwestern Energy's investor presentation, May 5, 2014
Slide 1: Midwest Investor Update | May 5-7, 2014
1 Midwest Investor Update | May 5-7, 2014
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 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
Slide 4: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term 4 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 ear
Slide 5: Industry recognition and awards
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 gas companies across a range
Slide 6: Solid Economic Indicators
3.62% 3.84% 5.16% 3.98% 0% 1% 2% 3% 4% 5% 6% US National Average Montana South Dakota Nebraska Source: Economic & Social Research Institute (ESRI) via SNL Database 2-20-14 Projected Population Growth 2013-2018 (cumulative growth) Solid Economic Indicators 6 Top Left: Unemployment rate consistently b
Slide 7: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 7 The “80/20” rules of NorthWestern Gross Margin in 2013: Electric: $506M Natural Gas: $167M Other $ 2M Gross Margin in 2013: Montana: $561M South Dakota: $103M Nebraska: $ 11M Average Customers in 2013: Residential: 561k Commercial: 108k Industrial: 6k Above d
Slide 8: Strong Utility Foundation
600 700 800 2009 2010 2011 2012 2013 Ind ex Sc or e NorthWestern Energy Score JD Power 26 Combination Electric and Natural Gas Company Average JD Power - Customer Service Index Score 0 25 50 75 100 125 150 M in u te s NorthWestern 3-Year Average Customer Average Interruption Duration Index (CAIDI) 0
Slide 9: 2014 Earnings Guidance
$2.02 $2.14 $2.53 $2.66 $2.46 $- $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 $3.00 2009 2010 2011 2012 2013 2014E GAAP Diluted EPS 2014 Earnings Guidance 9 2014 guidance range of $2.60-$2.75 based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric an
Slide 10: Track Record of Delivering Results
Track Record of Delivering Results 10 Notes: - ROE in 2011, 2012 & 2013, on a Non-GAAP Adjusted basis, would be 10.5%, 9.8% & 9.7% respectively. - 2014 ROE and 2014 Dividend payout ratio estimate based on midpoint of guidance range of $2.60- $2.75. - 2011 and 2012 Dividend Payout Ratio based upon No
Slide 11: Hard Assets Providing Real Value
Hard Assets Providing Real Value 11 (Left) We believe continued investment in our system to provide safe, reliable, environmentally responsible and cost-effective service for our customers will produce additional value for our shareholders. (Below) NWE total shareholder return has outperformed our p
Slide 12: Investment for Our Customers' Benefit
$60 $70 $80 $90 $100 $110 $120 $130 2008 2009 2010 2011 2012 2013 Typical NorthWestern Electric and Natural Gas Bill (average Montana, South Dakota and Nebraska monthly residential customer bill) Electric (750 kW) Natural Gas (10 Dkt) Investment for Our Customers’ Benefit Over the past 5 years we ha
Slide 13: Strong Cash Flows
$(200) $(150) $(100) $(50) $- $50 $100 $150 $200 $250 $300 2009 2010 2011 2012 2013 Dividends Maintenance Capex CFO CFO Less CapEx & Dividends Mil lion s While maintenance capex and total dividend payments have continued to grow since 2009 (4.1% and 4.6% CAGR respectively), Cash Flow from Operations
Slide 14: Balance Sheet Strength and Liquidity
$0 $50 $100 $150 $200 $250 $300 $350 Q1 Q2 Q3 '10 Q4 Q1 Q2 Q3 '11 Q4 Q1 Q2 Q3 '12 Q4 Q1 Q2 Q3 '13 Q4 M illi on s Liquidity Actual >$100M Target Balance Sheet Strength and Liquidity 14 Annual ratio is average of each quarter end debt/cap ratio Excludes Basin Creek capital leases Goal: 50% - 55% Senio
Slide 15: Net Investment in Existing Business
Net Investment in Existing Business 15 Maintenance capital expenditures have cumulatively outpaced depreciation by $190 million over the last five years (2009 to 2013), while maintaining a positive Free Cash Flow during the same period. ($150) ($100) ($50) $0 $50 $100 $150 $200 $250 2009 2010 2011 2
Slide 16: Dave Gates Generating Station Update (DGGS)
Dave Gates Generating Station Update (DGGS) 16 • We operate a transmission system and balancing authority within Montana and are responsible for providing safe and reliable electric services to both retail and wholesale customers, or face stiff penalties for non-compliance. • DGGS was designed and c
Slide 17: Investment Project Summary
High High High High High MT - Distribution System Infrastructure Project (DSIP) MT - Natural gas reserves MT - Spion Kop - wind (40 MW) SD - Aberdeen peaking generator (60 MW) SD - Neal pollution control equipment SD - Big Stone pollution control equipment MT - pending hydro asset acquisition Invest
Slide 18: Montana Hydro Acquisition
Montana Hydro Acquisition 18 • 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 fo
Slide 19: Hydro - Supporting Our Values
Hydro - Supporting Our Values 19 Our Vision Statement: Working together to deliver safe, reliable and innovative energy solutions that create value for our customers, communities, employees and investors. The acquisition of these highly valuable assets should allow NorthWestern to further our missio
Slide 20: Hydro - Owned and Contracted Resources
Coal (Colstrip 4) 29% Hydro (Pending) 42% Hydro (QF/contracted) 1% Wind (Spion Kop) 2% Wind (QF/contracted) 11%Natural Gas 1% Thermal (QF/contracted) 13% 20 Hydro – Owned and Contracted Resources MONTANA Yellowstone River ll t r Yellowstone River ll t ll t Ye lo stone River l t r Ye lo stone River l
Slide 21: Hydro - Montana Generation Profile
Hydro - Montana Generation Profile 21 99% 31% 44% NWE SD NWE MT NWE Total 99% 63% 69% NWE SD NWE MT NWE Total This transaction will allow us to approximately double owned resources in MT and significantly reduce our reliance on third-party power purchase agreements and spot market purchases. (1) Per
Slide 22: Meeting Customer Demands
Meeting Customer Demands 22 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. The addition of the hydro generation assets into our Montana electric portfolio al
Slide 23: Hydro - A Great Fit at the Right Time
Hydro - A Great Fit at the Right Time 23 – Strong balance sheet, low interest rates and favorable utility equity valuations to finance the transaction. – Assets valuations at favorable (lower) prices as compared to buying during high commodity price periods. Thompson Falls Dam • Existing resources w
Slide 24: Hydro - Process and Timeline (Past)
• 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 Purchase and Operate the Hydro Elec
Slide 25: Hydro - Process and Timeline (Anticipated)
Hydro - Process and Timeline (Anticipated) 25 • Montana PSC hearing set for July 8, 2014 • Final day for Montana PSC to issue an order on September 16, 2014 – MPSC can extend timeline for final order if it determines that extraordinary circumstances require additional time. • On approval, we plan to
Slide 26: Big Stone and Neal Air Quality Projects
Big Stone and Neal Air Quality Projects 26 Big Stone Power Plant Neal Power Plant Big Stone Neal Location Northeast South Dakota Northwest Iowa Ownership 23.4% of 475 MW coal plant 8.7% of 644 MW coal plant Project Subject to Best Available Retrofit Technology (BART) requirements of the Regional Haz
Slide 27: Southern Bear Paw Transaction
Southern Bear Paw Transaction 27 • 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 exi
Slide 28: Natural Gas Reserves Opportunity
Natural Gas Reserves Opportunity 28 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% (or 3-4 Bcf of natural gas ann
Slide 29: Distribution System Infrastructure Project
Distribution System Infrastructure Project 29 • 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, bui
Slide 30: Capital Spending
$182 $200 $170 $156 $147 $52 $50 $50 $50 $38 $29 $- $50 $100 $150 $200 $250 $300 2014 2015 2016 2017 2018 $M illio ns Capital Spending Maintenance Capex Distribution System Infrastructure Project (DSIP) Energy Supply (primarily SD environmental projects) Capital Spending 30 DSIP – Distribution Syste
Slide 31: Conclusion
Conclusion 31 Fully- regulated utility Best practices corporate governance Strong track record of earnings and dividend growth Strong cash flows aided by Net Operating Loss (NOL) carryforwards Realistic investment opportunities to invest Free Cash Flow Aberdeen Peaker Plant Ground Breaking October 1
Slide 32: Appendix
a Appendix Northi
Slide 33: 2013 and 2014 Adjusted EPS Schedule
2013 and 2014 Adjusted EPS Schedule 33 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2014 FY 2014 Reported GAAP diluted EPS 1.17$ 1.17$ Non-GAAP Adjustments: Weather (0.05) (0.05)$ Hydro transaction (professional fees & bridge financing) 0.04 0.04$ Adjusted diluted EPS 1.16$ -$ -$ -$ 1.16$ 2013 Q1 2013 Q2 2013 Q3
Slide 34: 2014 Earnings Guidance
2014 Earnings Guidance 34 Continued investment in our system to serve our customers and communities is expected to provide a targeted 7-10% total return to our investors through a combination of earnings growth and dividend yield. 2014 guidance range of $2.60-$2.75 and a midpoint of $2.68 based upon
Slide 35: Income Statement
Income Statement 35 (in millions except EPS) 2014 2013 Variance Operating Revenues 369.7$ 313.0$ 56.7$ Cost of Sales 167.4 132.2 35.2 Gross Margin 202.3 180.8 21.5 Operating Expenses Operating, general & administrative 72.1 68.8 3.3 Property and other taxes 28.5 25.8 2.7 Depreciation 30.3 29.2 1.1 T
Slide 36: EPS Reconciliation (Qtr 2014 vs 2013)
36 EPS Reconciliation (Qtr 1 2014 vs 2013) NORTHWESTERN CORPORATION Three Months Ended March 31, 2014 ($millions, except EPS) T h re e M o n th s E n d ed , M ar ch 3 1, 2 01 3 N at ur al g as p ro du ct io n E le ct ric r et ai l v ol um es M on ta na n at ur al g as r at e in cr ea se N at ur al g
Slide 37: Cash Flow
Cash Flow 37 (in millions) 2014 2013 Operating Activities Net Income 45.6$ 37.9$ Non-Cash adjustments to net income 58.4 56.0 Changes in working capital 28.5 35.5 Other (20.3) (17.5) Cash provided by operating activities 112.2 111.9 Investing Activities PP&E additions (51.7) (38.1) Asset acquisition
Slide 38: Balance Sheet
(in millions) As of March 31, As of December 31, 2014 2013 Cash 19.5$ 16.6$ Restricted cash 12.6 6.9 Accounts receivable, net 171.2 174.9 Inventories 38.1 55.6 Other current assets 75.6 67.0 Goodwill 355.1 355.1 PP&E and other non-current assets 3,079.2 3,039.2 Total Assets 3,751.3$ 3,715.3$ Payable
Slide 39: Effective Tax Reconciliation
Effective Tax Reconciliation 39 (in millions) 2014 2013 Variance Income Before Income Taxes $53.6 $42.9 $10.7 Income tax calculated at 35% federal statutory rate 18.8 15.0 3.8 Permanent or flow through adjustments: State income, net of federal provisions 0.4 (1.4) 1.8 Flow through repairs deductions
Slide 40: NorthWestern Energy Profile
NorthWestern Energy Profile 40 TICKER: NWE Jurisdiction and Service Implementation Date Rate Base (in millions) (1) Estimated Rate Base (in millions) (2) Authorized Overall Rate of Return Authorized Return on Equity Authorized Equity Level Montana electic delivery (4) Januray 2011 632.5$ 774.5$ 7.80
Slide 41: 2013 System Statistics
2013 System Statistics 41 Note: Statistics above are as of 12/31/2013 (1) Nebraska is a natural gas only jurisdiction •MT Natural Gas reserves increased in 2013 with the addition 63 Bcf from the Bear Paw South acquisition. (1) Energy Supply Transmission Distribution Electric (MW) MT SD Total 2013 Tx
Slide 42: Well Rounded Board of Directors
Well Rounded Board of Directors 42 Members of the Board of Directors tour backstage at The Mansfield Center for the Performing Arts in Great Falls, Montana. From the left: Dana J. Dykhouse – Chief Executive Officer of First PREMIER Bank. Director since 2009 Dorothy M. Bradley – Retired District Cour
Slide 43: Strong Executive Team
Strong Executive Team 43 NorthWestern Energy’s executive officers tour backstage at The Mansfield Center for the Performing Arts in Great Falls, Montana. From the left: Michael R. Cashell – VP of Transmission. 27 years utility industry experience; current position since 2011 Curtis T. Pohl – VP of D
Slide 44: Our Commissioners
Our Commissioners 44 Name Party Began Serving Term Ends Kirk Bushman R Jan-13 Jan-17 Bill Gallagher (Chairman) R Jan-11 Jan-15 Travis Kavulla R Jan-11 Jan-15 Roger Koopman R Jan-13 Jan-17 Bob Lake R Jan-13 Jan-17 Commissioners are elected in statewide elections from each of five districts. Chairpers
Slide 45: FERC's April 17, 2014 Order
FERC’s April 17, 2014 Order 45 Relying on the regulatory process to provide an equitable outcome should be as American as…. apple pie.
Slide 46: The Back Story on DGGS
The Back Story on DGGS 46 Background •NorthWestern Energy operates a transmission system and balancing authority within Montana and is charged with the responsibility of providing safe and reliable electric service to all of its customers. This includes retail and wholesale customers. • Part of Nort
Slide 47: The Back Story on DGGS (continued)
The Back Story on DGGS (continued) 47 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
Slide 48: Non-GAAP Financial Measures
Non-GAAP Financial Measures 48 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 measur
Slide 49: Delivering a bright future
Upelivering a bright future