Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Wells Fargo Energy Symposium 2019
64 slides from Northwestern Energy's conference presentation, Dec 10, 2019
Slide 1: Wells Fargo Energy Symposium
Artist – Monte Dolack Black Eagle dam Madison – Missouri RiverRiver – Montana at Three Forks, MT Wells Fargo Energy Symposium December 11-12 2019 8-K on December 10, 2019
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 3,572 miles – transmission & distribution lines 440 MW nameplate owned power generation Natural Gas 46,900 customers 1,697 miles of transmission and distribution pipeline Montana Operations Electric 374,000 customers 24,767 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 ~55% hydro, wind & solar • Reside
Slide 5: A Diversified Electric and Gas Utility
5 A Diversified Electric and Gas Utility (1) September 2018 Montana electric rate review, filed (1) with rate base of $2.34 billion, calculated with 13th month average and known and measurable adjustments. NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential and 80% Montana. Ove
Slide 6: Highly Carbon-Free Supply Portfolio
6 Highly Carbon-Free Supply Portfolio Based upon 2018 MWH’s of owned and long-term contracted resources. Approximately 55% 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-$3.40 - $2.75 2009-2018 CAGR’s: GAAP EPS: 7.6% - Non-GAAP EPS: 5.9% - Dividend: 5.7% 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 10.3%. 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 2011 (11.9% and 11.2% CAGR respectively), Cash Flow from Operations (CFO) has, on average, exceeded maintenance capex and dividend payments by approximately $7 million per year. Note: 2016 CFO is le
Slide 14: Earnings Growth
14 Earnings Growth $3.30-$3.45 $2.60 - $2.75 Non-GAAP Adjusted EPS Growth averaged 6.3% from 2013-2018 NorthWestern initiates its 2019 adjusted non-GAAP earnings guidance range of $3.38 - $3.48 per diluted share based upon, but not limited to, the following major assumptions and expectations: • Norm
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 • In May 2019, we reached a settlement in our Montana electric rate case that would result in an annual increase to electric revenue of approximately $6.5 million (based upon a 9.65% ROE and capital structure as filed) and a $9.0 million decrease in depreciation expense
Slide 17: NWE Welcomes New Board Members
17 NWE Welcomes New Board Members Jeffrey Yingling is a Senior Advisor Investment of Banking for Power, Energy and Renewables at Guggenheim Securities, LLC, the investment banking and capital markets business of Guggenheim Partners, with more than 35 years of investment banking experience, serving a
Slide 18: Montana Electric Rate Case
18 Montana Electric Rate Case September 2018 Filing (Docket D2018.2.12) • Filed based on 2017 test year and $2.34 billion of rate base. The filing also requests approvalBlackto: Eagle Power House • Requested $34.9 million annual increase to electric rates. • Capitalize Demand Side Management Costs;
Slide 19: South Dakota Electricity Supply Resource Plan
19 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 20: Montana Electricity Supply Resource Plan
20 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 21: Capital Investment Forecast
21 Capital Investment Forecast $1.6 billion of total capital investment over five years We anticipate funding the expenditures with a combination of cash flows (aided by NOLs available into 2020) and long-term debt issuances. Significant capital investments that are not in the projections or further
Slide 22: Preliminary 2019 to 2020 Bridge
22 Preliminary 2019 to 2020 Bridge (non-GAAP) 2019 Midpoint → 2020 Midpoint Targeted EPS Growth $3.43 → $3.53 = 2.9% Increase Estimated Dividend Yield $2.40 / ~$71 share price = 3.4% Continued investment in our system to serve our customers and communities is expected to provide a targeted 6-9% long
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 2018 NWE Generation Portfolio Delivered (Based on MWH of Owned & Long-Term Contracted Resources) 55% of NorthWestern Energy’s 2018 Electric Generation Portfolio Delivered, based on MWh’s, was Carbon-Free Mystic Dam Beethoven Wind Farm 55% Carbon Free Nameplate Portfolio vs 28%
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
Our Carbon Reduction Vision for NorthWestern Energy in Montana and Proposed Acquisition of incremental ownership of Colstrip Unit 4 and the associated Colstrip Transmission System 28
Slide 29: Our Carbon Reduction Vision for NorthWestern Energy in Montana
29 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 30: Transaction Overview
30 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 31: Transaction Overview (cont.)
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 previous
Slide 32: Customer & Community Considerations
32 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 33: Investor & Credit Considerations
33 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 34: Significant Capacity Deficit in Montana
34 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 meet our
Slide 35: NWE Capacity as compared to Regional Peers
35 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 36: A Recent Example
36 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). We had
Slide 37: Significant Capacity Retirements in the Pacific NW
37 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 energy to fi
Slide 38: Capacity Cost Alternatives
38 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 $1,361 per
Slide 39: General Transaction Structure
39 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 40: Proposed Post-Closing Structure
40 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 41: Existing Ownership
41 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 42: Conclusion
42 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 43: Delivering a bright future
Upetivering a bright future NorthWestern Energy
Slide 44: Summary Financial Results
Appendix 44 Summary Financial Results (Nine Months Ended Sept. 30) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure.
Slide 45: Gross Margin
Appendix 45 Gross Margin (Nine Months Ended Sept. 30) (dollars in millions) Nine Months Ended September 30, 2019 2018 Variance(1) Electric $ 555.5 $ 549.9 $ 5.6 1.0% Natural Gas 138.6 132.8 5.8 4.4% Total Gross Margin $ 694.1 $ 682.7 $ 11.4 1.4% Increase in gross margin due to the following factors:
Slide 46: Weather
Appendix 46 Weather (Nine Months Ended Sept. 30) We estimate favorable weather through the first 9 months of 2019 (all due to a cold Qtr 1) has contributed approximately $8.0M pretax benefit as compared to normal and $5.7M pretax benefit as compared to the same period in 2018.
Slide 47: Operating Expenses
Appendix 47 Operating Expenses (Nine Months Ended Sept. 30) (dollars in millions) Nine Months Ended September 30, 2019 2018 Variance Operating, general & admin. $ 238.9 $ 222.0 $ 16.9 7.6% Property and other taxes 133.2 128.3 4.9 3.8% Depreciation and depletion 129.8 130.9 (1.1) (0.8%) Operating Exp
Slide 48: Operating to Net Income
Appendix 48 Operating to Net Income (Nine Months Ended Sept. 30) (dollars in millions) Nine Months Ended September 30, 2019 2018 Variance Operating Income $ 192.2 $ 201.5 $ (9.3) (4.6%) Interest Expense (71.0) (68.2) (2.8) (4.1%) Other Income 0.9 1.8 (0.9) (50.0%) Income Before Taxes 122.0 135.1 (13
Slide 49: Income Tax Reconciliation
Appendix 49 Income Tax Reconciliation (Nine Months Ended Sept. 30)
Slide 50: Adjusted Non-GAAP Earnings
Appendix 50 Adjusted Non-GAAP Earnings (Nine Months Ended Sept. 30) The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that were non- recurring or variance from normal weather, however they should not be considered a substitute for financial results an
Slide 51: 2019 Non-GAAP Diluted EPS Guidance
Appendix 51 2019 Non-GAAP Diluted EPS Guidance We will need fourth quarter diluted EPS of $1.14 to $1.24 to meet our guidance range of $3.38 to 3.48 for 2019. This compares to $1.07 during the same quarter last year. We anticipate achieving this with a fourth quarter commensurate with the first (i.e
Slide 52: Qualified Facility Earnings Adjustment
Appendix 52 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 53: Quarterly PCCAM Impacts
Appendix 53 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 54: Balance Sheet
Appendix 54 Balance Sheet (dollars in millions) Cash and cash equivalents Restricted cash Accounts receivable, net Inventories Other current assets Goodwill and other intangibles, net PP&E and other non-current assets Total Assets Payables Finance leases Other current liabilities Long-term debt & ca
Slide 55: Cash Flow
Appendix 55 Cash Flow Cash from operating activities decreased by ~$92M primarily due to the under collection of supply costs from customers in 2019 as compared with an over collection in 2018 resulting in ~$44.9M reduction of working capital, credits to Montana customers during the current period r
Slide 56: NorthWestern Energy Profile
Appendix 56 NorthWestern Energy Profile (1) Rate base reflects amounts on which we are authorized to earn a return. (2) Rate base amounts are estimates as of December 31, 2018 (3) The revenue requirement associated with the FERC regulated portion of Montana electric transmission and DGGS are include
Slide 57: 2018 System Statistics
Appendix 57 2018 System Statistics (1) (2) Note: Statistics above are as of 12/31/2018 (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
Slide 58: Experienced & Engaged Board of Directors
Appendix 58 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: Audit, • Committees: Audit, Board and Innovation, Human Resources (chair), Audit Governance and G
Slide 59: Strong Executive Team
Appendix 59 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 60: Our Commissioners
Appendix 60 Our Commissioners
Slide 61: Non-GAAP Financial Measures (1 of 3)
Appendix 61 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 62: Non-GAAP Financial Measures (2 of 3)
Appendix 62 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 63: Non-GAAP Financial Measures (3 of 3)
Appendix 63 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 64: Delivering a bright future
Upetivering a bright future NorthWestern Energy
NorthWestern Energy — Wells Fargo Energy Symposium 2019 on 6ix