Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Williams Capital Utility Seminar 2014
50 slides from Northwestern Energy's conference presentation, Mar 20, 2014
Slide 1: Williams Capital Utility Seminar | March 20, 2014
Williams Capital Utility Seminar | March 20, 2014
Slide 2: Forward Looking Statements
2 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 3: About NorthWestern
ABOUT NORTHWESTERN 3 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
Slide 4: NorthWestern Energy Profile
Natural Gas $61 M Other ($10 M) Electric $233 M EBITDA NORTHWESTERN ENERGY PROFILE 4 TICKER: NWE Jurisdiction and Service Implementation Date Rate Base (in millions) (1) Estimated Rate Base (in millions) (2) Authorized Overall Rate of Return Authorized Return on Equity Authorized Equity Level Montan
Slide 5: NWE: An Investment for the Long Term
NWE: AN INVESTMENT FOR THE LONG TERM 5 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 ear
Slide 6: Strong Corporate Governance
STRONG CORPORATE GOVERNANCE 6 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
Slide 7: Solid Economic Indicators
3.62% 3.84% 5.16% 3.98% 0% 1% 2% 3% 4% 5% 6% US National Average Montana South Dakota Nebraska Source: Economic & Social Research Institute (ESRI) via SNL Database 2-20-14 Projected Population Growth 2013-2018 (cumulative growth) SOLID ECONOMIC INDICATORS 7 Top Left: Unemployment rate consistently b
Slide 8: A Diversified Electric and Gas Utility
A DIVERSIFIED ELECTRIC AND GAS UTILITY 8 The “80/20” rules of NorthWestern Gross Margin in 2013: Electric: $506M Natural Gas: $167M Other $ 2M Gross Margin in 2013: Montana: $561M South Dakota: $103M Nebraska: $ 11M Average Customers in 2013: Residential: 561k Commercial: 108k Industrial: 6k Above d
Slide 9: Strong Utility Foundation
600 700 800 2009 2010 2011 2012 2013 Ind ex Sc or e NorthWestern Energy Score JD Power 26 Combination Electric and Natural Gas Company Average JD Power - Customer Service Index Score 0 25 50 75 100 125 150 M in u te s NorthWestern 3-Year Average Customer Average Interruption Duration Index (CAIDI) 0
Slide 10: 2014 Earnings Guidance
$2.02 $2.14 $2.53 $2.66 $2.46 $- $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 $3.00 2009 2010 2011 2012 2013 2014E GAAP Diluted EPS 2014 EARNINGS GUIDANCE 10 2014 guidance range of $2.60-$2.75 based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric a
Slide 11: Track Record of Delivering Results
TRACK RECORD OF DELIVERING RESULTS 11 Notes: - ROE in 2011, 2012 & 2013, on a Non-GAAP Adjusted basis, would be 10.5%, 9.8% & 9.7% respectively. - 2014 ROE and 2014 Dividend payout ratio estimate based on midpoint of guidance range of $2.60- $2.75. - 2011 and 2012 Dividend Payout Ratio based upon No
Slide 12: Hard Assets Providing Real Value
HARD ASSETS PROVIDING REAL VALUE 12 (Left) We believe continued investment in our system to provide safe, reliable, environmentally responsible and cost-effective service for our customers will produce additional value for our shareholders. (Below) With the exception of the 1 & 5 year return versus
Slide 13: Investment for Our Customers' Benefit
$60 $70 $80 $90 $100 $110 $120 $130 2008 2009 2010 2011 2012 2013 Typical NorthWestern Electric and Natural Gas Bill (average Montana, South Dakota and Nebraska monthly residential customer bill) Electric (750 kW) Natural Gas (10 Dkt) INVESTMENT FOR OUR CUSTOMERS’ BENEFIT Over the past 5 years we ha
Slide 14: Strong Cash Flows
$(200) $(150) $(100) $(50) $- $50 $100 $150 $200 $250 $300 2009 2010 2011 2012 2013 Dividends Maintenance Capex CFO CFO Less CapEx & Dividends Mil lion s While maintenance capex and total dividend payments have continued to grow since 2009 (4.1% and 4.6% CAGR respectively), Cash Flow from Operations
Slide 15: Balance Sheet Strength and Liquidity
$0 $50 $100 $150 $200 $250 $300 $350 Q1 Q2 Q3 '10 Q4 Q1 Q2 Q3 '11 Q4 Q1 Q2 Q3 '12 Q4 Q1 Q2 Q3 '13 Q4 M illi on s Liquidity Actual >$100M Target BALANCE SHEET STRENGTH AND LIQUIDITY 15 Annual ratio is average of each quarter end debt/cap ratio Excludes Basin Creek capital leases Goal: 50% - 55% Senio
Slide 16: Net Investment in Existing Business
NET INVESTMENT IN EXISTING BUSINESS 16 Maintenance capital expenditures have cumulatively outpaced depreciation by $190 million over the last five years (2009 to 2013), while maintaining a positive Free Cash Flow during the same period. ($150) ($100) ($50) $0 $50 $100 $150 $200 $250 2009 2010 2011 2
Slide 17: Investment Opportunity Outlook
INVESTMENT OPPORTUNITY OUTLOOK 17 Energy Supply – Pending hydro transaction – Big Stone pollution control – Other vertical integration opportunities for Montana natural gas reserves Transmission – Network upgrades – Jack Rabbit - Big Sky 161kV line – Carbon - Stillwater 100kV Distribution – Di
Slide 18: Investment Project Summary
High High High High High 2014 2015 2016 2017 2018 2019 MT - Distribution System Infrastructure Project (DSIP) MT - Natural gas reserves MT - Spion Kop - wind (40 MW) SD - Aberdeen peaking generator (60 MW) SD - Neal pollution control equipment SD - Big Stone pollution control equipment MT - pending
Slide 19: Montana Baseload Electric Opportunity
MONTANA BASELOAD ELECTRIC OPPORTUNITY 19 The total load served over our Montana system is approximately 11 million MWh. The load we currently have responsibility for providing supply is just over 6 million MWh. Our owned generation in Montana, including the addition of Spion Kop would serve approxim
Slide 20: Montana Hydro Acquisition
MONTANA HYDRO ACQUISITION 20 • Announced, in September 2013, the acquisition of eleven baseload 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 fo
Slide 21: Hydro - Supporting Our Values
HYDRO - SUPPORTING OUR VALUES 21 Our Vision Statement: Working together to deliver safe, reliable and innovative energy solutions that create value for our customers, communities, employees and investors. The acquisition of these highly valuable assets should allow NorthWestern to further our missio
Slide 22: Hydro - Owned & Contracted Resources
Coal (Colstrip 4) 29% Hydro (Pending) 42% Hydro (QF/contracted) 1% Wind (Spion Kop) 2% Wind (QF/contracted) 11%Natural Gas 1% Thermal (QF/contracted) 13% 22 Montana Annual Production (Excludes Kerr Dam1) HYDRO – OWNED & CONTRACTED RESOURCES MONTANA Yellowstone River ll t r Yellowstone River ll t ll
Slide 23: Hydro - A Great Fit at the Right Time
HYDRO - A GREAT FIT AT THE RIGHT TIME 23 – Strong balance sheet, low interest rates and favorable utility equity valuations to finance the transaction. – Assets valuations at favorable (lower) prices as compared to buying during high commodity price periods. Thompson Falls Dam • Existing resources w
Slide 24: Meeting Customer Demands
MEETING CUSTOMER DEMANDS 24 The addition of the hydro generation assets into our Montana electric portfolio aligns well with forecasted 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
Slide 25: Hydro - Montana Generation Profile
HYDRO - MONTANA GENERATION PROFILE 25 127% 122% 120% 105% 102% 98% 97% 91% 84% 78% 77% 64% 60% 60% 53% 44% 0% 20 40% 60 80% 100 120% 140 WR GXP EE CNL UNS IDA EDE VVC ALE AVA UIL MGEE PNM BKH POR NWE 93% Peer Average Owned Resources for Retail Use as 12/31/2012 (Percentage by MWh) Owned Resources -
Slide 26: Hydro - Financing Strategy
HYDRO - FINANCING STRATEGY 26 • Financing Plans – Plan to close into permanent financing up to $500 million of debt, up to $400 million of equity, and up to $50 million of free cash flows. – If capital market access is limited we have the option of closing into the $900 million committed Bridge Faci
Slide 27: Hydro transaction timeline and regulatory approvals
• Transaction announced on September 26, 2013 • Pre-filing informational meeting with the Montana PSC on October 18, 2013 • Bridge facility – entered into a $900 million 364-day senior bridge credit facility on November 12, 2013 • Filed Application for Approval to Purchase and Operate the Hydro Elec
Slide 28: Big Stone and Neal Air Quality Projects
BIG STONE AND NEAL AIR QUALITY PROJECTS 28 Big Stone Power Plant Neal Power Plant Big Stone Neal Location Northeast South Dakota Northwest Iowa Ownership 23.4% of 475 MW coal plant 8.7% of 644 MW coal plant Project Subject to Best Available Retrofit Technology (BART) requirements of the Regional Haz
Slide 29: Southern Bear Paw Transaction
SOUTHERN BEAR PAW TRANSACTION 29 • Finalized acquisition of Bear Paw South – On December 2, 2013, we finalized the purchase of 63 Bcf proven reserves and 82% interest in Havre Pipeline Company for $68.7 million. – Our largest natural gas reserves acquisition to date adding 29 employees to our 14 exi
Slide 30: Natural Gas Reserves Opportunity
NATURAL GAS RESERVES OPPORTUNITY 30 We continue to pursue opportunities to secure low cost gas reserves for our customers. • Remaining 18% unfilled position to reach our targeted 50% owned supply. • Other potential opportunities to procure reserves to provide up to 50% (3-4 Bcf of natural gas annual
Slide 31: Distribution System Infrastructure Project
DISTRIBUTION SYSTEM INFRASTRUCTURE PROJECT 31 • 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, bui
Slide 32: Capital Spending
$182 $200 $170 $156 $147 $52 $50 $50 $50 $38 $29 $- $50 $100 $150 $200 $250 $300 2014 2015 2016 2017 2018 $M illio ns Capital Spending Maintenance Capex Distribution System Infrastructure Project (DSIP) Energy Supply (primarily SD environmental projects) CAPITAL SPENDING 32 DSIP – Distribution Syste
Slide 33: Conclusion
CONCLUSION 33 Fully- regulated utility Best practices corporate governance Strong track record of earnings and dividend growth Strong cash flows aided by Net Operating Loss (NOL) carryforwards Realistic investment opportunities to invest Free Cash Flow Aberdeen Peaker Plant Ground Breaking October 1
Slide 34: Appendix
rc APPENDIX Northi
Slide 35: 2012 and 2013 Adjusted EPS Schedule
2012 AND 2013 ADJUSTED EPS SCHEDULE 35 Q1 Q2 Q3 Q4 2013 2013 Reported GAAP diluted EPS $1.01 $0.37 $0.40 $0.68 $2.46 Non-GAAP Adjustments: Weather (0.02) (0.02) (0.01) (0.05)$ Hydro Transaction related legal and professional fees 0.05 0.06 0.11$ DSM lost revenue recovery - portion related to 2012 (0
Slide 36: 2014 Earnings Guidance
2014 EARNINGS GUIDANCE 36 Continued investment in our system to serve our customers and communities is expected to provide a targeted 7-10% total return to our investors through a combination of earnings growth and dividend yield. 2014 guidance range of $2.60-$2.75 and a midpoint of $2.68 based upon
Slide 37: Consolidated Statement of Income
CONSOLIDATED STATEMENT OF INCOME 37 (in millions, except per share) 2013 2012 2013 2012 Operating Revenues $319.1 $280.8 $1,154.5 $1,070.3 Cost of Sales (Gain on CELP artibration decision) (47.9) ($47.9) Cost of Sales (Other) 136.1 115.4 479.6 443.3 Gross Margin 183.0 213.3 674.9 674.9 Operating Exp
Slide 38: Twelve Month Earnings Reconciliation
38 12 MONTH EARNINGS RECONCILIATION NORTHWESTERN CORPORATION Twelve Months Ended December 31, 2013 ($millions, except EPS) Tw elv e M on ths En de d, De c 3 1, 201 2 Na tur al g as pro duc tion Mo nta na nat ura l ga s r ate inc rea se Na tur al g as ret ail vol um es Sp ion Ko p r eve nue Ele ctr i
Slide 39: Consolidated Statement of Cash Flows
CONSOLIDATED STATEMENT OF CASH FLOWS 39 This $57.5 million decrease in operating cash flows is primarily due to a decrease in collection of receivables from customers of approximately $34.2 million, which includes approximately $20 million associated with billing delays as a result of a new customer
Slide 40: Consolidated Balance Sheet
CONSOLIDATED BALANCE SHEET 40 (in millions) 2013 2012 Cash 16.6$ 9.8$ Restricted cash 6.9 6.7 Accounts receivable, net 174.9 143.7 Inventories 55.6 54.2 Other current assets 67.0 88.8 Goodwill 355.1 355.1 PP&E and other non-current assets 3,039.2 2,827.3 Total Assets 3,715.3$ 3,485.5$ Payables 93.0
Slide 41: Effective Tax Rate Reconciliation
EFFECTIVE TAX RATE RECONCILIATION 41 (in millions) 2013 2012 Variance Income Before Income Taxes $108.3 $116.5 ($8.2) Income tax calculated at 35% federal statutory rate 37.9 40.8 (2.9) Permanent or flow through adjustments: State income, net of federal provisions (3.1) 1.1 (4.2) Flow through repair
Slide 42: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES 42 The data presented above includes financial information prepared in accordance with GAAP, as well as another financial measure, Gross Margin, Free Cash Flows, Net Debt and EBITDA, but is considered a “Non-GAAP financial measure.” Generally, a Non- GAAP financial measur
Slide 43: 2013 System Statistics
2013 SYSTEM STATISTICS 43 Note: Statistics above are as of 12/31/2013 (1) Nebraska is a natural gas only jurisdiction •MT Natural Gas reserves increased in 2013 with the addition 63 Bcf from the Bear Paw South acquisition. (1) Energy Supply Transmission Distribution Electric (MW) MT SD Total 2013 Tx
Slide 44: Well Rounded Board of Directors
WELL ROUNDED BOARD OF DIRECTORS 44 Members of the Board of Directors tour backstage at The Mansfield Center for the Performing Arts in Great Falls, Montana. From the left are Dana J. Dykhouse, Dorothy M. Bradley, Denton Louis Peoples, E. Linn Draper, Jr., Robert C. Rowe, Julia L. Johnson, Stephen P.
Slide 45: Strong Executive Team
STRONG EXECUTIVE TEAM 45 NorthWestern Energy’s executive officers tour backstage at The Mansfield Center for the Performing Arts in Great Falls, Montana. From the left are Michael R. Cashell, Curtis T. Pohl, Patrick R. Corcoran, Heather H. Grahame, Robert C. Rowe, John D. Hines, Bobbi L. Schroeppel,
Slide 46: Our Commissioners
OUR COMMISSIONERS Name Party Began Serving Term Ends Kirk Bushman R Jan-13 Jan-17 Bill Gallagher (Chairman) R Jan-11 Jan-15 Travis Kavulla R Jan-11 Jan-15 Roger Koopman R Jan-13 Jan-17 Bob Lake R Jan-13 Jan-17 Commissioners are elected in statewide elections from each of five districts. Chairperson
Slide 47: FERC's ALJ Ruling - We Got the Crust
FERC’s ALJ RULING – WE GOT THE CRUST 47 Relying on the regulatory process to provide an equitable outcome should be as American as…. apple pie. FERC Total Direct (45MW) 45/105 39/105 21/105 105/105 43% 37% 20% 100% Fixed Costs ($millions) $16.3 $14.2 $7.6 $38.1 Variable Costs (Fuel, etc) 8.3 7.2 3.9
Slide 48: The Back Story on DGGS
THE BACK STORY ON DGGS 48 Background •NorthWestern Energy operates a transmission system and balancing authority within Montana and is charged with the responsibility of providing safe and reliable electric service to all of its customers. This includes retail and wholesale customers. • Part of Nort
Slide 49: The Back Story on DGGS (continued)
THE BACK STORY ON DGGS (continued) 49 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
Slide 50: Delivering a bright future
Upelivering a bright future