Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Investor Presentation (August 2013)
41 slides from Northwestern Energy's investor presentation, August 2013
Slide 1: Investor Update July/August 2013
1 Investor Update July/August 2013 1
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
3 ABOUT NORTHWESTERN 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: NWE: An Investment for the Long Term
4 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 significant earnings and divi
Slide 5: NorthWestern Energy Profile
5 NORTHWESTERN ENERGY PROFILE Rate Base as of 12/31/2012 TICKER: NWE Rate Base Estimated Rate Base Authorized Overall Authorized Authorized Implementation (in millions) (in millions) Rate of Return on Equity Stock Price * $42.05 Jurisdiction and Service Date (1) (2) Return Equity Level Outstanding S
Slide 6: A Strong & Well Rounded Board & Executive Team
6 A STRONG & WELL ROUNDED BOARD & EXECUTIVE TEAM BOARD OF DIRECTORS EXECUTIVE TEAM Retired Chairman, President and Chief President and CEO. 20-plus years of E. Linn Draper Jr. Executive Officer of American Electric Robert C. Rowe energy, utility and regulatory experience; Chairman of the Board Power
Slide 7: NWE Corporate Responsibility
7 NWE CORPORATE RESPONSIBILITY Forbes America's Most Trustworthy Companies 2013 For the 3rd year in a row, NorthWestern Corporation was recognized by Forbes as one of "America's Most Trustworthy Companies," which identifies the most transparent and trustworthy businesses that trade on the American e
Slide 8: Better Than Average Economic Indicators
8 BETTER THAN AVERAGE ECONOMIC INDICATORS Unemployment Rate Write-Off to Revenue Ratio (as reported in May each year) 0.35% US National Average Montana 0.30% South Dakota Nebraska 12% 0.25% 10% 0.20% 8% 6% 0.15% 0.30% 0.29% 0.25% 0.25% 4% 0.10% 0.21% 0.21% 2% 0.05% 0% 2009 2010 2011 2012 2013 0.00%
Slide 9: A Diversified Electric and Gas Utility
9 A DIVERSIFIED ELECTRIC AND GAS UTILITY The “80/20” rules of NorthWestern Gross Margin in 2012: Electric: $528M Natural Gas: $146M Gross Margin in 2012 Other $ 1M Montana: $570M South Dakota: $ 95M 78% Electric Nebraska: $ 10M 22% Natural Gas 84% Montana 83% Residential 14% South Dakota 16% Commerc
Slide 10: Strong Utility Foundation
10 STRONG UTILITY FOUNDATION System Average Interruption Customer Average Interruption Duration Index "Typical Bill" Residential Rate Comparison Frequency Index (SAIFI) $140 (CAIDI) 150 1.50 $120 National Average National Average 125 $100 1.25 EEI – 2nd $80 Quartile 100 1.00 Interruptions Performanc
Slide 11: 2013 Earnings Guidance
11 2013 EARNINGS GUIDANCE Diluted Earnings Per Share 2013 Initial Diluted GAAP EPS $3.00 GAAP Diluted EPS Range of $2.75 $2.40-2.55 Initial Guidance Range and a $2.50 midpoint of Non-GAAP "Adjusted" EPS $2.48 is now $2.25 updated to $2.45-$2.60 $2.00 per share with a $1.75 midpoint of $2.53 $1.50 $1
Slide 12: Year Track Record of Delivering Results
12 5 YEAR TRACK RECORD OF DELIVERING RESULTS 12.0% Return on Equity Return on Equity 10.0% 11.0% 11.0% 10.1% steadily improved 8.0% 9.5% 9.6% $Millions 8.5% each year from 2008 – 6.0% 2012 and Dividend per 4.0% Share increased each 2.0% of the last 5 years. 0.0% 2008 2009 2010 2011 1 2012 1 2013E 2
Slide 13: Strong Cash Flows
13 STRONG CASH FLOWS $300 Components of Free Cash Flow $250 - $200 While maintenance capex and $150 (1) dividend payments have continued to Millions $100 grow over the past 5 years (6.5% and $50 $0 2.1% CAGR respectively), Cash Flow ($50) from Operations has continued to ($100) outpace maintenance c
Slide 14: Solid Pension Funding
14 SOLID PENSION FUNDING Pension Funded Status 100% as of 12/31/2012 PNM Resources, Inc. NorthWestern Corp. UniSource Energy Corp. Portland Gen. Elec. Co. Vectren Corp. Cleco Corp. 78% 78% Black Hills Corp. 76% 80% 78% 74% 90% Empire District Electric Co. El Paso Electric Co. UIL Holdings Corp. ALLE
Slide 15: Balance Sheet Strength and Liquidity
15 BALANCE SHEET STRENGTH AND LIQUIDITY Credit Ratings $300 Debt Maturity Schedule Senior Senior $250 Secured Unsecured Commercial $200 Rating Rating Paper Outlook Millions $150 Fitch A- BBB+ F2 Positive $100 Moody's A2 Baa1 Prime-2 Stable $50 S&P A- BBB A-2 Stable $0 A security rating is not a reco
Slide 16: Hard Assets Providing Real Value
16 HARD ASSETS PROVIDING REAL VALUE Property Plant and Equipment vs Market Value (Left) We believe continued investment in Gross PP&E Net PP&E our system to provide safe, reliable, Enterprise Value Market Cap $4,000 environmentally responsible and cost- $3,500 effective service for our customers wil
Slide 17: Growth with Little Impact to Customers
17 GROWTH WITH LITTLE IMPACT TO CUSTOMERS $2,200 Rate Base and Earnings per Share $3.00 $2,000 Over the past 5 years we $2.75 $1,800 have begun to rebuild Rate Base - Millions $1,600 $2.50 our Montana energy EPS - Dollars $1,400 $2.25 $1,200 supply portfolio and $2.00 $1,000 invested to enhance $800
Slide 18: Net Investment in Existing Business
18 NET INVESTMENT IN EXISTING BUSINESS $300 Maintenance Capex vs. Depreciation $250 $200 $150 ($millions) $100 $50 $0 ($50) ($100) ($150) 2008 2009 2010 2011 2012 2013E Distribution System Infrastructure Project (DSIP) Capital Maintenance capex Depreciation Cumulative capex in excess of depreciation
Slide 19: 2012 Montana Natural Gas Rate Filing
19 2012 MONTANA NATURAL GAS RATE FILING D2009.9.129 September 2012 Request Final Order D2012.9.94 Montana Natural Gas Revenue Requirement $300 2009 Final Order as compared to Test Year 2011 Cost of Equity 10.25% 10.50% ($millions) Cost of Debt 5.76% 5.39% Equity % of Total Capitalization 48.00% 47.6
Slide 20: Investment Opportunity Outlook
20 INVESTMENT OPPORTUNITY OUTLOOK Energy Supply – Big Stone/Neal pollution control – South Dakota natural gas peaking generation – Montana Spion Kop Wind facility - completed – Other vertical integration opportunities in Montana including gas reserves or base load generation Transmission – Netwo
Slide 21: Investment Project Summary
21 INVESTMENT PROJECT SUMMARY Total Project Capital Opportunity ($millions) Generation Low High Jurisdiction Big Stone pollution control equipment High $95 to $110 SDPUC Neal pollution control equipment High $25 to $30 SDPUC South Dakota peaking generator (60 MW) In commercial operation April 2013 $
Slide 22: Natural Gas Needs and Supply
22 NATURAL GAS NEEDS AND SUPPLY Total Natural Gas Needs Natural Gas Supply for Retail Sales (in Bcf) (in Bcf) Dave Gates Generation MT Retail SD/NE Retail Battle Creek Bear Paw Market Purchase 18.6 16.5 59% 89% Bear Paw Battle Creek 4.4 1.6 8.3 MONTANA GAS RESERVES 14% 9% 27% 0.5 All Data from 2012
Slide 23: Montana Electric Generation Opportunity
23 MONTANA ELECTRIC GENERATION OPPORTUNITY 140.0% Percentage of Owned Resources for Retail Use 120.0% 100.0% Peer Average 80.0% 60.0% 96% 40.0% 20.0% 44% 31% 0.0% WR GXP EE CNL UNS IDA EDE NWE SD VVC ALE AVA UIL MGEE PNM * BKH POR NWE NWE Sources: 2012 FERC Form 1 - Sources and Disposition of Energy
Slide 24: Distribution Investment Outlook
24 DISTRIBUTION INVESTMENT OUTLOOK Distribution System Infrastructure Project (DSIP) The Project addresses the emerging issue of our aging infrastructure and prepares our natural gas and electric distribution systems for the next generation of technology. For the electric distribution system, the Pr
Slide 25: Capital Spending
25 CAPITAL SPENDING $300 Capital Spending Capital spending projections do not include potential future electric or natural gas energy supply additions or capital related to $250 our Gas Transmission Infrastructure $44 $33 $28 Project (GTIP*). $200 $53 $50 $50 $50 $50 $Millions $150 $100 $160 $163 $1
Slide 26: Conclusion
26 CONCLUSION Fully- Best Financially Strong Realistic regulated Attractive practices sound cash flows dividend investment utility corporate opportunities governance to invest Free Cash Flow Aberdeen Peaker Plant Ribbon Cutting July 23, 2013 Aberdeen Peaker Plant Ground Breaking October 14, 2011
Slide 27: Appendix
27 APPENDIX NorthWestern Energy Delivering a Bright Future
Slide 28: Earnings Reconciliation
28 EARNINGS RECONCILIATION NORTHWESTERN CORPORATION Six Months Ended June 30, 2013 ($millions, except EPS) Operating expenses recovered in trackers Operating expenses recovered in trackers Distribution System Infrastructure Project Flow-through of state bonus depreciation Prior year permanent return
Slide 29: Adjusted EPS Schedule
29 ADJUSTED EPS SCHEDULE 2013 Actual Actual Estimated Q1 2013 Q2 2013 2nd Half 2013 FY 2013 Reported EPS $ 1.01 $ 0.37 $1.17 $ 2.55 Updated and Non-GAAP Adjustments: increased 2013 EPS Weather (0.02) (0.02) - guidance - range of $2.45 - Adjusted EPS $ 1.01 $ 0.35 $1.17 $ 2.53 $2.60 with a midpoint o
Slide 30: Consolidated Statement of Income
30 CONSOLIDATED STATEMENT OF INCOME (in thousands) Six Months Ended June 30, 2013 2012 Variance Operating Revenues $ 573,181 $ 553,703 $ 19,478 Cost of Sales 239,109 234,823 4,286 Gross Margin 334,072 318,880 15,192 Operating Expenses Operating, general & administrative 136,201 132,669 3,532 Propert
Slide 31: Consolidated Statement of Cash Flows
31 CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ending June 30, (in thousands) 2013 2012 Net Income $ 52,243 $ 43,481 Depreciation 56,632 52,859 Amort. of debt issue costs, discount, and deferred hedge gain 193 180 Amortization of restricted stock 1,249 1,638 Equity portion of allowance for funds
Slide 32: Consolidated Balance Sheet
32 CONSOLIDATED BALANCE SHEET (in thousands) June 30, December 31, 2013 2012 Cash 7,793 9,822 Restricted cash 8,068 6,700 Accounts receivable, net 116,526 143,695 Inventories 47,610 54,161 Other current assets 66,084 88,750 Goodwill 355,128 355,128 PP&E and other non-current assets 2,949,839 2,827,2
Slide 33: Effective Tax Rate Reconciliation
33 EFFECTIVE TAX RATE RECONCILIATION Six Months Ended June 30, 2013 2012 (in millions) Income Before Income Taxes $59.4 $54.1 Income tax calculated at 35% Federal statutory rate 20.8 18.9 Permanent or flow through adjustments Flow-through repairs deductions (9.8) (7.7) Flow-through of state bonus de
Slide 34: 2012 System Statistics
34 2012 SYSTEM STATISTICS Energy Supply Transmission Distribution Electric (MW) MT SD Total 2012 Tx for Others MT SD Total Demand MT SD / NE (2) Total Base load coal 222 210 432 Electric (GWh) 9,600 100 9,700 Daily MWs 750 172 922 Wind 40 40 Natural Gas (Bcf) 21.0 - 21.0 Peak MWs 1,784 324 (1) Other
Slide 35: Environmental Controls
35 ENVIRONMENTAL CONTROLS PRESENT Sulfur Primary Pollutant Oxide Controlled Nitrogen Oxide (NOX) (SOX) Particulate Matter Mercury Low Nox HG Control Plant Name SCR SNCR Burner SOFA Scrubber ESP BagHouse Injection Colstrip 3 & 4 x x x x Big Stone nis x DGGS (Natural Gas) x Coyote x x Neal #4 x x PLAN
Slide 36: Our Commissioners
36 OUR COMMISSIONERS Montana Public Service Commission Commissioners are elected in statewide elections from each of five districts. Chairperson is elected by fellow Commissioners. Commissioner term is 4 years, Chairperson term is 2 years. Began Term Name Party Serving Ends Kirk Bushman R Jan-13 Jan
Slide 37: South Dakota Electric Supply Capex
37 SOUTH DAKOTA ELECTRIC SUPPLY CAPEX SD Electric Supply CapEx - Spent and Planned (in millions) $120 $100 $80 $60 Range of $87m - $102m $40 Range of $11m - $55 $20 $16m $8 $14 $0 Big Stone Neal 4 Aberdeen Peaker Planned Spent We are planning on spending approximately $180 million on capital expendi
Slide 38: Montana Major Transmission Projects
38 MONTANA MAJOR TRANSMISSION PROJECTS Jack Rabbit – Big Sky 161kV Line Carbon - Stillwater 100kV NorthWestern Energy continues to make significant investments to upgrade our transmission system to add capacity and improve reliability. Two such projects are: Jack Rabbit – Big Sky 161kV Line and Carb
Slide 39: FERC's ALJ Ruling – We Got the Crust
39 FERC’s ALJ RULING – WE GOT THE CRUST Relying on the regulatory process to provide an equitable outcome should be as American as…. apple pie. NorthWestern entered the construction of Dave Gates Generating Station with full confidence our investors would be made whole. 20% Return on Equity MPSC FER
Slide 40: The Back Story on DGGS
40 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 41: The Back Story on DGGS (Continued)
41 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