Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Investor Presentation (May 2017)
47 slides from Northwestern Energy's investor presentation, May 17, 2017
Slide 1: Investor Update May 17-18, 2017
8-K May 17, 2017 Investor Update May 17-18, 2017 Spion Kop Wind Farm - near Geyser, MT
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
Slide 3: NWE - An Investment for the Long Term
NWE - An Investment for the Long Term 3 • 100% Regulated electric & natural gas utility business • 100 year history of competitive customer rates, system reliability and customer satisfaction • Solid economic indicators in service territory • A diverse electric supply portfolio that is approximately
Slide 4: About NorthWestern
About NorthWestern 4 Montana Operations Electric 363,800 customers 24,450 miles – transmission & distribution lines 809 MW nameplate owned power generation Natural Gas 194,100 customers 7,250 miles of transmission and distribution pipeline 18 Bcf of gas storage capacity Own 61 Bcf of proven natural
Slide 5: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 5 Gross Margin in 2016: Electric: $679M Natural Gas: $177M Gross Margin in 2016: Montana: $718M South Dakota: $128M Nebraska: $ 10M Average Customers in 2016: Residential: 586k Commercial: 112k Industrial: 7k NorthWestern‟s „80/20‟ rules: Approximately 80% Elec
Slide 6: NorthWestern Energy Profile Financial and Company Statistics
NorthWestern Energy Profile 6 Financial and Company Statistics
Slide 7: Highly Carbon-Free Supply Portfolio
7 Based upon 2016 MWH‟s of owned and long-term contracted resources. Approximately 54% of our total company owned and contracted supply is carbon-free. Highly Carbon-Free Supply Portfolio
Slide 8: Strong Utility Foundation
Strong Utility Foundation 8 Electric source: Edison Electric Institute Typical Bills and Average Rates Report, 1/1/16 Natural gas source: US EIA - Monthly residential supply and delivery rates as of 1/29/16 Solid and improving JD Power Overall Customer Satisfaction Scores Residential electric an
Slide 9: Solid Economic Indicators
Solid Economic Indicators 9 • Unemployment rates in all three of our states are meaningfully below National Average. • Customer growth rates historically exceed National Averages. Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2
Slide 10: 2017 Earnings Guidance
2017 Earnings Guidance 10 NorthWestern reaffirms 2017 earnings guidance range of $3.30 - $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 territories; • A consolidated income tax rate
Slide 11: Investment for Our Customers' Benefit
Investment for Our Customers‟ Benefit 11 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: Track Record of Delivering Results
Track Record of Delivering Results 12 Notes: - ROE in 2011, 2012 , 2013, 2014, 2015 & 2016 on a Non-GAAP Adjusted basis, would be 10.5%, 9.8%, 9.6% ,9.4%, 9.9% and 9.8% respectively. - 2017 ROAE and 2017 Dividend payout ratio estimate based on midpoint of our guidance range of $3.30-$3.50. - Details
Slide 13: Total Shareholder Return
Total Shareholder Return 13 • 13 member peer group: ALE (ALLETE), AVA (Avista), BKH (Black Hills Corp), EE (El Paso Electric), GXP (Great Plains Energy), IDA (IDACORP), MGEE (MGE Energy), OGE (OGE Energy), OTTR (Otter Tail Power), PNM (PNM Resources), POR (Portland General Electric), VVC (Vectren) a
Slide 14: 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 continued to outpace maintenance capex and averaged approximately $29 million of positive Free Cash Flow per year. 2016 CFO is less than 2015
Slide 15: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity 15
Slide 16: Credit Ratings
Credit Ratings 16 Moody’s: A2 Fitch: A S&P: A- Moody‟s downgraded our senior secured and unsecured credit rating on March 10, 2017 and has us on a Negative Outlook. However, even after the downgrade, Moody‟s rating is in line with Fitch and above S&P on a secured basis (and between them on an unsecu
Slide 17: Recent Significant Achievements
Recent Significant Achievements 17 Strong year for safety in 2016 • Fewest OSHA recordable events of any year. • Best year for lost time incidents. Record best customer satisfaction scores • Received our best Overall Customer Satisfaction scores in the JD Power residential utility survey in 2016. Co
Slide 18: What we are working on in 2017
What we are working on in 2017 18 Natural Gas Rate Case in Montana • A Hearing was held May 9-11 with a decision expected in mid 2017. Cost control efforts • Continue to monitor costs, especially labor and benefits • Monitor property tax valuations in Montana Continue to invest in our existing trans
Slide 19: Regulatory Update
19 Regulatory Update Regulatory Item Current / Anticipated Action FERC / DGGS: April 2014 order regarding cost allocation at DGGS between retail and wholesale customers. • FERC denied our request for rehearing and required us to make refunds in June 2016. • We filed a petition for review with the US
Slide 20: Montana Natural Gas Rate Filing and House Bill 193
20 Montana Natural Gas Rate Filing: • On May 5th a proposed Stipulation and Settlement Agreement was reached with the MCC. If approved, the settlement would result in a $6.6 million revenue increase and 9.55% ROE. • Hearing was held May 9-11 with a decision expected in mid 2017. Montana House Bill 1
Slide 21: Montana Natural Gas Rate Filing
Montana Natural Gas Rate Filing 21 Montana PSC Docket D2016.9.68 On May 5th a proposed Stipulation and Settlement Agreement was reached with the MCC. If approved, the settlement would result in a $6.6 million* revenue increase, 9.55% ROE and the 46.79% equity capital structure as originally filed. T
Slide 22: Capital Spending Forecast
Capital Spending Forecast 22 The current estimated 5 year capital spending is $1.58 billion. We anticipate managing capital expenditures to provide a more levelized annual spend (including spending on generation assets) and anticipate funding the expenditures with a combination of cash flows, aided
Slide 23: Montana 2015 Electric Supply Resource Plan
Montana 2015 Electric Supply Resource Plan 23 The resource initiatives and actions developed in 2015 Electricity Supply Resource Procurement Plan identify the critical future needs of our portfolio, including solutions to resolve our current negative planning reserve margin. The plan identifies how
Slide 24: Montana 2015 Electric Supply Resource Plan
Montana 2015 Electric Supply Resource Plan 24 On February 13, 2017 we issued a Request for Proposal (RFP) to partially address NorthWestern‟s negative reserve margin. Pacific Northwest planning bodies (PNUCC & NWPPC*) have reaffirmed the expected growing capacity need. NorthWestern is addressing thi
Slide 25: Natural Gas Reserves Opportunity
Owned Owned Target Total Annual Need Natural Gas Reserves Opportunity 25 Current gas prices are very attractive for buyers but it is difficult to find sellers willing to transact at these low rates. First ~6 Bcf annual production acquired for ~$100M Remaining 6-7 Bcf annual production needed to meet
Slide 26: Conclusion
Conclusion 26 Pure Electric and Gas Utility Solid Utility Foundation Strong Earnings and Cash Flows Attractive Future Growth Prospects Best Practices Corporate Governance
Slide 27: Delivering a bright future
Upelivering a bright future
Slide 28: Summary Financial Results (First Quarter)
Summary Financial Results (First Quarter) 28 Note: During the fourth quarter of 2016, we early adopted the provisions of Accounting Standards Update No. 2016-09 (ASU 2016-09), Improvements to Employee Share-Based Payment Accounting, revising certain elements of the accounting for share-based payment
Slide 29: Gross Margin (First Quarter)
29 Gross Margin (First Quarter) (dollars in millions) Three Months Ended March 31, 2017 2016 Variance Electric $ 180.8 $ 157.7 $ 23.1 14.6% Natural Gas 66.7 59.4 7.3 12.3% Gross Margin $ 247.5 $ 217.1 $ 30.4 14.0% Increase in gross margin due to the following factors: $ 10.3 MPSC disallowance (2016)
Slide 30: Weather (First Quarter)
Weather (First Quarter) 30 Mean Temperature from Normal Our Montana service territory benefited from a colder than normal January offset partially by warmer than normal February and March in all three states we serve. Our service territory also experienced colder winter weather than the prior year.
Slide 31: Operating Expenses (First Quarter)
Operating Expenses (First Quarter) 31 Increase in operating expenses due mainly to the following factors: $1.1 million increase in OG&A $ 1.5 Maintenance costs $ 1.3 Bad debt expense $ 0.5 Labor $ (1.7) Non-employee directors deferred compensation $ (1.0) Insurance reserves $ 0.5 Other $4.5 million
Slide 32: Operating to Net Income (First Quarter)
Operating to Net Income (First Quarter) 32 $1.1 million decrease in interest expenses was primarily due to debt refinancing at a lower interest rate of the Pollution Control Revenue Refunding Bonds during the third quarter of 2016. $1.6 million decrease in other income due primarily to a $1.7 millio
Slide 33: Balance Sheet
Balance Sheet (dollars in millions) As of March 31, As of December 31, 2017 2016 Cash Restricted cash econts receivable, net PP&E and other non-current assets Total Assets Payables ql Short-term borrowings Other current liabilities Long-term debt & capital leases Other non-current liabilities Shareh
Slide 34: Cash Flow Statement
(dollars in millions) Operating Activities Net Income Non-Cash adjustments to net income Changes in working capital Other non-current assets & liabilities Cash provided by Operating Activities Investing Activities PP&E additions roceeds from sale of assets Cash used in Investing Activities Financing
Slide 35: Income Tax Reconciliation
Income Tax Reconciliation 35
Slide 36: Adjusted Earnings (First Quarter '17 vs '16)
Adjusted Earnings (First Quarter „17 vs ‟16) 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 cal
Slide 37: Non-GAAP Adjusted EPS
Non-GAAP Adjusted EPS 37 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 calculated in accordance w
Slide 38: 2016 to 2017 EPS & Dividend Bridge
2016 to 2017 EPS & Dividend Bridge 2016 Non-GAAP EPS to 2017 Midpoint $3.30 → $3.40 = 3.0% increase 2016 to 2017 Dividend Growth $2.00 → $2.10 = 5.0% increase Slower near-term EPS growth along with slightly lower capital investment projections than previously provided, led us to a 5% (or 10 cents an
Slide 39: 2016 System Statistics
2016 System Statistics 39 Note: Statistics above are as of 12/31/2016 (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 FERC & 45MW MPSC jurisdictions) peaker (1) (2)
Slide 40: Experienced & Engaged Board of Directors
Experienced & Engaged Board of Directors 40 Dr. E. Linn Draper Jr. • Chairman of the Board • Independent • Director since November 1, 2004 Stephan P. Adik • Committees: Audit (chair), Human Resources • Independent • Director since November 1, 2004 Anthony T. Clark • Committees: Governance and Innova
Slide 41: Strong Executive Team
Strong Executive Team 41 Robert C. Rowe • President and Chief Executive Officer • Current position since 2008 Brian B. Bird • Vice President and Chief Financial Officer • Current position since 2003 Michael R. Cashell • Vice President - Transmission • Current Position since 2011 Patrick R. Corcoran
Slide 42: Commissioners
Commissioners Montana Public Service Commission districts. Chairperson is elected by fellow Commissioners. hak je ¢ years. Chak i : Began Term Name Party Serving Ends Travis Kavulla R Jan-11 ‘Koopman R Jan-13 Jan-21 Brad Johnson (Chairman) R Jan-15 Bob Lake R Jon-13 21 Tony O'Donnell R Jan-17 Jan-24
Slide 43: The Hydro Facilities
The Hydro Facilities 43 Overview of Hydro Facilities Black Eagle Hydro Asset Integration • Montana Asset Optimization Study: As part of reintegrating the hydro facilities into our generation portfolio, we initiated an asset optimization study to maximize the value of our diverse generation portfolio
Slide 44: Colstrip Unit / Sierra Club Litigation
44 Colstrip Unit 4 / Sierra Club Litigation Background • On March 6, 2013, the Sierra Club and the Montana Environmental Information Center (MEIC) (both are plaintiffs) filed suit in the United States District Court for the District of Montana (court) against the six individual Owners of the Colstri
Slide 45: DGGS Update – Denied Rehearing Request
DGGS Update – Denied Rehearing Request 45 Note: Please see Regulatory Matters footnote and Risk Factors section of our recent Form 10-K and Form 10-Q for additional disclosures.
Slide 46: Non-GAAP Financial Measures
Non-GAAP Financial Measures 46 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 maintenance capex
Slide 47: Delivering a bright future
Upelivering a bright future Energy