Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Siebert Williams Shank West Coast Utilities Virtual Conference 2020
62 slides from Northwestern Energy's conference presentation, Mar 2, 2020
Slide 1: Investor Update
Artist – Monte Dolack Black Eagle dam – Missouri River – Montana Investor Update March 18-19, 2020 Originally 8-K’ed on March 2, 2020 Siebert Williams Shank West Coast Utilities Virtual Conference
Slide 2: Forward Looking Statements
2 Forward Looking Statements Forward Looking Statements O’Dell Creek - Madison River Valley - Montana 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-l
Slide 3: About NorthWestern
3 About NorthWestern South Dakota Operations Electric 63,800 customers 3,529 miles – transmission & distribution lines 404 MW nameplate owned power generation Natural Gas 47,500 customers 1,713 miles of transmission and distribution pipeline Montana Operations Electric 379,400 customers 24,781 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 ~58% hydro, wind & solar • Reside
Slide 5: A Diversified Electric and Gas Utility
5 A Diversified Electric and Gas Utility (1) (1) NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential and 80% Montana. Nearly $3.9 billion of rate base investment to serve our customers Data as reported in our 2019 10-K (1) Gross Margin, defined as revenues less cost of sales, i
Slide 6: Highly Carbon-Free Supply Portfolio
6 Highly Carbon-Free Supply Portfolio Contracted energy from Colstrip Energy Limited Partners (CELP), Yellowstone Energy Limited Partners (YELP) as well as a majority of the contracted wind, hydro and solar are federally mandated Qualifying Facilities, as defined under the Public Utility Regulatory
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 Low gas leaks per mile – just outside 1st quartile
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-$3.40 - $2.75 2010-2019 CAGR’s: GAAP EPS: 7.1% - Non-GAAP EPS: 5.7% - Dividend: 6.0% See appendix for “Non-GAAP Financial Measures”
Slide 10: Track Record of Delivering Results
10 Track Record of Delivering Results * Peer Group: ALE, AVA, BKH, EE, IDA, MGEE, NWN, OGE, OTTR, PNM, POR & SR Return on Equity on GAAP Earnings within 9.5% - 11.0% band over the last 8 years with average of 10.2%. Total Shareholder Return is better than our 12 peer average for the 1 & 10 year peri
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, debt to cap within our targeted 50%-55% range and no long-term debt maturities until 2023.
Slide 13: Strong Cash Flows
13 Strong Cash Flows While maintenance capex and total dividend payments have continued to grow since 2010 (11.3% and 10.0% CAGR respectively), maintenance capex and dividend payments have slightly exceeded Cash From Operations (CFO), on average, by approximately $10 million per year. Note: 2016 CFO
Slide 14: Earnings Growth
14 Earnings Growth $3.30-$3.45 $2.60 - $2.75 Non-GAAP Adjusted EPS Growth Averaged 5.4% from 2013 - 2019 NorthWestern affirms its 2020 earnings guidance range of $3.45 - $3.60 per diluted share based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our
Slide 15: 2019 Non-GAAP to 2020 EPS Bridge
15 2019 Non-GAAP to 2020 EPS Bridge NorthWestern $3.30-$3.45 affirms its 2020$2.60 earnings - $2.75 guidance range of $3.45 - $3.60 per diluted share based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service territories
Slide 16: Recent Significant Achievements
16 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 17: NWE Welcomes New Board Members
17 NWE Welcomes New Board Members Jeffrey Yingling has more than 35 years of investment banking experience, serving as an advisor to companies in the power and utilities sector and is currently a Partner of Energy Capital Ventures, a strategic venture fund formed to invest in early stage energy comp
Slide 18: Looking Forward
18 Looking Forward Regulatory • In December 2019, the MPSC issued a final order approving our Montana electric rate case settlement, effective April 1, 2019, that results in an annual increase to electric revenue of approximately $6.5 million (based upon a 9.65% return on equity) and a $9.3 million
Slide 19: Montana Electric Rate Case
19 Montana Electric Rate Case September 2018 Filing (Docket D2018.2.12) • Filed based on 2017 test year and $2.34 billion of rate base. Black Eagle Power House The filing also provided approval to: • Requested $34.9 million annual increase to electric rates. • Establish a new baseline for PCCAM cost
Slide 20: South Dakota Electricity Supply Resource Plan
20 South Dakota Electricity Supply Resource Plan South Dakota • Published fall of 2018, the plan focuses on modernization of our fleet to improve reliability and flexibility, maintain compliance in Southwest Power Pool, and lowering operating costs. The plan identifies 90MWs of existing generation t
Slide 21: Montana Electricity Supply Resource Plan
21 Montana Electricity Supply Resource Plan Montana • The draft plan was filed in early March 2019 followed by a 60 day public comment period. • The final plan, including responses to public comment, was filed August 20th. • The plan demonstrates an urgent need for additional flexible capacity that
Slide 22: Capital Investment Forecast
22 Capital Investment Forecast $1.8 billion of total capital investment over five years We anticipate financing this capital with a combination of cash flow from operations (aided by NOLs available into 2021), first mortgage bonds and equity issuances. Based on current expectations, any equity issua
Slide 23: Environmental – Social – Governance (ESG)
23 Environmental – Social – Governance (ESG) Environmental Social Governance Updated Environmental Report coming soon Environmental Report Community Works Report Annual Report http://www.northwesternenergy.com/ http://www.northwesternenergy.com/ http://www.northwesternenergy.com/our- environment/our
Slide 24: ESG - Environmental
24 ESG - Environmental Based upon 2019 MWH’s of owned and long-term contracted resources. 58% of NorthWestern Energy’s 2019 Electric Generation Portfolio Delivered, based on MWh’s, was Carbon-Free Mystic Dam Beethoven Wind Farm 57% Carbon Free Nameplate Portfolio vs 28% National Average
Slide 25: ESG - Environmental
25 ESG - Environmental Environmental Stewardship Highlights of our Environmental Report LED Streetlights – plan to replace 43,000 company-owned streetlights in Montana with LED lights by 2022, with SD in planning stage. • Energy Conservation Solar Projects - Our Solar projects are focused Missoula S
Slide 26: ESG - Social
26 ESG - Social Community Customers Employees Typical Residential Bills Lower than National $2.1 Billion Economic Output in Average Safety Culture Transformation 2018 ($1.88B in Montana & $266M in SD/NE) $1.75 million Donations, Sponsorships & Economic Development in 2018 184 Number of nonprofits th
Slide 27: ESG - Governance
27 ESG - Governance 5th Best Score Among 50 Publicly Traded North American Utility and Power Companies by Diverse Leadership Board of Directors Executive Team Moody’s Investment Services on Best Governance Practices Corporate Governance What We Do: • Annual election of all directors. • Majority vote
Slide 28: Our Carbon Reduction Vision for NorthWestern Energy in Montana
28 Our Carbon Reduction Vision for NorthWestern Energy in Montana 90% carbon reduction by 2045 NorthWestern Energy commits to reduce the carbon intensity of our electric energy portfolio for Montana 90% by 2045.* * As compared with our 2010 carbon intensity as a baseline Already over 60% carbon free
Slide 29: Transaction Overview
29 Transaction Overview On December 9, 2019 NorthWestern (NWE) executed a Purchase and Sale Agreement for the acquisition of Puget Sound Energy’s (PSE) 25% ownership interests in Colstrip Unit 4 (CU4). • Generating Capacity: 185 MW (bringing our total ownership to 407 MW, or 55% of CU4) • Purchase P
Slide 30: Transaction Overview (cont.)
30 Transaction Overview (cont.) • In a separate transaction, NorthWestern expects to acquire a portion of PSE’s interest in the 500 kilovolt Colstrip Project Transmission System (CTS) and will retain an option to purchase another portion of PSE’s interest in the system at the expiration of the previ
Slide 31: Customer & Community Considerations
31 Customer & Community Considerations • Affordable Capacity: Acquiring a larger share of Colstrip for $1.00 will reduce exposure to market prices and keep energy & capacity affordable. Customer bills are expected to stay flat as a result of the transaction. Increased operating cost due to increased
Slide 32: Investor & Credit Considerations
32 Investor & Credit Considerations • Protects Existing Ownership Interests: Increased ownership (from 30% to 55%) of CU4 provides greater say in future capital decisions to ensure the plant continues to operate and meet all environmental guidelines. Per the Joint Owners Agreement, closure of Colstr
Slide 33: NWE Capacity as compared to Regional Peers
33 NWE Capacity as compared to Regional Peers NWE’s capacity deficit exposes our customers to greater market exposure (price and availability) than any of our regional peers.
Slide 34: General Transaction Structure
34 General Transaction Structure PSE retains environmental & pension liabilities as of transaction close and responsibility for decommissioning and remediation costs at time of eventual facility closure. 25% of CU4 (185 MW) NWE PSE $1.00 purchase price Approx. 5% of Colstrip Transmission System NWE
Slide 35: Proposed Post-Closing Structure
35 Proposed Post-Closing Structure NWE Customers PSE 95 MW provided 90 MW PPA, ~5 Year, unit $ to NWE’s default supply contingent, Mid-C day-ahead customers. Resolves 25% index subject to an hourly price $ of the capacity deficit with floor. Price floor ensures fixed no impact to customer bills. and
Slide 36: Existing Ownership
36 Existing Ownership Colstrip Power Plant Colstrip Transmission System Facility Owner (%) Unit 1 Unit 2 Unit 3 Unit 4 AVISTA Corporation - - 15% 15% NorthWestern Energy - - - 30% PacifiCorp - - 10% 10% Portland General - - 20% 20% Puget Sound Energy 50% 50% 25% 25% Talen Energy 50% 50% 30% - Total
Slide 37: Conclusion
37 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 38: Upetivering a bright future
Upetivering a bright future NorthWestern Energy
Slide 39: Significant Capacity Deficit in Montana
Appendix 39 Significant Capacity Deficit in Montana NorthWestern Energy’s current resources provide about 755 MW of peaking capacity, which is the energy available during periods of our customers’ highest demand. An additional 645 MW of peaking capacity must currently be purchased from the market to
Slide 40: A Recent Example
Appendix 40 A Recent Example In early February, 2019, NorthWestern experienced a nearly five day span* when the wind didn’t blow and the sun was scant. We were forced to rely upon an already strained market and transmission system for a significant amount of our required capacity (shown in red hatch
Slide 41: Significant Capacity Retirements in the Pacific NW
Appendix 41 Significant Capacity Retirements in the Pacific NW Planned retirements in the Pacific Northwest region exceed 3,600 MW and the Northwest Power and Conservation Council forecasts regional capacity shortfalls as early as 2021. NorthWestern’s continued reliance on the market to purchase ene
Slide 42: Capacity Cost Alternatives
Appendix 42 Capacity Cost Alternatives 92% The 185 MW Colstrip Unit 4 purchase would resolve 185,000 kW approximately 25% x 92% capacity credit 97% of our estimated 170,200 kW of capacity 725 MW capacity deficit for $1.00. 170,200 kW ÷ 97% capacity credit = 175,500 kW Alternative 175,500 kW need x $
Slide 43: Summary Financial Results (Full Year)
Appendix 43 Summary Financial Results (Full Year) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure.
Slide 44: Gross Margin (Full Year)
Appendix 44 Gross Margin (Full Year) (dollars in millions) Twelve Months Ended December 31, 2019 2018 Variance Electric $ 741.6 $ 726.5 $ 15.1 2.1% Natural Gas 198.3 192.6 5.7 3.0% (1) Total Gross Margin $ 939.9 $ 919.1 $ 20.8 2.3% Increase in gross margin due to the following factors: $ 22.1 Tax Cu
Slide 45: Weather (Full Year)
Appendix 45 Weather (Full Year) We estimate overall favorable weather in 2019 resulted in a $7.3 million pretax benefit as compared to normal and a $6.0 million benefit as compared to 2018.
Slide 46: Operating Expenses (Full Year)
Appendix 46 Operating Expenses (Full Year) (dollars in millions) Twelve Months Ended December 31, 2019 2018 Variance Operating, general & admin. $ 318.2 $ 307.1 $ 11.1 3.6% Property and other taxes 171.9 171.3 0.6 0.4% Depreciation and depletion 172.9 174.5 (1.6) (0.9%) Operating Expenses $ 663.0 $
Slide 47: Operating to Net Income (Full Year)
Appendix 47 Operating to Net Income (Full Year) (dollars in millions) Twelve Months Ended December 31, 2019 2018 Variance Operating Income $ 276.9 $ 266.3 $ 10.6 4.0% Interest Expense (95.1) (92.0) (3.1) (3.4%) Other Income 0.4 4.0 (3.6) (91.0%) Income Before Taxes 182.2 178.3 3.9 2.2% Income Tax Be
Slide 48: Income Tax Reconciliation (Full Year)
Appendix 48 Income Tax Reconciliation (Full Year)
Slide 49: Adjusted Non-GAAP Earnings (Full Year)
Appendix 49 Adjusted Non-GAAP Earnings (Full Year) The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that are non-recurring or variance from normal weather, however they should not be considered a substitute for financial results and measures determin
Slide 50: Qualified Facility Earnings Adjustment
Appendix 50 Qualified Facility Earnings Adjustment The gain in 2019 for our QF liability was $6.3 million in total, it was comprised of $3.3 million adjustment to the liability and $3.0 million lower actual costs over last 12 months (QF contract year). This $6.6 million benefit is $20.9 million less
Slide 51: Quarterly PCCAM Impacts
Appendix 51 Quarterly PCCAM Impacts In 2017, the Montana legislature revised the statute regarding our recovery of electric supply costs. In response, the MPSC approved a new design for our electric tracker in 2018, effective July 1, 2017. The revised electric tracker, or PCCAM established a baselin
Slide 52: Balance Sheet
Appendix 52 Balance Sheet Debt to Capitalization remains at lower end of our targeted 50% - 55% range.
Slide 53: Cash Flow
Appendix 53 Cash Flow Cash from operating activities decreased by $85.3M primarily due to: •Under collection of supply costs………..($35.5M) •Tax Cuts and Jobs Act customer refunds...($20.5M) •Generation inter- connection refunds…...($22.1M) •Receipt of insurance proceeds in 2018……....($6.1M) •Other mi
Slide 54: NorthWestern Energy Profile
Appendix 54 NorthWestern Energy Profile Note: Data as reported in our 2019 10-K
Slide 55: 2019 System Statistics
Appendix 55 2019 System Statistics (1) (2) Note: Statistics above are as of 12/31/2019 except for electric transmission for others which is 2018 data (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 1
Slide 56: Experienced & Engaged Board of Directors
Appendix 56 Experienced & Engaged Board of Directors Stephan P. Adik Tony Clark Dana J. Dykhouse Jan R. Horsfall Britt E. Ide • Chairman of the • Committees: Governance, • Committees: Human • Committees: Operations • Committees: Board Human Resources Resources (chair), Audit (chair), Audit, Governan
Slide 57: Strong Executive Team
Appendix 57 Strong Executive Team Robert C. Rowe Heather H. Grahame Curtis T. Pohl • President and • General Counsel and Vice • Vice President - Chief Executive Officer President of Regulatory Distribution • Current position since and Federal Government • Current position since 2008 Affairs 2003 • C
Slide 58: Our Commissioners
Appendix 58 Our Commissioners
Slide 59: Non-GAAP Financial Measures (1 of 3)
Appendix 59 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 60: Non-GAAP Financial Measures (2 of 3)
Appendix 60 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 61: Non-GAAP Financial Measures (3 of 3)
Appendix 61 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 62: Upetivering a bright future
Upetivering a bright future NorthWestern Energy
NorthWestern — Siebert Williams Shank West Coast Utilities Virtual Conference 2020 on 6ix