Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Morgan Stanley Electric Utilities Corporate Access Day (October 2007)
33 slides from Northwestern Energy's conference presentation, Oct 9, 2007
Slide 1: Morgan Stanley Electric Utilities Corporate Access Day
Morgan Stanley Electric Utilities Corporate Access Day October 9, 2007
Slide 2: Forward-looking statement
forward-looking statement… 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: Who we are
who we are… 640,000 customers 382,000 electric 258,000 natural gas Approximately 123,000 square miles of service territory in Montana, Nebraska and South Dakota Total Generation MT – 222 MW – unregulated SD – 310 MW - regulated Total Assets: (1)$2,353 MM Electric transmission lines Total Capitalizat
Slide 4: Business overview
business overview… Regulated Operations One of the largest providers of electricity and natural gas in the Upper Midwest and Northwest, serving approximately 640,000 customers in Montana, South Dakota and Nebraska Electric Operations Gas Operations Montana Montana 322,000 customers (transmission/dis
Slide 5: Senior leadership
senior leadership… 25 years utility experience on average. Michael J. Hanson, President & Chief Executive Officer Board member since May 2005 26 years utility experience Brian B. Bird, VP & Chief Financial Officer 21 years financial management experience; 10 years energy experience Thomas J. Knapp,
Slide 6: NorthWestern's future
NorthWestern’s future… Operationally strong Above average reliability Award winning customer service Financially strong Stable earnings and cash flow profile Approximately a 50/50 debt to total capitalization ratio Credit metrics support Baa2/BBB unsecured credit ratings Utilize excess cash flow and
Slide 7: Contribution of segments - 2006
contribution of segments - 2006… Gross Revenue (MM) - 2006 Gross Margin (MM) - 2006 $6 77 83 $66 $119 $329 $359 $662 Total $1.1 billion Total $519 million Note: Revenue and Gross Margin exclude $48 million and $1 million of intercompany eliminations, respectively. Revenue and Gross Margin reported i
Slide 8: 2007 first half financial results
2007 first half financial results… CONSOLIDATED INCOME STATEMENT Unaudited (Dollars in 000's) Six Months Ended June 30, 2007 2006 B(W) Operating Revenues 626,173 593,668 32,505 Cost of Sales 360,534 337,398 (23,136) Gross Margin 265,639 256,270 9,369 Operating Expenses Operating, general & administr
Slide 9: 2007 first half operating income - segment
2007 first half operating income - segment… Y-T-D - June 2007 (in 000's) Regulated Unregulated Electric Nat Gas Electric Nat Gas Other Total Revenues 349,073 220,221 36,879 32,786 (12,786) 626,173 Cost of sales (180,679) (152,134) (8,441) (31,173) 11,893 (360,534) Gross Margin 168,394 68,087 28,438
Slide 10: 2007 first half results
2007 first half results… Variance Analysis: First Half Year 2007 versus First Half Year 2006 First half 2007 increased earnings from prior yearwere primarily due to higher margins, lower operating expenses and lower interest expense. Decreased other income and higher income taxes partially offset th
Slide 11: Historical growth – regulated electric
historical growth – regulated electric… Volume growth rates have exceeded customer growth rates over the last few years. Customers (000) Volume (MWh 000) (1) (1) 2002 data is pro forma for full year results of Montana operations. Actual revenues reported in 10-K included Montana results from Februar
Slide 12: Historical growth – regulated natural gas
historical growth – regulated natural gas… Gas volumes have decreased over the last few years as homes become more efficient. Customers (000) Therms Sales (MM MMBtu) (1) (1) 2002 data is pro forma for full year results of Montana operations. Actual revenues reported in 10-K included Montana results
Slide 13: Financial highlights
financial highlights… Cash Flow from Operations (4) Total Capital Expenditures (1) (2) (3) ($ in millions) ($ in millions) Source: Company reports and SEC filings. Note: Full year 2004 results show combined results for NWEC’s predecessor company from January 1, 2004 to October 31, 2004 and for NWEC
Slide 14: Colstrip unit 4
Colstrip unit 4… Coal-fired mine mouth unit constructed in 1985 778 MW (nameplate) and 740 MW (capability) Operated by PPL Montana Unit has wet scrubbers for particulate and sulfur dioxide removal NWEC has a 30% undivided economic participation in Unit 4 (222 MW capability) Supported by adequate min
Slide 15: 2007 forecasted results
2007 forecasted results… Guidance for 2007 EPS ranges from $1.45 - $1.60 share Assumptions: Interim rates FERC – started June 1, 2007 (2007 impact of $3.1 million) SDPUC and NPSC starting by Dec. 1, 2007 (2007 impact of $.3 million) MT interim rate request of $30.4 million (annual) pending Financial
Slide 16: Value drivers
value drivers… Near Term Rate case review Up to $57 million in revenue relief Colstrip Unit 4 impacts 90 MW default supply contact starting 7-1-07 Bought out the Mellon lease Intermediate Term Continued organic growth Customer and volume growth Increasing rate base Natural Gas pipeline growth – Serv
Slide 17: Rate case filings
rate case filings… Total revenue requests are approximately $57 million annually. (All ’06 test years) Montana Last case was in 2000 (test year 1999); requesting revenue increase of approximately $41.9 million annually FERC Requesting revenue increase of approximately $8.6 million annually South Dak
Slide 18: Earnings potential of rate case filings
earnings potential of rate case filings… Net earnings potential of rate base after rate requests (A) (B) (A * B) Currently Requested Requested Requested Rate Base Authorized Requested Requested Filed Debt Capital Adj. Capital Adj. Requested Net Income in millions ROE ROE Equity/Cap Costs Debt % Equi
Slide 19: Timetable on rate cases
timetable on rate cases… Montana South Dakota Nebraska Oct 19 – Staff and intervenor Nov 9, 2007 – Intervenor pre- pre-filed testimony due Oct 1, 2007 –Cities hire Nov 1 - Company rebuttal consultant to negotiate directly filed testimony due Dec 14, 2007 – Company testimony due with the three cities
Slide 20: Colstrip unit 4 impacts
Colstrip unit 4 impacts… Near Term Impacts at Colstrip Unit 4: Sale of 90 MW to Montana regulated electric customers until 2018 Ave price of $35.80/MWh Will reduce margins by approximately $5.9 million in 2008 ($15/MWh * 90MW * 180 days * 24 hrs) Purchased the Mellon lease for 79 MW in 2007 Net incr
Slide 21: Intermediate term drivers
intermediate term drivers… Intermediate Term Continued organic growth Customer growth – 1.6% annually Load growth in electric segment – 3.2% annually Significant capital expenditure growth since 2005 Increasing regulated rate base Natural Gas pipeline – Serves the growing ethanol industry Growth in
Slide 22: Potential for generation development
potential for generation development… 2007 Montana Legislature passed House Bill 25: Allows ownership of rate base generation Prior legislation didn’t allow generation in rate base Opportunity to provide new supply options to NorthWestern’s customers Reduce reliance on PPL’s generation to default su
Slide 23: Next steps on generation development
next steps on generation development… Activity Timing Cumulative Cost Economic analysis of gas fired facility Dec. 2007 Feasibility study April 2008 Begin application process June 2008 Submit application for approval with MPSC July 2008 MPSC pre-approval April 2009 “go/no go” decision April 2009 $1
Slide 24: Long term drivers
long term drivers… Transmission Development Western Electricity Coordinating Council estimates 30,000 MW of additional capacity is needed in next decade for the West Proposed 3,000 MW’s of new generation in Montana looking for markets Recently 350 MW’s added in Montana Hardin plant (coal) Judith Gap
Slide 25: NWE strategically located for transmission
NWE strategically located for transmission Located between generation and customers 25
Slide 26: Planned western transmission projects
Planned western transmission projects… Projects Route Cost Mountain States Intertie W. Mt to Mid-Idaho (500 kV) $800-$850 million Frontier Line 500 kV DC WY to CA $3 - $5 billion TransWest Express 500 kV $2 - $5 billion SouthWest Intertie Project* Idaho to Las Vegas 500 kV (500 mi.) $750M - $1.5B De
Slide 27: Colstrip 500 kV upgrade
Colstrip 500 kV upgrade… “Traditional” pathway to West Coast and California markets New substations near Townsend and Missoula, MT Upgrade to existing stations No new line construction necessary Capacity increase: 500-700 MW Working with other Colstrip transmission owners NWEC’s ownership share of u
Slide 28: Next steps on Colstrip 500 kV upgrade
next steps on Colstrip 500 kV upgrade… Activity Timing Cumulative Cost WECC planning & path rating analysis during 2008 Agreement with BPA on rates Oct. 2008 Transmission Agreements in place Oct. 2008 Initial WECC approval Sept. 2008 “Go/no go” decision Oct. 2008 $1-2 million Various engineering stu
Slide 29: Mountain States Transmission Intertie Line
Mountain States Transmission Intertie Line… 500 kV AC Line Southwestern Montana to Southeastern Idaho Length: Approx. 400 miles Capacity: 1,500 MW Deposits from subscribers of approx. 1,050 MW Capital Cost: $800 million Assumed ROE of 13%: ROE range on recent FERC-regulated projects of 9%-13.5% 29
Slide 30: Next steps on MSTI
next steps on MSTI… Activity Timing Cumulative Cost Conclude process of participant interest Oct. 2007 Gain support of state & federal agencies Feb. 2008 File Major Facility Siting Act Application in MT Mar. 2008 Complete project siting, permitting, and EIS Nov. 2009 Commercial contracts in place De
Slide 31: Transmission growth projects capital spending
transmission growth projects capital spending… More than $900 million of identified transmission growth projects (includes Colstrip 500KV upgrade at 50% ownership of new project) 31
Slide 32: Financial objectives
financial objectives… Investment grade capital structure Currently investment grade on secured debt Striving to achieve investment grade on unsecured debt / corporate rating S&P recently revised its outlook on NWEC corp. rating to positive Long-term dividend payout of 60–70% Quarterly dividend incre
Slide 33: Investment highlights
investment highlights… Attractive Transmission and Distribution Business Strong, Predictable Earnings Increasing Gross Margin, Earnings and Free Cash Flow (Increased Dividend in Q3 ‘07) Significant Investment Potential Experienced Management 33
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