Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Intellisight Virtual Investor Conference 2020
68 slides from Northwestern Energy's conference presentation, Aug 12, 2020
Slide 1: Intellisight Virtual Investor Conference August 12, 2020
Intellisight Virtual Investor Conference August 12, 2020 Beethoven Wind Farm near Avon, South Dakota 8-K’ed on August 12, 2020 Exhibit 99.1
Slide 2: Forward Looking Statements
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 fut
Slide 3: About NorthWestern
About NorthWestern Montana Operations Electric 379,400 customers 24,781 miles – transmission & distribution lines 874 MW maximum capacity owned power generation Natural Gas 201,500 customers 6,975 miles of transmission and distribution pipeline 17.75 Bcf of gas storage capacity Own 47.2 Bcf of prove
Slide 4: NWE - An Investment for the Long Term
NWE - An Investment for the Long Term 100% pure electric & natural gas utility business with over 100 years of operating history Solid economic indicators in service territory Diverse electric supply portfolio ~58% hydro, wind & solar Black Eagle dam Pure Electric & Gas Utility Solid Utility Foundat
Slide 5: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential and 80% Montana. Nearly $3.9 billion of rate base investment to serve our customers Data as reported in our 2019 10-K (1) Gross Margin, defined as revenues less cost of sales, is a non-GA
Slide 6: Highly Carbon-Free Supply Portfolio
Highly Carbon-Free Supply Portfolio Based upon 2019 MWH’s of owned and long-term contracted resources. Approximately 58% of our total company owned and contracted supply is carbon-free. NorthWestern does not own all the renewable energy certificates (RECs) generated by contracted wind, and periodica
Slide 7: Strong Utility Foundation
Strong Utility Foundation Solid and improving JD Power Overall Customer Satisfaction Scores Residential electric and natural gas rates below national average Solid electric system reliability Low gas leaks per mile – just outside 1st quartile
Slide 8: Solid Economic Indicators
Solid Economic Indicators Customer growth rates historically exceed National Averages. Projected population growth in our service territories better than the National Average. Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2/21/
Slide 9: A History of Growth
A History of Growth 2010-2019 CAGR’s: GAAP EPS: 7.1% - Non-GAAP EPS: 5.7% - Dividend: 6.0% See appendix for “Non-GAAP Financial Measures” $2.60 - $2.75 $3.10 - $3.30 $3.20-$3.40 $3.30-$3.50
Slide 10: Track Record of Delivering Results
Track Record of Delivering Results Return on Equity on GAAP Earnings within 9.5% - 11.0% band over the last 8 years with average of 10.2%. Total Shareholder Return is better than our 12 peer average for the 1, 3 & 10 year periods but lags in the 5 year period, due in part to regulatory concerns in M
Slide 11: Investment for Our Customers' Benefit
Investment for Our Customers’ Benefit Over the past 8 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 12: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity Investment grade credit ratings, generally liquidity in excess of $100 million target, debt to cap within our targeted 50%-55% range and no long-term debt maturities until 2023. *Liquidity target increased to $200 million due to economic conditions impacted by CO
Slide 13: Earnings Growth
Earnings Growth See appendix for additional disclosures regarding “Non-GAAP Financial Measures” $2.60 - $2.75 $3.30-$3.45 See “Non-GAAP Financial Measures” slide in appendix for “Non-GAAP Adjusted EPS”. Non-GAAP Adjusted EPS Growth Averaged 5.4% from 2013 - 2019 NorthWestern is affirming its previou
Slide 14: Maintaining Capital Investment Forecast
Maintaining Capital Investment Forecast $1.8 billion of total capital investment over five years We anticipate financing this capital with a combination of cash flow from operations (aided by NOLs available into 2021), first mortgage bonds and equity issuances. Based on current expectations, any equ
Slide 15: Recent Significant Achievements
Recent Significant Achievements Strong year for safety at NorthWestern Industry Leader Accident Prevention Award from American Gas Association in 2019. Continue to be a top performer among Edison Electric Institute member companies. Record best customer satisfaction scores with JD Power & Associates
Slide 16: Looking Forward
Looking Forward Regulatory The MPSC recently approved a pilot Fixed Cost Recovery Mechanism (FCRM) effective July 1, 2020. We asked the MPSC to delay the start of the pilot for one year until July 1, 2021 due to the uncertainty created by the COVID-19 pandemic. The MPSC granted the requested one-yea
Slide 17: Environmental – Social – Governance (ESG)
Environmental – Social – Governance (ESG) Environmental Social Governance http://www.northwesternenergy.com/our-company/investor-relations/proxy-materials http://www.northwesternenergy.com/our-company/investor-relations/annual-reports Annual Report Proxy Statement http://www.northwesternenergy.com/e
Slide 18: ESG - Environmental
ESG - Environmental 58% of NorthWestern Energy’s 2019 Electric Generation Portfolio Delivered was Carbon-Free (based on megawatt hours) 57% Carbon Free Nameplate Portfolio vs 29% National Average in 2019 (based nameplate megawatts) Beethoven Wind Farm Mystic Dam Based upon 2019 MWH’s of owned and lo
Slide 19: Highlights of our Environmental Report
Highlights of our Environmental Report Energy Conservation Recycling Efforts Smart Meters Environmental Protection Programs O’Dell Creek Restoration Pallid Sturgeon Recovery Rainbow Trout Stocking – Hauser & Holter Reserves Lower Madison River Thermal Pulse Program Public Recreation Support with Mis
Slide 20: ESG - Social
ESG - Social Community Employees Customers $2.1 Billion Economic Output in 2019 ($1.88B in Montana & $268M in SD/NE) $2.1 million Donations, Sponsorships & Economic Development in 2019 112 Number of nonprofits that received grants through Employee Volunteer Program $7.3 Million Low-Income Energy Ass
Slide 21: ESG - Governance
ESG - Governance What We Do: Annual election of all directors. Majority vote plus resignation standard in uncontested elections. If a director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, the director must submit a resignation for the Board to consider. Allow shareholders owning 25 per
Slide 22: Our Carbon Reduction Vision for NorthWestern Energy in Montana
Our Carbon Reduction Vision for NorthWestern Energy in Montana 90% carbon reduction by 2045 NorthWestern Energy commits to reduce the carbon intensity of our electric energy portfolio for Montana 90% by 2045.* * As compared with our 2010 carbon intensity as a baseline Already over 60% carbon free To
Slide 23: Conclusion
Conclusion Pure Electric & Gas Utility Solid Utility Foundation Best Practices Corporate Governance Attractive Future Growth Prospects Strong Earnings & Cash Flows
Slide 24: Delivering a bright future
UBelivering a bright future
Slide 25: Maintenance capex and dividends vs. cash from operations
While maintenance capex and total dividend payments have continued to grow since 2010 (11.3% and 10.0% CAGR respectively), maintenance capex and dividend payments have slightly exceeded Cash From Operations (CFO), on average, by approximately $10 million per year. Note: 2016 CFO is less than 2015 la
Slide 26: 2019 Non-GAAP to 2020 Revised EPS Bridge
2019 Non-GAAP to 2020 Revised EPS Bridge See appendix for additional disclosures regarding “Non-GAAP Financial Measures” $2.60 - $2.75 $3.30-$3.45 Since first quarter earnings, the primary change reflected in the earnings bridge above is increased property tax expense (based on Montana Dept. of Reve
Slide 27: COVID-19: Margin Expectations
COVID-19: Margin Expectations Applying our high-level estimated impacts above to customer loads results in the following overall impact to load by class: Second quarter gross margin was generally in line with our Covid assumptions. We experienced a decline in gross margin of approximately $3 - $4 mi
Slide 28: COVID-19: Expense Expectations
COVID-19: Expense Expectations Expenses we expect to increase: Bad debt expense We assume significant recovery through a regulatory mechanism COVID related charitable contributions Expenses we expect to decrease: Distribution customer work Contract services and material costs Fleet fuel costs Travel
Slide 29: South Dakota Electricity Supply Resource Plan
South Dakota Published fall of 2018, the plan focuses on modernization of our fleet to improve reliability and flexibility, maintain compliance in Southwest Power Pool, and lowering operating costs. The plan identifies 90MWs of existing generation that should be retired and replaced over the next 10
Slide 30: Montana Electricity Supply Resource Plan
Montana The draft plan was filed in early March 2019 followed by a 60 day public comment period. The final plan, including responses to public comment, was filed August 20, 2020. The plan demonstrates an urgent need for additional flexible capacity that will address the changing energy landscape in
Slide 31: Proposed Colstrip Acquisition
Proposed Colstrip Acquisition On December 9, 2019 NorthWestern (NWE) executed a Purchase and Sale Agreement for the acquisition of Puget Sound Energy’s (PSE) 25% ownership interests in Colstrip Unit 4 (CU4). Generating Capacity: 185 MW (bringing our total ownership to 407 MW, or 55% of CU4) Purchase
Slide 32: CU4 Acquisition - Customer & Community Considerations
Minimal Environmental Impact: There will be no new carbon emissions in Montana as a result of our owning a greater share of CU4. In fact – as shown in the chart to the right, even if we acquired the full 185 MW, ignoring Talen’s right of first refusal, NWE Montana will still be twice as ‘green’ (56%
Slide 33: CU4 Acquisition - Investor & Credit Considerations
Provides a Bridge to Future Generation Technologies: The region is quickly reaching a point where there may not be enough capacity during critical peak-demand times. This transaction will help meet the immediate needs of our customers while allowing time to work with stakeholders across our state to
Slide 34: NWE Capacity as compared to Regional Peers
NWE Capacity as compared to Regional Peers NWE’s capacity deficit exposes our customers to greater market exposure (price and availability) than any of our regional peers. Appendix
Slide 35: CU4 Acquisition - General Transaction Structure
100% of net proceeds from 45 MW PPA and 90% of savings in PCCAM costs (as compared to the baseline) are applied to a Reserve Fund to provide towards NorthWestern’s existing 30% ownership. PSE retains environmental & pension liabilities as of transaction close and responsibility for decommissioning a
Slide 36: CU4 Acquisition - Proposed Post-Closing Structure
CU4 Acquisition - Proposed Post-Closing Structure NWE PSE 47.5 MW provided to NWE’s default supply customers. Resolves 12.5% of the capacity deficit with no impact to customer bills. 100% of the net proceeds of the 90 MW PPA will be placed in the Reserve Fund. Reserve Fund NWE Customers $ $ Any savi
Slide 37: Existing Colstrip Ownership
Existing Colstrip Ownership Colstrip Power Plant Colstrip Transmission System System Owner Segment A Segment B AVISTA Corporation 10.2% 12.1% NorthWestern Energy 36.4% 24.3% PacifiCorp 6.8% 8.1% Portland General 13.6% 16.2% Puget Sound Energy 33.0% 39.3% Facility Owner (%) Unit 1 Unit 2 Unit 3 Unit
Slide 38: Significant Capacity Deficit in Montana
NorthWestern Energy’s current resources provide about 755 MW of peaking capacity, which is the energy available during periods of our customers’ highest demand. An additional 645 MW of peaking capacity must currently be purchased from the market to meet our needs. Without new capacity, the market ex
Slide 39: A Recent Example
A Recent Example In early February, 2019, NorthWestern experienced a nearly five day span* when the wind didn’t blow and the sun was scant. We were forced to rely upon an already strained market and transmission system for a significant amount of our required capacity (shown in red hatch). We had an
Slide 40: Significant Capacity Retirements in the Pacific NW
Significant Capacity Retirements in the Pacific NW Planned retirements in the Pacific Northwest region exceed 3,600 MW and the Northwest Power and Conservation Council forecasts regional capacity shortfalls as early as 2021. NorthWestern’s continued reliance on the market to purchase energy to fill
Slide 41: Capacity Cost Alternatives
Capacity Cost Alternatives The 185 MW Colstrip Unit 4 purchase would resolve approximately 25% of our estimated 725 MW capacity deficit for $1.00. Alternative solutions to provide equivalent capacity are estimated to range from roughly $240 million to over $5 billion. * Cost to Construct based on es
Slide 42: Summary Financial Results (Second Quarter)
Summary Financial Results (Second Quarter) (1) Appendix (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure.
Slide 43: Gross Margin (Second Quarter)
Gross Margin (Second Quarter) Appendix Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure. (dollars in millions) Three Months Ended June 30, 2020 2019 Variance Electric $ 169.6 $ 177.0 ($ 7.4) (4.2%) Natural Gas 38.7 38.0 0.7 1.8% Total
Slide 44: Weather (Second Quarter)
Weather (Second Quarter) Appendix We estimate favorable weather in Q2 2020 resulted in a $0.5M pretax benefit as compared to normal and $0.8M pretax benefit as compared to Q2 2019.
Slide 45: Operating Expenses (Second Quarter)
Operating Expenses (Second Quarter) Appendix (dollars in millions) Three Months Ended June 30, 2020 2019 Variance Operating, general & admin. $ 71.7 $ 80.8 ($ 9.1) (11.3%) Property and other taxes 47.0 44.3 2.7 6.1% Depreciation and depletion 44.8 41.0 3.8 9.3% Operating Expenses $ 163.5 $ 166.1 ($
Slide 46: Operating to Net Income (Second Quarter)
Operating to Net Income (Second Quarter) Appendix (dollars in millions) Three Months Ended June 30, 2020 2019 Variance Operating Income $ 44.8 $ 48.8 $ (4.0) (8.2%) Interest Expense (24.3) (23.5) (0.8) (3.4%) Other Income 0.2 0.1 0.1 100.0% Income Before Taxes 20.8 25.5 (4.7) (18.4%) Income Tax Bene
Slide 47: Income Tax Reconciliation (Second Quarter)
Income Tax Reconciliation (Second Quarter) Appendix We expect NOLs to be available into 2021 with alternative minimum tax credits and production tax credits to be available into 2023 to reduce cash taxes. Additionally, we anticipate our effective tax rate to reach approximately 10% by 2023.
Slide 48: Adjusted Non-GAAP Earnings (Second Quarter)
Adjusted Non-GAAP Earnings (Second Quarter) Appendix The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that are non-recurring or variance from normal weather, however they should not be considered a substitute for financial results and measures determ
Slide 49: Balance Sheet
Appendix 49 Balance Sheet (dollars in millions) As of June 30, As of December 31, 2020 2019 Cash and cash equivalents $ 75 $ 51 Restricted cash 89 69 \ccounts receivable, net 125.1 167.4 Inventories 61.2 53.9 Other current assets: 60.8 68.3 00dwill 357.6 357.6 PP&E and other non-current assets 5,350
Slide 50: Cash Flow
Cash Flow Appendix Cash from operating activities increased by ~$75M primarily due to the improved collections of energy supply costs in the current period, as compared with higher procured supply costs, credits to Montana customers of approximately $20.5 million in the first quarter of 2019, and tr
Slide 51: Summary Financial Results (Six Months Ended June 30)
Summary Financial Results (Six Months Ended June 30) (1) Appendix (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure.
Slide 52: Gross Margin (Six Months Ended June 30)
Gross Margin (Six Months Ended June 30) Appendix (1) ($3.0)Production tax credits flowed-through trackers (0.2)Operating expenses recovered in trackers 2.4 Property taxes recovered in trackers ($0.8)Change in Gross Margin Offset Within Net Income ($31.1)Decrease in Gross Margin (dollars in millions)
Slide 53: Weather (Six Months Ended June 30)
Weather (Six Months Ended June 30) Appendix We estimate unfavorable weather through the first 6 months of 2020 has contributed approximately $3.5M pretax detriment as compared to normal and $17.2M pretax detriment as compared to the same period in 2019.
Slide 54: Operating Expenses (Six Months Ended June 30)
Operating Expenses (Six Months Ended June 30) Appendix (dollars in millions) Six Months Ended June 30, 2020 2019 Variance Operating, general & admin. $ 150.7 $ 161.9 ($ 11.2) (6.9%) Property and other taxes 91.5 89.1 2.4 2.7% Depreciation and depletion 90.0 86.6 3.4 3.9% Operating Expenses $ 332.2 $
Slide 55: Operating to Net Income (Six Months Ended June 30)
Operating to Net Income (Six Months Ended June 30) Appendix $1.3 million increase in interest expense, including approximately $0.7 million as a result of higher borrowings in the second quarter 2020, to increase our cash position as a precautionary measure and preserve financial flexibility. $3.1 m
Slide 56: Income Tax Reconciliation (Six Months Ended June 30)
Income Tax Reconciliation (Six Months Ended June 30) Appendix We expect NOLs to be available into 2021 with alternative minimum tax credits and production tax credits to be available into 2023 to reduce cash taxes. Additionally, we anticipate our effective tax rate to reach approximately 10% by 2023
Slide 57: Adjusted Non-GAAP Earnings (Six Months Ended June 30)
Adjusted Non-GAAP Earnings (Six Months Ended June 30) Appendix As a result of the adoption of Accounting Standard Update 2017-07 in March 2018, pension and other employee benefit expense is now disaggregated on the GAAP income statement with portions now recorded in both OG&A expense and Other (Expe
Slide 58: Qualified Facility Earnings Adjustment
Qualified Facility Earnings Adjustment Appendix Our electric QF liability consists of unrecoverable costs associated with contracts covered under PURPA that are part of a 2002 stipulation with the MPSC and other parties. Risks / losses associated with these contracts are born by shareholders, not cu
Slide 59: Quarterly PCCAM Impacts
Quarterly PCCAM Impacts Appendix In 2017, the Montana legislature revised the statute regarding our recovery of electric supply costs. In response, the MPSC approved a new design for our electric tracker in 2018, effective July 1, 2017. The revised electric tracker, or PCCAM established a baseline o
Slide 60: NorthWestern Energy Profile
NorthWestern Energy Profile Appendix Note: Data as reported in our 2019 10-K
Slide 61: 2019 System Statistics
2019 System Statistics Note: Statistics above are as of 12/31/2019 except for electric transmission for others which is 2018 data Nebraska is a natural gas only jurisdiction Dave Gates Generating Station (DGGS) in Montana is a 150 MW nameplate facility but consider it a 105 MW (60 MW FERC & 45MW MPS
Slide 62: Experienced & Engaged Board of Directors
Experienced & Engaged Board of Directors Stephen P. Adik Chairman of the Board Independent Director since Nov. 2004 Britt E. Ide Committees: Governance, Operations Independent Director since April 2017 Anthony T. Clark Committees: Governance, Human Resources Independent Director since Dec. 2016 Dana
Slide 63: Strong Executive Team
Strong Executive Team Appendix Robert C. Rowe President and Chief Executive Officer Current position since 2008 Brian B. Bird Chief Financial Officer Current position since 2003 Michael R. Cashell Vice President - Transmission Current Position since 2011 Heather H. Grahame General Counsel and Vice P
Slide 64: Public Service Commissions
ppendix Name Party Serving Ends Commissioners are elected in Roger Koopman Jan-13 Jan-21 statewide elections from each of . : five districts. Chairperson is Brad Johnson (Chairperson) R— Jan-15—Jan-23 ge say fellow Commissioners. Bob Lake (Vice Chairperson) R — Jan-13Jan-21 Commissioner term is four
Slide 65: Non-GAAP Financial Measures (1 of 3)
Non-GAAP Financial Measures (1 of 3) These materials include financial information prepared in accordance with GAAP, as well as other financial measures, such as Gross Margin and Adjusted Diluted EPS, that are considered “non-GAAP financial measures.” Generally, a non-GAAP financial measure is a num
Slide 66: Non-GAAP Financial Measures (2 of 3)
Non-GAAP Financial Measures (2 of 3) Disclaimer on Net Operating Net Operating Losses (NOL’s): The expected tax rate and the expected availability of NOLs are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control o
Slide 67: Non-GAAP Financial Measures (3 of 3)
Non-GAAP Financial Measures (3 of 3) 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
Slide 68: Delivering a bright future
UBelivering a bright future
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