Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — American Gas Association Financial Conference 2018
43 slides from Northwestern Energy's conference presentation, May 18, 2018
Slide 1: American Gas Association - Financial Conference May 20-22, 2018
American Gas Association - Financial Conference May 20-22, 2018 8-K May 18, 2018
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 f
Slide 3: About NorthWestern
3 About NorthWestern South Dakota Operations Electric 63,600 customers 3,560 miles – transmission & distribution lines 440 MW nameplate owned power generation Natural Gas 46,500 customers 1,681 miles of transmission and distribution pipeline Montana Operations Electric 369,100 customers 24,495 miles
Slide 4: NWE - An Investment for the Long Term
4 NWE - An Investment for the Long Term • 100% regulated electric & natural gas utility business Black Eagle dam Pure Electric & with over 100 years of operating history Gas Utility • Solid economic indicators in service territory • Diverse electric supply portfolio ~56% hydro & wind • Residential e
Slide 5: A Diversified Electric and Gas Utility
5 A Diversified Electric and Gas Utility NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential and 80% Montana Data as of 12/31/2017. Over $3.5 billion of rate base investment to serve our customers
Slide 6: Highly Carbon-Free Supply Portfolio
6 Highly Carbon-Free Supply Portfolio Based upon 2017 MWH’s of owned and long-term contracted resources. Approximately 56% of our total company owned and contracted supply is carbon-free. NorthWestern does not own all the renewable energy certificates (RECs) generated by contracted wind, and periodi
Slide 7: Strong Utility Foundation
7 Strong Utility Foundation . Solid and improving JD Power Overall Customer Satisfaction Scores . Residential electric and natural gas rates below national average . Solid electric system reliability and low gas leaks per mile
Slide 8: Solid Economic Indicators
8 Solid Economic Indicators Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2/21/17 Electric: EEI Statistical Yearbook (published December 2015, table 7.2) Natural Gas: EIA.gov (Data table "Number of Natural Gas Consumers") Sourc
Slide 9: A History of Growth
9 A History of Growth $3.30-$3.50 $3.10 - $3.30 $2.60$3.20 - $2.75-$3.40 2008-2017 CAGR’s: GAAP EPS: 7.3% - Non-GAAP EPS: 6.8% - Dividend: 5.3% See appendix for “Non-GAAP Financial Measures”
Slide 10: Track Record of Delivering Results
10 Track Record of Delivering Results * Peer Group: ALE, BKH, EE, GXP, IDA, MGEE, NWN, OGE, OTTR, PNM, POR, SR, & VVC Return on Equity on GAAP Earnings within 9.5% - 11.0% band over the last 6 years with average of 9.9%. See appendix for “Non-GAAP Financial Measures” Total Shareholder Return is bett
Slide 11: Investment for Our Customers' Benefit
11 Investment for Our Customers’ Benefit 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: Balance Sheet Strength and Liquidity
12 Balance Sheet Strength and Liquidity Investment grade credit ratings, generally liquidity in excess of $100 million target, and debt to cap within our targeted 50%-55% range. In early November 2017, we redeemed $250 million, 6.34% Montana First Mortgage Bonds (MFMB) due in 2019 with the issuance
Slide 13: Strong Cash Flows
13 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, on average, exceeded maintenance capex and dividend payments by approximately $24 million per year. 2016 CFO is less th
Slide 14: Experienced Leadership & Solid Corp. Governance
14 Experienced Leadership & Solid Corp. Governance Board of Directors (left to right) Linda G. Sullivan – Independent Director since April 27, 2017 – Audit Committee (Chair) Dana J. Dykhouse – Independent Director since January 30, 2009 – Human Resources (Chair) and Audit Committees Britt E. Ide – I
Slide 15: Recent Significant Achievements
15 Recent Significant Achievements Strong year for safety at NorthWestern • Continue to be a top performer among Edison Electric Institute member companies. Record best customer satisfaction scores with JD Power & Associates • Once again received our best JD Powers overall satisfaction survey score
Slide 16: Looking Forward
16 Looking Forward Regulatory • Regulatory treatment of tax reform - determine best way Black Eagle Power House to provide long-term benefit to customers and system while keeping investors ‘whole’. • Working toward successful implementation of new Power Cost and Credit Adjustment Mechanism • Anticip
Slide 17: Financing Activities
17 Financing Activities $100 million At-The-Market Equity Distribution Program Long-Term Debt Refinancing • Initiated in September 2017 • In October 2017, we priced $250 million • Proceeds to repay or refinance debt (including principal, 4.03% - 30 year Montana First short-term debt), fund capital e
Slide 18: Regulatory & Legal Update
18 Regulatory & Legal Update Montana Property Tax Tracker Filing • On January 29th the MPSC issued an order in our 2017 property tax tracker filing by further reducing our recovery of Montana property taxes by a total of $3.5 million impacting both 2017 and 2018 (approximately $1.75 million each yea
Slide 19: Estimated Impacts of the Tax Cuts & Jobs Act
19 Estimated Impacts of the Tax Cuts & Jobs Act • Dockets have been initiated in each of our jurisdictions to address the impact from the change in tax law and to provide any benefits to customers effective January 1st. We have made filings in Montana, South Dakota and Nebraska and do not expect the
Slide 20: Critical Capacity Shortfall
20 Critical Capacity Shortfall • The resource initiatives and actions developed in our Montana 2015 Electricity Resource Procurement Plan (ERPP) identify the critical future needs of our portfolio, including solutions to resolve our current negative planning reserve margin. • On February 7, 2018 we
Slide 21: Capital Spending Forecast
21 Capital Spending Forecast 2018 Significant Updates Out: Approximately $123 million of previously included investment in capacity generation has been removed pending update of Integrated Resource Plans in both Montana and South Dakota (expected to be completed by year-end 2018). In: Approximately
Slide 22: 2018 Earnings Guidance
22 2018 Earnings Guidance $3.30-$3.45 $3.10 - $3.30 $2.60 - $2.75 NorthWestern’s 2018 earnings guidance range of $3.35 - $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;
Slide 23: Conclusion
23 Conclusion Best Practices Corporate Governance Attractive Future Pure Electric Growth & Gas Utility Prospects Strong Solid Utility Earnings & Foundation Cash Flows
Slide 24: Delivering a bright future
Upelivering a bright future
Slide 25: Summary Financial Results (First Quarter)
Appendix 25 Summary Financial Results (First Quarter) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. See appendix for additional disclosure.
Slide 26: Gross Margin (First Quarter)
Appendix 26 Gross Margin (First Quarter) (dollars in millions) Three Months Ended March 31, 2018 2017 Variance(1) Operating Revenues $ 341.5 $ 367.3 ($ 25.8) (7.0%) Cost of Sales 96.1 119.8 (23.7) (19.8%) Gross Margin $ 245.4 $ 247.5 ($ 2.1) (0.8%) Decrease in gross margin due to the following facto
Slide 27: Weather (First Quarter)
Appendix 27 Weather (First Quarter) Mean Temperature from Normal We estimate favorable weather in Q1 2018 contributed approximately $4.8M pretax benefit as compared to normal and $1.6M pretax benefit as compared to Q1 2017.
Slide 28: Operating Expenses (First Quarter)
Appendix 28 Operating Expenses (First Quarter) (dollars in millions) Three Months Ended March 31, 2018 2017 Variance Operating, general & admin. $ 74.3 $ 78.3 $ (4.0) (5.1%) Property and other taxes 42.8 39.9 2.9 7.3% Depreciation and depletion 43.8 41.5 2.3 5.5% Operating Expenses $ 160.9 $ 159.7 $
Slide 29: Operating to Net Income (First Quarter)
Appendix 29 Operating to Net Income (First Quarter) (dollars in millions) Three Months Ended March 31, 2018 2017 Variance Operating Income $ 84.5 $ 87.8 $ (3.3) (3.8%) Interest Expense (23.0) (23.4) 0.4 1.7% Other Expense (1.1) (1.1) 0.0 0.0% Income Before Taxes 60.4 63.2 (2.8) (4.4%) Income Tax Exp
Slide 30: Pre-Tax Earnings Bridge (First Quarter '18 vs '17)
Appendix 30 Pre-Tax Earnings Bridge (First Quarter ‘18 vs ’17) Pre-Tax income decreased by $2.8 million in the 1st quarter 2018 vs the same period in 2017. This was primarily due to the decrease in gross margin resulting from the $7.3 million TCJA deferral (which is largely offset by reduced income
Slide 31: Income Tax Reconciliation
Appendix 31 Income Tax Reconciliation
Slide 32: Balance Sheet
Appendix 32 Balance Sheet NorthWestern’s Ratio of debt to total capitalization decreased from 53.7% at 12/31/17 to 52.0% at 3/31/18.
Slide 33: Cash Flow
Appendix 33 Cash Flow Cash from operating activities improved by $15.8 million primarily due to the receipt of insurance proceeds and improved collections of supply costs in 2018. During 2017, we received net proceeds of approximately $54 million from the sale our common stock. There were no issuanc
Slide 34: Adjusted Non-GAAP Earnings (First Quarter)
Appendix 34 Adjusted Non-GAAP Earnings (First Quarter) (1) During the first quarter of 2018, we revised our presentation of revenues associated with being a market participant in the Southwest Power Pool to net them with the associated cost of sales. These revenues were previously recorded gross in
Slide 35: Preliminary 2017 to 2018 Bridge
35 Preliminary 2017 to 2018 Bridge NorthWestern’s 2018 earnings guidance range of $3.35 - $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; • Equitable regulatory treatmen
Slide 36: Montana Natural Gas Rate Filing
Appendix 36 Montana Natural Gas Rate Filing $430.2M Montana PSC Docket D2016.9.68 9.55% 4.47% 6.96% $5.1M Derivation of Rate Increase ($Millions) Revenue Request in Initial Application ..... $10.9 Property Tax (adjustment to actual) ….….. ($2.0) Income Tax correction and other misc. ..... 0.5 Rebutt
Slide 37: NorthWestern Energy Profile
Appendix 37 NorthWestern Energy Profile
Slide 38: 2017 System Statistics
Appendix 38 2017 System Statistics (1) (2) Note: Statistics above are as of 12/31/2017 except for Electric Transmission for Others (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 &
Slide 39: Our Commissioners
Appendix 39 Our Commissioners
Slide 40: Non-GAAP Financial Measures (1 of 3)
Appendix 40 Non-GAAP Financial Measures (1 of 3) 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 meas
Slide 41: Non-GAAP Financial Measures (2 of 3)
Appendix 41 Non-GAAP Financial Measures (2 of 3) Disclaimer on Net Operating Net Operating Losses (NOL’s): The expected tax rate and the expected availability of NOLs are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond t
Slide 42: Non-GAAP Financial Measures (3 of 3)
Appendix 42 Non-GAAP Financial Measures (3 of 3) 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
Slide 43: Delivering a bright future
Upelivering a bright future
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