Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — EEI Financial Conference 2019
52 slides from Northwestern Energy's conference presentation, Nov 8, 2019
Slide 1: EEI Financial Conference
Mystic Dam, Montana EEI Financial Conference November 10-13, 2019 8-K November 8, 2019
Slide 2: Forward Looking Statements
2 Forward Looking Statements Forward Looking Statements O’Dell Creek - Madison River Valley - Montana 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-l
Slide 3: About NorthWestern
3 About NorthWestern South Dakota Operations Electric 63,800 customers 3,572 miles – transmission & distribution lines 440 MW nameplate owned power generation Natural Gas 46,900 customers 1,697 miles of transmission and distribution pipeline Montana Operations Electric 374,000 customers 24,767 miles
Slide 4: NWE - An Investment for the Long Term
4 NWE - An Investment for the Long Term • 100% regulated electric & natural gas utility business Black Eagle dam Pure Electric & with over 100 years of operating history Gas Utility • Solid economic indicators in service territory • Diverse electric supply portfolio ~55% hydro, wind & solar • Reside
Slide 5: A Diversified Electric and Gas Utility
5 A Diversified Electric and Gas Utility (1) September 2018 Montana electric rate review, filed (1) with rate base of $2.34 billion, calculated with 13th month average and known and measurable adjustments. NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential and 80% Montana. Ove
Slide 6: Highly Carbon-Free Supply Portfolio
6 Highly Carbon-Free Supply Portfolio Based upon 2018 MWH’s of owned and long-term contracted resources. Approximately 55% 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 periodi
Slide 7: Strong Utility Foundation
7 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 and low gas leaks per mile
Slide 8: Solid Economic Indicators
8 Solid Economic Indicators Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2/21/17 Electric: EEI Statistical Yearbook (published December 2015, table 7.2) Natural Gas: EIA.gov (Data table "Number of Natural Gas Consumers") Sourc
Slide 9: A History of Growth
9 A History of Growth $3.30-$3.50 $3.10 - $3.30 $2.60$3.20-$3.40 - $2.75 2009-2018 CAGR’s: GAAP EPS: 7.6% - Non-GAAP EPS: 5.9% - Dividend: 5.7% See appendix for “Non-GAAP Financial Measures”
Slide 10: Track Record of Delivering Results
10 Track Record of Delivering Results * Peer Group: ALE, AVA, BKH, EE, IDA, MGEE, NWN, OGE, OTTR, PNM, POR & SR Return on Equity on GAAP Earnings within 9.5% - 11.0% band over the last 8 years with average of 10.3%. Total Shareholder Return is better than our 12 peer average for the 1 & 10 year peri
Slide 11: Investment for Our Customers' Benefit
11 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
Slide 12: Balance Sheet Strength and Liquidity
12 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.
Slide 13: Strong Cash Flows
13 Strong Cash Flows While maintenance capex and total dividend payments have continued to grow since 2011 (11.9% and 11.2% CAGR respectively), Cash Flow from Operations (CFO) has, on average, exceeded maintenance capex and dividend payments by approximately $7 million per year. Note: 2016 CFO is le
Slide 14: Earnings Growth
14 Earnings Growth $3.30-$3.45 $2.60 - $2.75 Non-GAAP Adjusted EPS Growth averaged 6.3% from 2013-2018 NorthWestern initiates its 2019 adjusted non-GAAP earnings guidance range of $3.38 - $3.48 per diluted share based upon, but not limited to, the following major assumptions and expectations: • Norm
Slide 15: Recent Significant Achievements
15 Recent Significant Achievements Strong year for safety at NorthWestern • Continue to be a top performer among Edison Electric Institute member companies. Record best customer satisfaction scores with JD Power & Associates • Once again received our best JD Powers overall satisfaction survey score.
Slide 16: Looking Forward
16 Looking Forward Regulatory • In May 2019, we reached a settlement in our Montana electric rate case that would result in an annual increase to electric revenue of approximately $6.5 million (based upon a 9.65% ROE and capital structure as filed) and a $9.0 million decrease in depreciation expense
Slide 17: NWE Welcomes New Board Members
17 NWE Welcomes New Board Members Jeffrey Yingling is a Senior Advisor Investment of Banking for Power, Energy and Renewables at Guggenheim Securities, LLC, the investment banking and capital markets business of Guggenheim Partners, with more than 35 years of investment banking experience, serving a
Slide 18: Montana Electric Rate Case
18 Montana Electric Rate Case September 2018 Filing (Docket D2018.2.12) • Filed based on 2017 test year and $2.34 billion of rate base. The filing also requests approvalBlackto: Eagle Power House • Requested $34.9 million annual increase to electric rates. • Capitalize Demand Side Management Costs;
Slide 19: South Dakota Electricity Supply Resource Plan
19 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 t
Slide 20: Montana Electricity Supply Resource Plan
20 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 20th. • The plan demonstrates an urgent need for additional flexible capacity that
Slide 21: Capital Investment Forecast
21 Capital Investment Forecast $1.6 billion of total capital investment over five years We anticipate funding the expenditures with a combination of cash flows (aided by NOLs available into 2020) and long-term debt issuances. Significant capital investments that are not in the projections or further
Slide 22: Preliminary 2019 to 2020 Bridge (non-GAAP)
22 Preliminary 2019 to 2020 Bridge (non-GAAP) 2019 Midpoint → 2020 Midpoint Targeted EPS Growth $3.43 → $3.53 = 2.9% Increase Estimated Dividend Yield $2.40 / ~$71 share price = 3.4% Continued investment in our system to serve our customers and communities is expected to provide a targeted 6-9% long
Slide 23: Environmental – Social – Governance (ESG)
23 Environmental – Social – Governance (ESG) Environmental Social Governance Updated Environmental Report coming soon Environmental Report Community Works Report Annual Report http://www.northwesternenergy.com/ http://www.northwesternenergy.com/ http://www.northwesternenergy.com/our- environment/our
Slide 24: ESG - Environmental
24 ESG - Environmental 2018 NWE Generation Portfolio Delivered (Based on MWH of Owned & Long-Term Contracted Resources) 55% of NorthWestern Energy’s 2018 Electric Generation Portfolio Delivered, based on MWh’s, was Carbon-Free Mystic Dam Beethoven Wind Farm 55% Carbon Free Nameplate Portfolio vs 28%
Slide 25: ESG - Environmental
25 ESG - Environmental Environmental Stewardship Highlights of our Environmental Report LED Streetlights – plan to replace 43,000 company-owned streetlights in Montana with LED lights by 2022, with SD in planning stage. • Energy Conservation Solar Projects - Our Solar projects are focused Missoula S
Slide 26: ESG - Social
26 ESG - Social Community Customers Employees $2.1 Billion Economic Output in Typical Residential Bills Lower than Safety Culture Transformation 2018 ($1.88B in Montana & $266M National Average in SD/NE) $1.75 million Donations, Sponsorships & Economic Development in 2018 184 Number of nonprofits th
Slide 27: ESG - Governance
27 ESG - Governance 5th Best Score Among 50 Publicly Traded North American Utility and Power Companies by Diverse Leadership Board of Directors Executive Team Moody’s Investment Services on Best Governance Practices Corporate Governance What We Do: • Annual election of all directors. • Majority vote
Slide 28: Conclusion
28 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 29: Delivering a bright future
Upetivering a bright future NorthWestern Energy
Slide 30: Summary Financial Results (Nine Months Ended Sept. 30)
Appendix 30 Summary Financial Results (Nine Months Ended Sept. 30) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure.
Slide 31: Gross Margin (Nine Months Ended Sept. 30)
Appendix 31 Gross Margin (Nine Months Ended Sept. 30) (dollars in millions) Nine Months Ended September 30, 2019 2018 Variance(1) Electric $ 555.5 $ 549.9 $ 5.6 1.0% Natural Gas 138.6 132.8 5.8 4.4% Total Gross Margin $ 694.1 $ 682.7 $ 11.4 1.4% Increase in gross margin due to the following factors:
Slide 32: Weather (Nine Months Ended Sept. 30)
Appendix 32 Weather (Nine Months Ended Sept. 30) We estimate favorable weather through the first 9 months of 2019 (all due to a cold Qtr 1) has contributed approximately $8.0M pretax benefit as compared to normal and $5.7M pretax benefit as compared to the same period in 2018.
Slide 33: Operating Expenses (Nine Months Ended Sept. 30)
Appendix 33 Operating Expenses (Nine Months Ended Sept. 30) (dollars in millions) Nine Months Ended September 30, 2019 2018 Variance Operating, general & admin. $ 238.9 $ 222.0 $ 16.9 7.6% Property and other taxes 133.2 128.3 4.9 3.8% Depreciation and depletion 129.8 130.9 (1.1) (0.8%) Operating Exp
Slide 34: Operating to Net Income (Nine Months Ended Sept. 30)
Appendix 34 Operating to Net Income (Nine Months Ended Sept. 30) (dollars in millions) Nine Months Ended September 30, 2019 2018 Variance Operating Income $ 192.2 $ 201.5 $ (9.3) (4.6%) Interest Expense (71.0) (68.2) (2.8) (4.1%) Other Income 0.9 1.8 (0.9) (50.0%) Income Before Taxes 122.0 135.1 (13
Slide 35: Income Tax Reconciliation (Nine Months Ended Sept. 30)
Appendix 35 Income Tax Reconciliation (Nine Months Ended Sept. 30)
Slide 36: Adjusted Non-GAAP Earnings (Nine Months Ended Sept. 30)
Appendix 36 Adjusted Non-GAAP Earnings (Nine Months Ended Sept. 30) The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that were non- recurring or variance from normal weather, however they should not be considered a substitute for financial results an
Slide 37: 2019 Non-GAAP Diluted EPS Guidance
Appendix 37 2019 Non-GAAP Diluted EPS Guidance We will need fourth quarter diluted EPS of $1.14 to $1.24 to meet our guidance range of $3.38 to 3.48 for 2019. This compares to $1.07 during the same quarter last year. We anticipate achieving this with a fourth quarter commensurate with the first (i.e
Slide 38: Qualified Facility Earnings Adjustment
Appendix 38 Qualified Facility Earnings Adjustment The gain in 2019 for our QF liability was $6.3 million in total, it was comprised of $3.3 million adjustment to the liability and $3.0 million lower actual costs over last 12 months (QF contract year). This $6.6 million benefit is $20.9 million less
Slide 39: Quarterly PCCAM Impacts
Appendix 39 Quarterly PCCAM Impacts 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 baselin
Slide 40: Balance Sheet
Appendix 40 Balance Sheet (dollars in millions) Cash and cash equivalents Restricted cash Accounts receivable, net Inventories Other current assets Goodwill and other intangibles, net PP&E and other non-current assets Total Assets Payables Finance leases Other current liabilities Long-term debt & ca
Slide 41: Cash Flow
Appendix 41 Cash Flow Cash from operating activities decreased by ~$92M primarily due to the under collection of supply costs from customers in 2019 as compared with an over collection in 2018 resulting in ~$44.9M reduction of working capital, credits to Montana customers during the current period r
Slide 42: Estimated Impacts of the Tax Cuts & Jobs Act
42 Estimated Impacts of the Tax Cuts & Jobs Act Montana: In December 2018, the MPSC approved a settlement agreement providing a $20.5 million one-time customer credit to electric and natural gas customers. In addition, the settlement provides: • A $1.3 million annual reduction in natural gas rates b
Slide 43: Montana State and Regional Coal Retirements
Appendix 43 Montana State and Regional Coal Retirements The total planned energy generation reductions in the Pacific Northwest region exceed 3,600 MWs through 2032. The Northwest Power and Conservation Council forecasts regional capacity shortfalls as early as 2021. NorthWestern Energy’s continued
Slide 44: NorthWestern Energy Profile
Appendix 44 NorthWestern Energy Profile (1) Rate base reflects amounts on which we are authorized to earn a return. (2) Rate base amounts are estimates as of December 31, 2018 (3) The revenue requirement associated with the FERC regulated portion of Montana electric transmission and DGGS are include
Slide 45: 2018 System Statistics
Appendix 45 2018 System Statistics (1) (2) Note: Statistics above are as of 12/31/2018 (1) Nebraska is a natural gas only jurisdiction (2) Dave Gates Generating Station (DGGS) in Montana is a 150 MW nameplate facility but consider it a 105 MW (60 MW FERC & 45MW MPSC jurisdictions) peaker
Slide 46: Experienced & Engaged Board of Directors
Appendix 46 Experienced & Engaged Board of Directors Stephan P. Adik Tony Clark Dana J. Dykhouse Jan R. Horsfall Britt E. Ide • Chairman of the • Committees: Governance • Committees: Human • Committees: Audit, • Committees: Audit, Board and Innovation, Human Resources (chair), Audit Governance and G
Slide 47: Strong Executive Team
Appendix 47 Strong Executive Team Robert C. Rowe Heather H. Grahame Curtis T. Pohl • President and • General Counsel and Vice • Vice President - Chief Executive Officer President of Regulatory Distribution • Current position since and Federal Government • Current position since 2008 Affairs 2003 • C
Slide 48: Our Commissioners
Appendix 48 Our Commissioners
Slide 49: Non-GAAP Financial Measures (1 of 3)
Appendix 49 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 meas
Slide 50: Non-GAAP Financial Measures (2 of 3)
Appendix 50 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 t
Slide 51: Non-GAAP Financial Measures (3 of 3)
Appendix 51 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
Slide 52: Delivering a bright future
Upetivering a bright future NorthWestern Energy