Slide 1: 2015 Earnings Webcast
2015 Earnings Webcast February 11, 2016 Black Eagle Dam
Slide 2: Presenting Today
Presenting Today 2 Bob Rowe, President & CEO Brian Bird, Vice President & CFO
Slide 3: Forward Looking Statements
3 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 financia
Slide 4: 2015 Highlights
• 2015 net income improved by $30.5 million as compared to 2014. • This improvement was primarily due to a full year of hydro operations and an insurance recovery received in 2015. This was partially offset by the inclusion of an income tax benefit in our 2014 results due to the release of previousl
Slide 5: Summary Financial Results
Summary Financial Results (in mitions except per share amounts) Operating Revenues st of Sales Gross Margin Operating Expenses Operating, general & administrative Property and other taxes Depreciation and depletion Total Operating Expenses Operating Income Interest Expense Other Income Income Before
Slide 6: Gross Margin
6 Gross Margin (dollars in millions) Twelve Months Ended December 31, 2015 2014 Variance Electric $ 663.1 $ 529.4 $ 133.7 25.3% Natural Gas 178.3 192.9 (14.6) (7.6%) Gross Margin $ 841.4 $ 722.3 $ 119.1 16.5% Increase in gross margin due to the following factors: $ 135.0 Hydro operations $ 5.6 South
Slide 7: 2015 Weather
7 2015 Weather Q1 2015 NorthWestern service territory has significantly more heating degree-days than cooling degree- days. As a result, first and fourth quarter weather anomalies tend to be more impactful to earnings. We estimate the mild weather has unfavorably impacted our total gross margin by a
Slide 8: Operating Expenses
Operating Expenses 8 Increase in operating expenses due mainly to the following factors: $8.4 million decrease in OG&A $(20.8) Insurance recovery, net $ (9.5) Hydro transaction costs $ (4.7) Non-employee directors deferred compensation $ (2.2) Generator maintenance costs $ (1.5) Bad debt expense $ (
Slide 9: Operating to Net Income
Operating to Net Income 9 $14.4 million increase in interest expenses was primarily due to increased debt outstanding associated with the hydro transaction. $2.6 million decrease in Other Income due primarily to $4.7 million reduction in the value of deferred shares held in trust for non-employee di
Slide 10: Balance Sheet
Balance Sheet 10 Property plant & equipment (PP&E) increased by 8% as a result of the acquisition of the Beethoven wind project and continued investment to improve system safety, reliability and capacity. 55.4% Debt to capitalization slightly above our targeted 50-55% due to seasonality of cash flow
Slide 11: Cash Flow
Cash Flow 11 $89.8 million improvement in cash flow provided by operating activities was primarily due to higher net income after non-cash adjustments.
Slide 12: Non-GAAP Adjusted EPS
Non-GAAP Adjusted EPS 12 2015 Non-GAAP Adjusted EPS of $3.15 reflects an $0.47, or 17.5%, improvement over 2014 Non-GAAP earnings.
Slide 13: Non-GAAP Adjusted Earnings (Full Year '15 vs '14)
Non-GAAP Adjusted Earnings (Full Year ‘15 vs ’14) 13 The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined o
Slide 14: 2016 Earnings Guidance
2016 Earnings Guidance 14 Our 2016 guidance range of $3.20 - $3.40 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 territories; • Excludes any potential additional impact as a result of th
Slide 15: 2015 to 2016 EPS & Dividend Bridge
2015 to 2016 EPS & Dividend Bridge Basic assumptions include, but are not limited to: • Normal weather in our electric and natural gas service territories; • Excludes any potential additional impact as a result of the FERC decision regarding revenue allocation at our Dave Gates Generating Station; •
Slide 16: The Hydro Facilities
The Hydro Facilities 16 Overview of Hydro Facilities Black Eagle (1) Hydro Asset Integration • Montana Asset Optimization Study: With the acquisition of the hydros, we are modeling different scenarios in an attempt to optimize the integration and operation of our entire generation fleet and determin
Slide 17: South Dakota Electric Operations
17 South Dakota Electric Operations The owned and rate-based cost of energy from the Beethoven wind project over the next 20 years is expected to be $44 million ($25 million net present value) less than the PPA alternative benefitting our customers’ bills over the long-term. Beethoven Wind Project:
Slide 18: EPA's 2030 carbon target for Montana
EPA’s 2030 carbon target for Montana NWE’s CO2 intensity* decreased by approximately 41% with the addition of the hydro facilities to our Montana generation portfolio. However EPA’s Clean Power Plan targets are statewide and not utility specific targets. * lbs CO2 per MWH produced CO2 Intensity* 41%
Slide 19: EPA's Clean Power Plan (CPP)
19 EPA’s Clean Power Plan (CPP) The February 9th Supreme Court 5-4 vote to stay the EPA CPP rules • We will be working with state agencies and other stakeholders to evaluate the implications. • We hope the EPA takes this opportunity to address Montana’s serious concerns with the 47% statewide reduct
Slide 20: Other Activity
Other Activity 20 Big Stone Air Quality Projects • Jointly owned (23.4%) coal plant is subject to BART requirements of the Regional Haze Rule. • Project was to install and operate new system to reduce SO2, NOx and particulate emissions. • We capitalized approximately $98 million for our share of the
Slide 21: Other Significant Achievements in 2015
Other Significant Achievements in 2015 21 Strong year for safety at NorthWestern • Fewest OSHA recordable events of any year. • One of the best years for Lost Time Incidents. • Tragic fatality of a respected senior lineman. Record best customer satisfaction scores with JD Power & Associates • Receiv
Slide 22: Capital Spending Forecast
Capital Spending Forecast 22 Current estimated cumulative capital spending for 2016 through 2020 is $1.47 billion. We anticipate funding the capital projects with a combination of cash flows, aided by NOLs now anticipated to be available into 2020, and long-term debt. If other opportunities arise th
Slide 23: Looking into 2016
23 Looking into 2016 Full Year of SD Rates in place along with Beethoven • We anticipate net income to increase by approximately $13.6 million in 2016 as a result of full year impact of the rate adjustment and Beethoven acquisition. • Big Stone Air Quality Control System placed into service on Decem
Slide 24: Appendix
24 Appendix
Slide 25: Electric Segment (Full Year)
25 Electric Segment (Full Year)
Slide 26: Natural Gas Segment (Full Year)
26 Natural Gas Segment (Full Year)
Slide 27: Heating and Cooling Degree Days (Full Year)
27 Heating and Cooling Degree Days (Full Year)
Slide 28: Segment Results (Full Year)
28 Segment Results (Full Year)
Slide 29: Income Tax Reconciliation (Full Year)
Income Tax Reconciliation (Full Year) 29 The $12.6 million income tax benefit in 2014 was primarily a result of the release of previously unrecognized tax benefits due to the lapse of statutes of limitations in the third quarter of 2014.
Slide 30: Summary Financial Results (Fourth Quarter)
Summary Financial Results (Fourth Quarter) 30
Slide 31: Gross Margin (Fourth Quarter)
31 Gross Margin (Fourth Quarter) (dollars in millions) Three Months Ended December 31, 2015 2014 Variance Electric $ 163.2 $ 150.2 $ 13.0 8.7% Natural Gas 54.4 54.6 (0.2) (0.4%) Gross Margin $ 217.6 $ 204.8 $ 12.8 6.3% Increase in gross margin due to the following factors: $ 14.2 Hydro operations $
Slide 32: Weather (Fourth Quarter)
Weather (Fourth Quarter) 32 Maximum Temperature from Normal Minimum Temperature from Normal
Slide 33: Operating Expenses (Fourth Quarter)
Operating Expenses (Fourth Quarter) 33 Decrease in operating expenses due mainly to the following factors: $16.0 million decrease in OG&A $ (7.2) Hydro transaction costs $ (3.3) Non-employee directors deferred compensation $ (2.2) Generator maintenance costs $ (1.2) Fleet fuel costs $ (1.1) Environm
Slide 34: Operating to Net Income (Fourth Quarter)
Operating to Net Income (Fourth Quarter) 34 $4.2 million increase in interest expenses was primarily due to increased debt outstanding associated with the hydro transaction and Beethoven acquisition. $3.3 million decrease in Other Income due primarily to a $3.3 million reduction in the value of defe
Slide 35: Segment Results (Fourth Quarter)
35 Segment Results (Fourth Quarter)
Slide 36: Adjusted Earnings (Fourth Quarter '15 vs '14)
Adjusted Earnings (Fourth Quarter ‘15 vs ’14) 36 The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or ca
Slide 37: Non-GAAP Financial Measures
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 numerical measure of a company's financ
Slide 38: Delivering a bright future
Upelivering a bright future Energy