Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — EEI Financial Conference 2018
52 slides from Northwestern Energy's conference presentation, Nov 9, 2018
Slide 1: EEI Financial Conference 2018
Echo Lake Nordic Trail - Montana EEI Financial Conference 2018 November 11-14, 2018 San Francisco, CA 8-K November 9, 2018
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 f
Slide 3: About NorthWestern
3 About NorthWestern South Dakota Operations Electric 63,600 customers 3,560 miles – transmission & distribution lines 440 MW nameplate owned power generation Natural Gas 46,500 customers 1,681 miles of transmission and distribution pipeline Montana Operations Electric 369,100 customers 24,495 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 ~56% hydro & wind • Residential e
Slide 5: A Diversified Electric and Gas Utility
5 A Diversified Electric and Gas Utility September 2018 Montana electric rate review, filed 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 Data as repo
Slide 6: Highly Carbon-Free Supply Portfolio
6 Highly Carbon-Free Supply Portfolio Based upon 2017 MWH’s of owned and long-term contracted resources. Approximately 56% 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 - $2.75-$3.40 2008-2017 CAGR’s: GAAP EPS: 7.3% - Non-GAAP EPS: 6.8% - Dividend: 5.3% See appendix for “Non-GAAP Financial Measures”
Slide 10: Track Record of Delivering Results
10 Track Record of Delivering Results * Peer Group: ALE, BKH, EE, IDA, MGEE, NWN, OGE, OTTR, PNM, POR, SR, & VVC Return on Equity on GAAP Earnings within 9.5% - 11.0% band over the last 6 years with average of 9.9%. See appendix for “Non-GAAP Financial Measures” Total Shareholder Return is better th
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, and debt to cap within our targeted 50%-55% range. In early November 2017, we redeemed $250 million, 6.34% Montana First Mortgage Bonds (MFMB) due in 2019 with the issuance
Slide 13: Strong Cash Flows
13 Strong Cash Flows While maintenance capex and total dividend payments have continued to grow since 2011 (12.9% and 13.0% CAGR respectively), Cash Flow from Operations (CFO) has, on average, exceeded maintenance capex and dividend payments by approximately $24 million per year. 2016 CFO is less th
Slide 14: 2018 Earnings Guidance
14 2018 Earnings Guidance $3.30-$3.45 $3.10 - $3.30 $2.60 - $2.75 NorthWestern reaffirms its 2018 earnings guidance range of $3.35 - $3.50 per diluted share is based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service t
Slide 15: Summary Financial Results (Nine Months)
15 Summary Financial Results (Nine Months Ended September 30) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. See appendix for additional disclosure.
Slide 16: Maintaining Full Year Non-GAAP Guidance
16 Maintaining Full Year Non-GAAP Guidance In order to meet 2018 guidance,$3.30-$3.45 we will $3.10 - $3.30 need$2.60 to - $2.75 deliver EPS of $1.03 - $1.18 during the fourth quarter of the year. This compares to $0.95 earned in the fourth quarter of 2017. The non-GAAP measures presented in the tab
Slide 17: Regulatory & Legal Update
17 Regulatory & Legal Update Power Cost and Credit Adjustment Mechanism (PCCAM) • In May 2017, the MPSC initiated a docket to implement House Bill 193 (HB193), which removed statutory language mandating tracking of electricity supply costs and replaced West Rosebud Creek, MT it with language that gi
Slide 18: Estimated Impacts of the Tax Cuts & Jobs Act
18 Estimated Impacts of the Tax Cuts & Jobs Act South Dakota – In September 2018, the South Dakota Public Utility Commission approved a settlement agreement resulting in a one-time refund to electric and natural gas customers of $3.0 million by October 31, 2018. This includes a two-year rate morator
Slide 19: Montana Electric Rate Case Background
19 Montana Electric Rate Case Background • First general electric rate case in Montana since 2009. Mystic Dam Black Eagle Power House • While we have efficiently managed operating and administrative costs, increased Montana property taxes and significant investment in the system have compelled the r
Slide 20: Experienced Leadership & Solid Corp. Governance
20 Experienced Leadership & Solid Corp. Governance Board of Directors (left to right) Linda G. Sullivan – Independent Director since April 27, 2017 – Audit Committee (Chair) Dana J. Dykhouse – Independent Director since January 30, 2009 – Human Resources (Chair) and Audit Committees Britt E. Ide – I
Slide 21: Recent Significant Achievements
21 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 22: Looking Forward
22 Looking Forward Regulatory Black Eagle Power House • Regulatory treatment of tax reform - determine best way to provide long-term benefit to customers and system while keeping investors whole. • MPSC has voted on new Power Cost and Credit Adjustment Mechanism, but final order not yet issued. • MP
Slide 23: Capital Investment Forecast
23 Capital Investment Forecast $1.6 billion estimated cumulative 5 year capital investment. 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 above projections
Slide 24: South Dakota Electric Supply Resource Plan
24 South Dakota Electric Supply Resource Plan NorthWestern and HDR Engineering Black Eagle Power House investigated various retirement & replacement scenarios to assess potential for modernizing its generation fleet and improve reliability and operational flexibility. The distributed generation flee
Slide 25: South Dakota Electric Supply Resource Plan
25 South Dakota Electric Supply Resource Plan Scenario 5, or potentially Scenario 7 (investment Black Eagle Power House spread out over longer period), are the optimal choices in our SD Electric Resource Plan to pursue. We would retire older generating facilities and build Reciprocating Internal Com
Slide 26: Montana Critical Capacity Shortfall
26 Montana Critical Capacity Shortfall NorthWestern’s current planning reserve margin is negative 28%. The 2015 Energy Resource Procurement Plan (ERPP) projected this to grow to negative 50% by 2035 without the addition of incremental owned or contracted portfolio resources. The 2018 ERPP, expected
Slide 27: Conclusion
27 Conclusion Best Practices Corporate Governance Attractive Future Pure Electric Growth & Gas Utility Prospects Strong Solid Utility Earnings & Foundation Cash Flows
Slide 28: Delivering a bright future
Upetivering a bright future
Slide 29: Summary Financial Results (Third Quarter)
Appendix 29 Summary Financial Results (Third Quarter) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. See appendix for additional disclosure.
Slide 30: Gross Margin (Third Quarter)
Appendix 30 Gross Margin (Third Quarter) (dollars in millions) Three Months Ended September 30, 2018 2017 Variance Electric $ 178.7 $ 183.5 ($ 4.8) (2.6%) Natural Gas 29.0 28.9 0.1 0.3% Total Gross Margin $ 207.7 $ 212.4 ($ 4.7) (2.2%) Decrease in gross margin due to the following factors: $ (3.2) E
Slide 31: Weather (Third Quarter)
Appendix 31 Weather (Third Quarter) We estimate unfavorable weather in Q3 2018 resulted in a $1.1M pretax detriment as compared to normal and $1.5M pretax detriment as compared to Q3 2017.
Slide 32: Operating Expenses (Third Quarter)
Appendix 32 Operating Expenses (Third Quarter) (dollars in millions) Three Months Ended September 30, 2018 2017 Variance Operating, general & admin. $ 73.8 $ 67.7 $ 6.1 9.0% Property and other taxes 42.5 39.1 3.4 8.7% Depreciation and depletion 43.6 41.5 2.1 5.1% Operating Expenses $ 159.9 $ 148.3 $
Slide 33: Operating to Net Income (Third Quarter)
Appendix 33 Operating to Net Income (Third Quarter) (dollars in millions) Three Months Ended September 30, 2018 2017 Variance Operating Income $ 47.8 $ 64.1 $ (16.3) (25.4%) Interest Expense (22.0) (23.1) 1.1 4.8% Other Income / (Expense) 2.0 (1.8) 3.8 211.1% Income Before Taxes 27.8 39.2 (11.4) (29
Slide 34: Income Tax Reconciliation (Third Quarter)
Appendix 34 Income Tax Reconciliation (Third Quarter)
Slide 35: Balance Sheet
Appendix 35 Balance Sheet NorthWestern’s Ratio of debt to total capitalization decreased from 53.7% at 12/31/17 to 51.2% at 9/30/18.
Slide 36: Cash Flow
Appendix 36 Cash Flow Cash from operating activities improved by $43 million primarily due to higher net income, improved customer receipts, the receipt of insurance proceeds and lower priced gas storage injections curing the current period.
Slide 37: Adjusted Non-GAAP Earnings (Third Quarter)
Appendix 37 Adjusted Non-GAAP Earnings (Third Quarter) Three Months Ended Sept. 30th (1) During the first quarter of 2018, we revised our presentation of revenues associated with being a market participant in the Southwest Power Pool to net them with the associated cost of sales. These revenues were
Slide 38: Gross Margin (Nine Months Ended September 30)
Appendix 38 Gross Margin (Nine Months Ended September 30) (dollars in millions) Nine Months Ended September 30, 2018 2017 Variance(1) Electric $ 549.9 $ 528.0 $ 21.9 4.1% Natural Gas 132.8 131.8 1.0 0.8% Total Gross Margin $ 682.7 $ 659.8 $ 22.9 3.5% Increase in gross margin due to the following fac
Slide 39: Weather (Nine Months Ended September 30)
Appendix 39 Weather (Nine Months Ended September 30) We estimate favorable weather through the first 9 months of 2018 has contributed approximately $2.3M pretax benefit as compared to normal and $0.7M pretax benefit as compared to the same period in 2017.
Slide 40: Operating Expenses (Nine Months Ended September 30)
Appendix 40 Operating Expenses (Nine Months Ended September 30) (dollars in millions) Nine Months Ended September 30, 2018 2017 Variance Operating, general & admin. $ 222.0 $ 218.6 $ 3.4 1.6% Property and other taxes 128.3 118.5 9.8 8.3% Depreciation and depletion 130.9 124.5 6.4 5.1% Operating Expe
Slide 41: Operating to Net Income (Nine Months)
Appendix 41 Operating to Net Income (Nine Months Ended September 30) (dollars in millions) Nine Months Ended September 30, 2018 2017 Variance Operating Income $ 201.5 $ 198.2 $ 3.3 1.7% Interest Expense (68.2) (70.0) 1.8 2.6% Other Income / (Expense) 1.8 (3.4) 5.2 152.9% Income Before Taxes 135.1 12
Slide 42: Income Tax Reconciliation (Nine Months Ended September 30)
Appendix 42 Income Tax Reconciliation (Nine Months Ended September 30)
Slide 43: Adjusted Non-GAAP Earnings (Nine Months)
Appendix 43 Adjusted Non-GAAP Earnings (Nine Months Ended Sept. 30) (1) During the first quarter of 2018, we revised our presentation of revenues associated with being a market participant in the Southwest Power Pool to net them with the associated cost of sales. These revenues were previously recor
Slide 44: Qualified Facility Earnings Benefit
Appendix 44 Qualified Facility Earnings Benefit The $25.1 million earnings improvement related to certain Qualified Facilities (QF) contracts in the 2nd quarter 2018 is a result of: • A $17.5 million benefit resulting from the reduction of the estimated future liability of unrecoverable QF costs. Th
Slide 45: Montana Natural Gas Rate Filing
Appendix 45 Montana Natural Gas Rate Filing $430.2M Montana PSC Docket D2016.9.68 9.55% 4.47% 6.96% $5.1M Derivation of Rate Increase ($Millions) Revenue Request in Initial Application ..... $10.9 Property Tax (adjustment to actual) ….….. ($2.0) Income Tax correction and other misc. ..... 0.5 Rebutt
Slide 46: NorthWestern Energy Profile
Appendix 46 NorthWestern Energy Profile Note: Data as reported in our 2017 10-K September 2018 Montana electric rate review, filed with rate base of $2.34 billion, calculated with 13th month average and known and measurable adjustments.
Slide 47: 2017 System Statistics
Appendix 47 2017 System Statistics (1) (3) (2) Note: Statistics above are as of 12/31/2017 except for Electric Transmission for Others (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 FE
Slide 48: Our Commissioners
Appendix 48 Our Commissioners Randy Pinocci (R) beat Doug Kaercher (D) for District 1 representative (held by Vice- Chairman Travis Kavulla who reached term limits). Brad Johnson (R) was re-elected in District 5 over Andy Shirtliff (D). This is Chairman Johnson’s 2nd – 4 year term on the PSC. Kristi
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