Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — 48th Annual EEI Financial Conference 2013
52 slides from Northwestern Energy's conference presentation, November 2013
Slide 1: 48th Annual EEI Financial Conference
48th Annual EEI Financial Conference | Nov. 10-13, 2013 1
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
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: 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 5: NorthWestern Energy Profile
NORTHWESTERN ENERGY PROFILE Rate Base as of 12/31/2012 Estimated Authorized TICKER: NWE Implementation Rate Base (in millions) Rate Base (in millions) Overall Rate of Authorized Authorized Return on Equity Jurisdiction and Service Date (1) (2) Return Equity Level Stock Price * $47.01 South Dakota na
Slide 6: Strong & Well Rounded Management
STRONG & WELL ROUNDED MANAGEMENT EXECUTIVE TEAM President and CEO. 20-plus years of Robert C. Rowe energy, utility and regulatory experience; current position since 2008 VP - CFO. 27 years financial management experience with energy and other large Brian B. Bird industrial companies; current positio
Slide 7: 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 8: Strong Corporate Citizenship
STRONG CORPORATE CITIZENSHIP Montana Business of the Year NorthWestern Energy was recently selected as the 2012 Business of the Year by the Montana Ambassadors. The Ambassadors are a group of 120 business leaders from across Montana, the Pacific Northwest and the Bay Area of California who work to i
Slide 9: Solid Economic Indicators
SOLID ECONOMIC INDICATORS Unemployment Rate Write-Off to Revenue Ratio (as reported in August each year) 1.00% US National Average Montana South Dakota Nebraska 0.80% 12% 10% 0.60% 8% 6% 0.40% 4% 0.20% 2% 0.25% 0.30% 0.25% 0.21% 0.29% 0.21% 0% 0.00% 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011
Slide 10: A Diversified Electric and Gas Utility
A DIVERSIFIED ELECTRIC AND GAS UTILITY The “80/20” rules of NorthWestern Gross Margin in 2012: Electric: $528M Natural Gas: $146M Gross Margin in 2012 Other $ 1M Montana: $570M South Dakota: $ 95M Nebraska: $ 10M Above data reflects full year 2012 results. Jurisdiction and service type based upon gr
Slide 11: Strong Utility Foundation
STRONG UTILITY FOUNDATION System Average Interruption Customer Average Frequency Index (SAIFI) Interruption Duration Index $140 "Typical Bill" Residential Rate Comparison (CAIDI) 150 1.50 $120 National Average 125 National Average 1.25 $100 EEI – 2nd $80 1.00 100 Interruptions Quartile Minutes Perfo
Slide 12: 2013 Earnings Guidance
2013 EARNINGS GUIDANCE $3.00 Diluted Earnings Per Share In July we updated our 2013 Non-GAAP Adjusted EPS Range GAAP Diluted EPS from $2.40 - $2.55 $2.75 per diluted share to Initial Guidance Range $2.50 $2.45 - $2.60 Non-GAAP "Adjusted" EPS per diluted share with $2.25 a midpoint of $2.53. $2.00 $1
Slide 13: 2014 Earnings Assumptions
2014 EARNINGS ASSUMPTIONS 2014 Expectations/Assumptions - Bear Paw South (Devon) natural gas reserves transaction expected to add approximately $.06 to $.10 per share - Full year benefit of Montana Natural Gas rate case expected to add approximately $.08 to $.12 per share - Additional gross margin a
Slide 14: Track Record of Delivering Results
TRACK RECORD OF DELIVERING RESULTS 12.0% Return on Equity 10.0% 11.0% 11.0% 9.5% 9.6% 10.1% 8.0% $Millions 8.5% Return on Equity 6.0% steadily improved each 4.0% year from 2008 – 2012 2.0% and Dividend per Share increased each of the 0.0% 2008 2009 2010 2011 2012 2013E last 5 years. $1.60 Dividend P
Slide 15: 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 environmentally responsible and cost-effective $4,000 $3,500 service for our customers will pr
Slide 16: Investment for Our Customer's Benefit
INVESTMENT FOR OUR CUSTOMER’S BENEFIT $2,200 Rate Base and Earnings per Share $3.00 Over the past 5 years we $2,000 $2.75 have been reintegrating Rate Base - Million $1,800 $1,600 $2.50 our Montana energy EPS - Dollars $1,400 $2.25 supply portfolio and $1,200 $2.00 $1,000 invested to enhance $800 $1
Slide 17: Strong Cash Flows
STRONG CASH FLOWS $300 Components of Free Cash Flow $250 - $200 While maintenance capex and total $150 (1) dividend payments have continued to Millions $100 $50 grow over the past 5 years (6.1% and $0 2.1% CAGR respectively), Cash Flow ($50) from Operations has continued to ($100) ($150) outpace mai
Slide 18: Balance Sheet Strength and Liquidity
BALANCE SHEET STRENGTH AND LIQUIDITY Credit Ratings Senior Senior $300 Debt Maturity Schedule Secured Unsecured Commercial $250 Rating Rating Paper Outlook $200 Fitch A- BBB+ F2 Positive Watch Millions $150 Moody's A2 Baa1 Prime-2 Stable $100 S&P A- BBB A-2 Stable $50 A security rating is not a reco
Slide 19: Net Investment in Existing Business
NET INVESTMENT IN EXISTING BUSINESS $300 Maintenance Capex vs. Depreciation $250 $200 $150 ($millions) $100 $50 $0 ($50) ($100) ($150) 2008 2009 2010 2011 2012 2013E Distribution System Infrastructure Project (DSIP) Capital Maintenance capex Depreciation Cumulative capex in excess of depreciation Ma
Slide 20: Investment Opportunity Outlook
INVESTMENT OPPORTUNITY OUTLOOK Energy Supply – Pending hydro transaction – Big Stone/Neal pollution control – Other vertical integration opportunities for Montana natural gas reserves Transmission – Network upgrades – Jack Rabbit - Big Sky 161kV line – Carbon - Stillwater 100kV Distribution –
Slide 21: Investment Project Summary
INVESTMENT PROJECT SUMMARY Energy Supply Pending Montana hydro asset acquisition High Big Stone pollution control equipment High Neal pollution control equipment High South Dakota peaking generator (60 MW) In commercial operation April 2013 Spion Kop - Montana wind (40 MW) High In commercial operati
Slide 22: 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% 96% 40.0% 20.0% 44% 31% 0.0% WR GXP EE CNL UNS IDA EDE NWE SD VVC ALE AVA UIL MGEE PNM BKH POR NWE NWE MT Source: 2012 FERC Form 1 - Sources and Disposition
Slide 23: 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 24: 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 25: 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 River Clark Clark Clark ClarkFork Clark Clark Fork Fork Fork Fork Fork
Slide 26: 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 27: 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 MWhs Conveyance of Kerr Dam to CSKT 300,000 200,000
Slide 28: 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 29: Hydro - Financing Strategy
HYDRO - FINANCING STRATEGY • Financing Plans – Plan to close into permanent financing with approximately $450 – 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 commi
Slide 30: Hydro – Process and Timeline
HYDRO – PROCESS AND TIMELINE Pre-signing • NorthWestern has been actively interested in these assets for several years – Provided proposal in June 2013 for hydro assets • Valuation of the assets took into consideration various factors including: – Considered fit within the supply portfolio – Forward
Slide 31: Big Stone – Air Quality Control System
BIG STONE – AIR QUALITY CONTROL SYSTEM • Big Stone Power Plant Big Stone Power Plant – Ownership: 23.4% of 475 MW coal plant – Project: Big Stone is subject to the Best Available Retrofit Technology (BART) requirements of the Regional Haze Rule. In order to comply, we are required to install Air Qua
Slide 32: Neal - Pollution Control Equipment
NEAL - POLLUTION CONTROL EQUIPMENT Neal Power Plant • Neal 4 – Ownership: 8.7% Partner in 644 MW coal plant – Project: To comply with national ambient air quality standards and Mercury & Air Toxics Standards (MATS), we are installing a scrubber, a baghouse, activated carbon and a selective non-catal
Slide 33: Natural Gas Reserves Opportunity
NATURAL GAS RESERVES OPPORTUNITY • We continue to pursue opportunities to secure low cost gas reserves for our customers. Battle Creek ~1% Bear Paw North – Remaining 13% unfilled position (assuming successful close on Bear Paw ~8% South) to reach our targeted 50% owned supply. – Possible further opp
Slide 34: Southern Bear Paw (Devon) Transaction
SOUTHERN BEAR PAW (DEVON) TRANSACTION • Pending acquisition of Bear Paw South – Entered into an agreement in May of 2013 to purchase 64.6 Bcf proven reserves and 82% interest in Havre Pipeline Company for $70 million. – The regulatory waiver, necessary due to a previous stipulation, filed in June wi
Slide 35: Distribution Investment Outlook
DISTRIBUTION INVESTMENT OUTLOOK • 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 capacity in
Slide 36: 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 $250 acquisition, or capital related to our Gas $44 $33 Transmission Infrastructure $28 Project (
Slide 37: 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 38: Appendix
r APPENDIX NorthWesternt Energy 38 Delivering © Bright Future
Slide 39: Adjusted EPS Schedule
ADJUSTED EPS SCHEDULE Q1 Q2 Q3 Q4 2013 2013 Non- 2013 Reported GAAP diluted EPS $1.01 $0.37 $0.40 $1.78 GAAP Non-GAAP Adjustments: Adjusted EPS Weather (0.02) (0.02) $ (0.04) guidance Hydro Transaction related legal and professional fees 0.05 $ 0.05 range of $2.45 DSM lost revenue recovery - portion
Slide 40: Consolidated Statement of Income
CONSOLIDATED STATEMENT OF INCOME Three Months Ended Nine Months Ended (in millions, except per share) September 30, September 30, 2013 2012 2013 2012 Operating Revenues $262.3 $235.9 $835.5 $789.5 Cost of Sales 104.3 93.0 343.4 327.9 Gross Margin 158.0 142.9 492.1 461.6 Operating Expenses Operating,
Slide 41: Earnings Reconciliation - Three Months
3 MONTH EARNINGS RECONCILIATION NORTHWESTERN CORPORATION Three Months Ended September 30, 2013 ($millions, except EPS) Recognition of state net operating loss benefit / Nonemployee directors deferred compensation Operating expenses recovered in trackers Distribution System Infrastructure Project Flo
Slide 42: Earnings Reconciliation - Nine Months
9 MONTH EARNINGS RECONCILIATION NORTHWESTERN CORPORATION Nine Months Ended September 30, 2013 ($millions, except EPS) Recognition of state net operating loss benefit / Nonemployee directors deferred compensation Operating expenses recovered in trackers Distribution System Infrastructure Project Flow
Slide 43: Consolidated Statement of Cash Flows
CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Ending September 30, (in millions) 2013 2012 Operating Activities Net Income $67.9 $39.7 Non-Cash adjustments to net income 123.6 124.0 Changes in working capital 6.5 68.7 Other (26.7) (9.8) Cash provided by operating activities 171.3 222.6 Investing
Slide 44: Consolidated Balance Sheet
CONSOLIDATED BALANCE SHEET (in millions) Sept. 30, 2013 Dec. 31, 2012 Cash 10.9 9.8 Restricted cash 8.2 6.7 Accounts receivable, net 129.2 143.7 Inventories 62.6 54.2 Other current assets 69.7 88.8 Goodwill 355.1 355.1 PP&E and other non-current assets 2,997.9 2,827.3 Total Assets $ 3,633.7 $ 3,485.
Slide 45: Effective Tax Rate Reconciliation
EFFECTIVE TAX RATE RECONCILIATION Three Months Ended Nine Months Ended (in millions) September 30, September 30, 2013 2012 2013 2012 Income (Loss) Before Income Taxes $17.5 ($12.4) $76.9 $41.7 Income tax calculated at 35% federal statutory rate 6.1 (4.3) 26.9 14.6 Permanent or flow through adjustmen
Slide 46: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES Use of Non-GAAP Financial Measures - Free Cash Flow - 2008 to 2012 (in millions) 2008 2009 2010 2011 2012 Cash flow from operations $ 198.3 $ 116.8 $ 218.9 $ 233.8 $ 251.2 The data presented above includes financial information prepared in Adjustments * 88.4 accordance wi
Slide 47: 2012 System Statistics
2012 SYSTEM STATISTICS Energy Supply Transmission Distribution (2) Electric (MW) MT SD Total 2012 Tx for Others MT SD Total Demand MT SD / NE Total Base load coal 222 210 432 Electric (GWh) 9,600 100 9,700 Daily MWs 750 172 922 Wind 40 40 Natural Gas (Bcf) 21.0 - 21.0 Peak MWs 1,784 324 Other resour
Slide 48: Our Commissioners
OUR COMMISSIONERS Montana Public Service waa 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 Ja
Slide 49: FERC's ALJ Ruling
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 50: 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 51: 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 52: Upetivering a
Upetivering a bright future
NorthWestern Energy — 48th Annual EEI Financial Conference 2013 on 6ix