NorthWestern Energy Group, Inc. · NASDAQ:NWE
NorthWestern Energy — Investor Day (December 2013)
77 slides from NorthWestern Energy's investor day presentation, Dec 9, 2013
Slide 1: 2013 Investor / Analyst Day
2013 Investor / Analyst Day New York City, NY | December 09, 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: Bob Rowe, President and CEO
Bob Rowe President and CEO 3
Slide 4: Today's Agenda
Today’s Agenda • Welcome and opening ………………............... Bob Rowe, President & CEO • Introduction to our Board of Directors ............. E. Linn Draper Jr, Board Chairman • Company and management overview ............. Bob Rowe, President & CEO • Audit Chair perspective …………….….........… Stephen
Slide 5: E. Linn Draper Jr., Chairman of the Board
E. Linn Draper Jr. Chairman of the Board 5
Slide 6: A Board of National Caliber
A Board of National Caliber Nominating & Corp. Governance NACD Governance Fellow Human Resources Director Since: Board Audit (Left to right) Denton Louis Peoples Nevada Retired Chief Executive Officer and Vice Chairman of the Board of Orange and Rockland 2006 M M M Y Utilities, Inc. Dorothy M. Bradl
Slide 7: Bob Rowe, President and CEO
Bob Rowe President and CEO 7
Slide 8: A Well-Rounded Management Team
A Well-Rounded Management Team Years experience in field Position since: (Left to right) Kendall G. Kliewer VP and Controller Responsible for accounting, financial reporting, accounts payable, payroll and compensation and benefits 16 2004 administration. Patrick R. Corcoran VP- Gov't & Regulatory Re
Slide 9: 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 9
Slide 10: 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 11: 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 78% Electric Nebraska: $ 10M 22% Natural Gas 84% Montana 83% Residential 14% South Dakota 16% Commercia
Slide 12: 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% 2% 0.20% 0.25% 0.30% 0.25% 0.29% 0.21% 0.21% 0% 0.00% 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011
Slide 13: Investment in our System
Investment in our System Rate Base as of 12/31/2012 Estimated Authorized Rate Base Overall Authorized Implementation (in millions) Rate of Return on Authorized Jurisdiction and Service Date (1) Return Equity Equity Level South Dakota electric (2) September 1981 $ 200.2 n/a n/a n/a Over the past 5 ye
Slide 14: 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 15: 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 16: Stephen P. Adik, Audit Committee Chairman
Stephen P. Adik Audit Committee Chairman 16
Slide 17: Brian Bird, Vice President & CFO
Brian Bird Vice President & CFO 17
Slide 18: 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 $2.45 - $2.60 $2.50 Non-GAAP "Adjusted" EPS per diluted share with $2.25 a midpoint of $2.53. $2.00 $1
Slide 19: 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% Return on Equity $Millions 8.5% 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 20: Investment for our Customers' Benefit
Investment for our Customers’ Benefit $2,250 Rate Base and Earnings per Share $3.00 Over the past 5 years, we Rate Base - Millions $2.75 $2,000 $2.50 have been adding to our Montana energy supply EPS - Dollars $1,750 $2.25 $2.00 portfolio and making $1,500 $1.75 additional investments to $1,250 $1.5
Slide 21: Total Shareholder Return
Total Shareholder Return NorthWestern Energy - Total Shareholder Return (TSR) since Emergence Comparison November 2, 2004 through November 29, 2013 200% NWE Peer Average S&P 500 DJU Total Shareholder Return 150% 11/2/04 to 11/29/13 NWE 160.5% Peer Avg. 117.9% 100% DJU 124.7% S&P 500 93.3% 50% 0% -50
Slide 22: 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 23: Balance Sheet Strength
Balance Sheet Strength Credit Ratings Secured Credit Ratings Senior Senior S&P Moody's Fitch Secured Unsecured Commercial A/A2/A Rating Rating Paper Outlook A-/A3/A- Fitch A- BBB+ F2 Positive Watch BBB+/Baa1/BBB+ Moody's A2 Baa1 Prime-2 Stable BBB/Baa2/BBB S&P A- BBB A-2 Stable Investment Grade BBB-
Slide 24: 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 25: 2014 Capital Reconciliation
2014 Capital Reconciliation Anticipated 2014 Capital as reported in 2012 10-K 2014 Budgeted Capital (in millions) (in millions) $300 $300 $272 $254 $19 $250 $18 $250 $200 Common $200 $119 $134 Distribution $150 $150 Transmission Energy Supply $100 $100 $68 $69 $50 $50 $50 $50 $0 $0 2014 Included in
Slide 26: 2014 Earnings Guidance
2014 Earnings Guidance 2014 broad earnings drivers as provided at November 2013 EEI Financial Conference 2014 guidance announced Low Midpoint High 2013 EPS Guidance Range $2.45 $2.53 $2.60 2014 guidance range of $2.60-$2.75 2014 Drivers based upon, but not limited to, the Bear Paw South acquisition
Slide 27: Bob Rowe, President and CEO
Bob Rowe President and CEO 27
Slide 28: Investment Opportunity Outlook
Investment Opportunity Outlook • Energy Supply – Pending hydro transaction – Big Stone/Neal pollution control – Additional acquisition opportunities for Montana natural gas reserves • Transmission – Network upgrades • Jack Rabbit - Big Sky 161kV line • Carbon - Stillwater 100kV – Transmission System
Slide 29: Investment Project Summary
Investment Project Summary ($Millions) Capital Total Project Spent * Capital Opportunity Energy Supply Low High Jurisdiction Pending Montana hydro asset acquisition High $0 $900 to $900 MPSC Big Stone pollution control equipment High $28 $95 to $110 SDPUC Neal pollution control equipment High $21 $2
Slide 30: Montana Base Load Electric Opportunity
Montana Base Load Electric Opportunity Percentage of Owned Generation Resources for Retail Use 140% 120% 100% Peer Average 80% 60% 40% 20% 127% 122% 120% 105% 102% 98% 97% 91% 84% 78% 77% 69% 64% 60% 60% 53% 44% 0% WR GXP EE CNL UNS IDA EDE VVC ALE AVA UIL NWE MGEE PNM BKH POR NWE (Hydro) Owned Gene
Slide 31: 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 32: John Hines, Vice President – Energy Supply
John Hines Vice President – Energy Supply 32
Slide 33: Energy Supply Overview
Energy Supply Overview Primary responsibilities: Energy Supply statistics for 2012 • Undertake planning for effectively meeting the portfolio requirements of Electric (MW) MT SD Total our electricity and natural gas Base load coal 222 210 432 customers Wind 40 - 40 • Acquire, and where applicable, O
Slide 34: 2014 Energy Supply Capital Budget
2014 Energy Supply Capital Budget 2014 Capital (in millions) Colstrip Unit 4 $300 2014 Energy Supply Capital (in millions) $40 35 Common $35 $250 $30 $25 Millions $20 $15 $200 $10 Distribution 7 5 $5 3 $0 $150 Big Stone - Neal 4 - Colstrip Unit 4 All Other environmental environmental Maintenance Mai
Slide 35: Montana Hydro Acquisition
Montana Hydro Acquisition • Announced, in September 2013, the acquisition of eleven base load 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
Slide 36: Hydro – Owned & Contracted Resources
Hydro – Owned & Contracted Resources Montana Sources of Supply with Hydro Assets NorthWestern Owned Facilities (Total Annual Energy - Excludes Kerr Dam1) Pro forma for Hydro Transaction Missouri Missouri Missouri River Missouri Missouri Missouri River River River River Clark Clark Clark ClarkFork Cl
Slide 37: Meeting Customer Demand
Meeting Customer Demand 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 1
Slide 38: 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: – Fit within the supply portfolio – Forward market cur
Slide 39: 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 40: Big Stone and Neal Air Quality Projects
Big Stone and Neal Air Quality Projects Big Stone Neal Big Stone Power Plant Location Northeast South Dakota Northwest Iowa Ownership 23.4% of 475 MW coal plant 8.7% of 644 MW coal plant Subject to comply with Subject to Best Available national ambient air quality Retrofit Technology (BART) standard
Slide 41: Natural Gas Reserves Opportunity
Natural Gas Reserves Opportunity We continue to pursue opportunities to secure low cost gas reserves for our customers. Battle Creek Bear Paw ~1% • Remaining 13% unfilled position (assuming successful close on Bear Paw North ~8% South) to reach our targeted 50% owned supply. • Possible further oppor
Slide 42: Southern Bear Paw (Devon) Transaction
Southern Bear Paw (Devon) Transaction 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 with the MPS
Slide 43: Mike Cashell, Vice President – Transmission
Mike Cashell Vice President – Transmission 43
Slide 44: Transmission Overview
Transmission Overview • NorthWestern has a robust and methodical planning and Transmission statistics for 2012 prioritization process for Transmission for others MT SD Total transmission systems, with focus Electric (GWh) 9,600 100 9,700 on: Natural Gas (Bcf) 21.0 21.0 – Meeting increasing demand in
Slide 45: 2014 Transmission Capital Budget
2014 Transmission Capital Budget 2014 Capital (in millions) 2014 Transmisson Capital (in millions) $300 $25 21 $20 Common $15 Millions $250 10 9 $10 6 6 5 $5 4 3 3 2 $0 $200 Distribution $150 $100 Transmission $50 Energy Supply Transmission capital of $69M (gas and $0 electric) accounts for 25% of t
Slide 46: Transmission Projects
Transmission Projects Jack Rabbit – Big Sky 161kV Carbon - Stillwater 100kV NorthWestern Energy continues to make significant investments to upgrade our transmission system to add capacity and improve reliability. Two such projects are: Jack Rabbit – Big Sky 161kV Line and Carbon - Stillwater 100kV
Slide 47: Transmission System Infrastructure Project
Transmission System Infrastructure Project Transmission System Infrastructure Program (TSIP) • Gas Transmission Program – Moving beyond basic compliance with federal safety regulations to systematic prioritization and addressing of pipeline integrity management for long-term customer benefit. – Focu
Slide 48: Transmission System "NERC Alert – Facilities Ratings"
Transmission System “NERC Alert – Facilities Ratings” • The North American Electric Reliability Corporation (NERC) issued a Recommendation and Guidance to Industry on the "Consideration of Actual Field Conditions in Determination of Facility Ratings." • This recommendation is to verify actual field
Slide 49: Curt Pohl, Vice President – Distribution
Curt Pohl Vice President – Distribution 49
Slide 50: Distribution Overview
Distribution Overview Distribution operating philosophy – Distribution statistics for 2012 Simple but effective, grounded in Demand fundamentals MT SD/NE (1) Total Daily MWs 750 172 922 • Committed To Safety Peak MWs 1,784 324 • Committed to Providing High Level of Annual GWhs 6,400 1,500 7,900 Cust
Slide 51: Asset Management Approach
Asset Management Approach Desired Economic Operating Range Prohibitively Unacceptable Expensive Operations Very frequent Frequency of asset replacement Replace only at failure replacement 51
Slide 52: 2014 Distribution Capital Budget
2014 Distribution Capital Budget 2014 Capital (in millions) 2014 Distribution Capital (in millions) $60 52 $300 $50 $40 Millions Common $30 $250 23 20 $20 17 11 $10 4 4 3 $0 $200 Distribution $150 $100 Transmission $50 Distribution capital of $134M (gas and Energy Supply electric) accounts for 49% o
Slide 53: DSIP Investment Outlook
DSIP 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 into the s
Slide 54: Pat Corcoran, Vice President – Regulatory
Pat Corcoran Vice President – Regulatory 54
Slide 55: Regulatory Activities
Regulatory Activities Major Activities Filing Update • Electric and natural gas general rate filings – state and federal – Annual first look cost of service analysis • Montana electricity supply resources approval filings – PPL Montana hydroelectric generation acquisition filing • Federal Energy Reg
Slide 56: Regulatory Activities
Regulatory Activities Annual and biennial filings update • Annual compliance filings – Qualifying facilities • Annual tracker filings – Energy supply tracker filings • 2012 Montana electric energy supply filing – Dave Gates Generation Stations (DGGS) outage costs – Demand Side Management (DSM) cost
Slide 57: Heather Grahame – VP & General Counsel
Heather Grahame – VP & General Counsel Legal • Material legal proceedings disclosed in SEC filings consist of only one matter: Sierra Club and Montana Environmental Information Center v. PPL Montana LLC, etc. • Strong, small internal legal team – Effectively manages external legal costs – Partners w
Slide 58: Bobbi Schroeppel - VP Customer Care, HR and Corporate Communications
Bobbi Schroeppel - VP Customer Care, HR and Corporate Communications • Successful Customer Information System (CIS) implementation at significantly lower costs as compared to other recently installed systems • Improvements in customer service has resulted in best JD Power scores received to date • C
Slide 59: Kendall Kliewer – VP & Controller
Kendall Kliewer – VP & Controller Financial Reporting and Employee Benefits • Timely and transparent financials (transparency a significant factor in Forbes 100 most trustworthy companies) • Taken steps to better manage employee benefit costs while providing a competitive benefits package 59
Slide 60: Bob Rowe, President and CEO
Bob Rowe President and CEO 60
Slide 61: 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 62: Questions?
Questions? 62
Slide 63: Appendix
r Appendix NorthWesternt Energy 63 Delivering 6 Bright Future
Slide 64: 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 DSM lost revenue recovery - portion relat
Slide 65: 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 $789.5 Cost of Sales 104.3 93.0 343.4 327.9 Gross Margin 158.0 142.9 492.1 461.6 Operating Expenses Operating,
Slide 66: 3 Month Earnings Reconciliation
3 Month Earnings Reconciliation NORTHWESTERN CORPORATION Three Months Ended September 30, 2013 ($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 67: 9 Month Earnings Reconciliation
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 68: 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 69: 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 70: 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 71: Total Return History
Total Return History Implied* Total Return (EPS Growth + Dividend Return) 2008-2012 30.0% 27.3% Dividend Return 25.0% 4.4% 23.9% EPS Growth Rate 20.9% The top chart provides a 5.7% 18.6% 20.0% history of annual EPS 6.8% 5.3% growth plus dividend 15.0% 11.6% yield. The bottom chart 10.0% 9.2% provide
Slide 72: 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 73: Our Commissioners
Our Commissioners Montana Public Service 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 Jan-17
Slide 74: FERC's ALJ Ruling – We Got the Crust
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 75: 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 76: 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 77: Delivering a bright future
Upetivering a bright future NorthWestern Energy