Slide 1: Delivering a Bright Future
Renitestent Energy Delivering a Bright Future UTILITY WEEK December 2012 Aiea. 1912 - 2012 BUILDING
Slide 2: Forward Looking Statement
2 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: About NorthWestern: Vision, Mission, Values
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: ABOUT NORTHWESTERN S - safety E - excellence R - respect V - value I - integrity C - community E - environment
Slide 4: NorthWestern Energy Profile
4 NORTHWESTERN ENERGY PROFILE TICKER: NWE
Slide 5: A Strong & Well Rounded Board & Executive Team
5 A STRONG & WELL ROUNDED BOARD & EXECUTIVE TEAM
Slide 6: NWE Corporate Responsibility
6 NWE CORPORATE RESPONSIBILITY
Slide 7: Better Than Average Economic Indicators
7 BETTER THAN AVERAGE ECONOMIC INDICATORS Top Left: Unemployment rate consistently below National Average for our service territory. National Ranking (NE 2nd, SD 3rd & MT 10th) Top: Bad Debt/Revenue Write-off better than peer average in AGA/EEI 2011 Survey – Our customers pay their bills. Left: Proj
Slide 8: NWE: An Investment for the Long Term
8 NWE: AN INVESTMENT FOR THE LONG TERM 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 – 5 years of great earnings results and gr
Slide 9: A Diversified Electric and Gas Utility
9 A DIVERSIFIED ELECTRIC AND GAS UTILITY Above data reflects full year 2011 results . Jurisdiction and service type based upon gross margin contribution. Customers based upon volumes. The “80/20” rules of NorthWestern Gross Margin in 2011: Electric: $470M Natural Gas: $151M Other $ 1M Gross Margin i
Slide 10: Strong Utility Foundation
10 STRONG UTILITY FOUNDATION Electric source: Edison Electric Institute Typical Bills and Average Rates Report, 1/1/12 Natural gas source: US Dept of Energy Monthly residential supply and delivery rates as of 1/1/12 Strong utility operations: Solid system reliability (EEI 2nd quartile); A NWE cu
Slide 11: Reaffirming 2012 Earnings Guidance
11 REAFFIRMING 2012 EARNINGS GUIDANCE Reaffirming updated 2012 guidance range of $2.30-$2.40 based upon, but not limited to, the following major assumptions and expectations: • DGGS cost allocation methodology consistent with the Initial Decision, excluding the 2011 effect of the Initial Decision; •
Slide 12: Track Record of Delivering Results
12 5 YEAR TRACK RECORD OF DELIVERING RESULTS Return on Equity has steadily improved each year from 2007 – 2011 and Dividend per Share has increased each of the last 5 years. 5 Year (2007-11) Average Return on Equity : 9.1% 5 Year (2007-11) CAGR Dividend: 3.0% Dividend Yield Greater than 4.0% 1. 2012
Slide 13: Strong Cash Flows
13 STRONG CASH FLOWS While maintenance capex and dividend payments have continued to grow over the past 5 years (9.2% and 3.0% CAGR respectively), Cash Flow from Operations has continued to outpace maintenance capex and provided approximately $40-60 million of positive Free Cash Flow per year. We an
Slide 14: Near-Term Potential Earnings Drivers
14 NEAR-TERM POTENTIAL EARNINGS DRIVERS 2013 Tax Rate ranges: 14% to 17%
Slide 15: Solid Pension Funding
15 SOLID PENSION FUNDING We calculate our pension obligation with conservative estimates. Expected long- term rate of return for NWE is 7.00% vs peer group average of 7.78%. Discount rate for NWE is 4.40%-4.55% vs peer group average of 5.35%
Slide 16: Balance Sheet Strength and Liquidity
16 BALANCE SHEET STRENGTH AND LIQUIDITY
Slide 17: Net Investment in Existing Business
17 NET INVESTMENT IN EXISTING BUSINESS Maintenance capital expenditures have cumulatively outpaced depreciation by $154 million over the last five years (2008 to 2012 projected), while maintaining a positive Free Cash Flow during the same period.
Slide 18: 2012 Montana Natural Gas Rate Filing
18 2012 MONTANA NATURAL GAS RATE FILING We are dedicated to operating a safe, reliable natural gas system and that requires ongoing investment in infrastructure replacements. If approved by the MPSC, on average this request would result in a monthly increase of $5.69 or 7.17% for a residential custo
Slide 19: Investment Opportunity Outlook
19 INVESTMENT OPPORTUNITY OUTLOOK Energy Supply – Big Stone/Neal pollution control – South Dakota natural gas peaking generation – Montana Spion Kop Wind facility – Other vertical integration opportunities in Montana including gas reserves or base load generation Transmission – Network upgrades
Slide 20: Distribution Investment Outlook
20 DISTRIBUTION INVESTMENT OUTLOOK Distribution System Integrity Program (DSIP) The Project addresses the emerging issue of our aging infrastructure and prepare our natural gas and electric distribution systems for the next generation of technology. For the electric distribution system, the Program’
Slide 21: Electric Generation Opportunity
21 ELECTRIC GENERATION OPPORTUNITY We own less than 50% of our supply needs. We are currently evaluating build, acquisition, or other market alternatives to meet forecasted supply gap. 75 MW contract with PPL expired in June 2012 and 200 MW contract will expire in June 2014
Slide 22: Natural Gas Needs and Supply
22 NATURAL GAS NEEDS AND SUPPLY Top Left: Approximately 11% of our total natural gas needs go toward electric generation and the remaining 89% is sold to our retail customers Top: We own approximately 10% of our total retail needs in Montana Left: As we continue to add to our natural gas reserves to
Slide 23: Hard Assets Providing Real Value
23 HARD ASSETS PROVIDING REAL VALUE (Left) We believe continued investment in our system to provide an even more safe, reliable, environmentally responsible and cost- effective service for our customers will produce additional value for our shareholders. (Below) NWE Total Shareholder Return has outp
Slide 24: Investment Project Summary
24 INVESTMENT PROJECT SUMMARY Several opportunities exist to further increase and diversify earnings as compared to our approximately $1.8 billion of rate base today. Additional opportunities for baseload generation in Montana are currently being evaluated and may be incorporated as their scope and
Slide 25: Conclusion
25 CONCLUSION We’re a fully- regulated and financially sound utility; with - Diversity across states, service type and customer segments - 100 year history of competitive rates, reliability and customer satisfaction - 5 years of delivering great earnings and growing dividends - Strong cash flows aid
Slide 26: Appendix
APPENDIX atrering rg Fire
Slide 27: Earnings Reconciliation
EARNINGS RECONCILIATION Nine Months Ended 2012 ‘September 3 3 z ai 2 = ae H ie i H g 3 a z Ze i 3 22 iy as fi: fi fiibib ae 38 8 23 8 me) fay 2 Pee & 33 rtd iF pid pi gb Gage ik : 2h a Ce a £3 3° a 2 63 : ig o i 3 *E Gross Margin 463.6 | (04) (63) (48) (08) 51 2 ia] 4647 Operating Expens Goer ceanav
Slide 28: Adjusted EPS Schedule
ADJUSTED EPS SCHEDULE 2012 ‘Actual Actual Actual [est. low est.high] [ Low High 22012 932012] 0412 aa's2 || 2012 2012 $ 088 $ 0.31 $ (0.10)/$ 154 $ 168] |$ 263 $273 Weather $ 0.09 $ 0.05 $ (0.06) $0.08 $0.08 Release of DGGS deferral $ ( $(0.05) $(0.05) Lost revenue recovery related to 2010/2011. $ (
Slide 29: Consolidated Statement of Income
29 CONSOLIDATED STATEMENT OF INCOME
Slide 30: Consolidated Statement of Cash Flows
30 CONSOLIDATED STATEMENT OF CASH FLOWS
Slide 31: Consolidated Balance Sheet
31 CONSOLIDATED BALANCE SHEET
Slide 32: Effective Tax Rate Reconciliation
32 EFFECTIVE TAX RATE RECONCILIATION
Slide 33: 2011 System Statistics
33 2011 SYSTEM STATISTICS Note: Statistics above are as of 12/31/2011 (1) Nebraska is a natural gas only jurisdiction (1) Energy Supply Transmission Distribution Electric (MW) MT SD Total 2011 Tx for Others MT SD Total Demand MT SD / NE Total Base load coal 222 210 432 Electric (GWh) 9,100 100 9,200
Slide 34: Environmental Controls
ENVIRONMENTAL CONTROLS Primary Pollutant Controlled Plant Name [Colstrip 3 & 4 jig Stor it IDGGS (Natural Gas)| [Coyote it [Neal #4 I [Colstrip 3 & 4 ‘Stone it IDGGS (Natural Gas)| e [Neal #4 I Controls Acronyms Selective Catalytic Reduction Selective Non-Catalyti ‘Separated over fire air to help ge
Slide 35: Our Commissioners
OUR COMMISSIONERS South Dak Public Utilities Commission ‘Commissioners are elected in statewide elections. Chairperson is ‘Commissioners are elected in statewide elections. Chairperson is Chairperson term is 1 year. Began Term Sewing Ends Jon-97——Jan-15 Jan-93 Jan-17 Jon-83——Jan-19 Jan-07 Jan-19 Cha
Slide 36: One Hundred Years Later
36 ONE HUNDRED YEARS LATER. . . . After One Hundred Years, Electricity is still a great value
Slide 37: FERC's ALJ Ruling – We Got the Crust
37 FERC’s ALJ RULING – WE GOT THE CRUST 37
Slide 38: The Back Story on DGGS
38 THE BACK STORY ON DGGS 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 39: The Back Story on DGGS (Continued)
39 THE BACK STORY ON DGGS (CONTINUED) 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