Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Williams Capital West Coast Utilities Conference 2019
53 slides from Northwestern Energy's conference presentation, Mar 20, 2019
Slide 1: Williams Capital West Coast Utilities Conference
Williams Capital West Coast March 20-21, 2019 Utilities Conference 8-K March 20, 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 September 2018 Montana electric rate review, filed 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 Data as repo
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 - $2.75-$3.40 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 10 year period b
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 $3.10 - $3.30 $2.60 - $2.75 Non-GAAP Adjusted EPS Growth averaged 6.3% from 2013-2018 We are not providing 2019 EPS guidance at this time due to the pending Montana rate case. However, continued investment in our system to serve our customers and communities is expecte
Slide 15: Summary Financial Results (Full Year)
15 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 16: Adjusted Non-GAAP Earnings (Full Year)
16 Adjusted Non-GAAP Earnings (Full Year) The adjusted non- GAAP measures $3.30-$3.45 presented$3.10 are -being$3.30 $2.60shown - $2.75 to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measu
Slide 17: Recent Significant Achievements
17 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 18: Looking Forward
18 Looking Forward Regulatory • MPSC to review Montana general electric rate review, filed in September 2018. • We expect to file an associated FERC rate case for our Montana transmission assets in the first quarter 2019. Continue to Invest in our T&D infrastructure • Comprehensive infrastructure ca
Slide 19: Montana Electric Tracker Update
19 Montana Electric Tracker Update The MPSC issued a final order in January 2019 approving a Power Cost & Credit Adjustment Mechanism (PCCAM) with the following provisions: • A baseline of power supply costs; • Symmetrical deadband of +/- $4.1 million from the established baseline. Supply cost varia
Slide 20: Estimated Impacts of the Tax Cuts & Jobs Act
20 Estimated Impacts of the Tax Cuts & Jobs Act Montana: In December 2018, the MPSC approved a settlement agreement providing a $20.5 million one-time customer credit to electric and natural gas customers. In addition, the settlement provides: • A $1.3 million annual reduction in natural gas rates b
Slide 21: Montana Electric Rate Case Background
21 Montana Electric Rate Case Background • First general electric rate case in Montana since 2009. Black Eagle Power House • While we have efficiently managed operating and administrative costs, The filing also requests: increased Montana property taxes and significant investment in the system • App
Slide 22: NWE Energy Supply Resource Plans
22 NWE Energy Supply Resource Plans South Dakota Electricity Supply Resource Plan Ryan Dam Upgrade • 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 iden
Slide 23: Relevant Montana Legislation
23 Relevant Montana Legislation SENATE BILL 331 (previously SB 278) – Tom Richmond (R) Black Eagle Power House Montana Energy Security Act of 2019 SYNOPSIS: This bill effectively specifies that an electric utility is entitled to recover its investment costs, plant closure costs, and site remediation
Slide 24: Experienced Leadership & Solid Corporate Governance
24 Experienced Leadership & Solid Corporate Governance Board of Directors (left to right) Stephan Adik – Chairman of the Board - Independent Director since November 1, 2004 Anthony Clark – Independent Director since December 6, 2016 – Governance & Innovation and Human Resources Committees Dana Dykho
Slide 25: Capital Investment Forecast
25 Capital Investment Forecast $1.6 billion of total capital investment over five years. Increased investment in first three years (relative to last two years) is primarily a result of advanced metering infrastructure (AMI) project. We anticipate funding the expenditures with a combination of cash f
Slide 26: Conclusion
26 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 27: Upetivering a
Upetivering a bright future
Slide 28: Gross Margin (Full Year)
Appendix 28 Gross Margin (Full Year) (dollars in millions) Twelve Months Ended December 31, 2018 2017 Variance(1) Electric $ 726.5 $ 703.1 $ 23.4 3.3% Natural Gas 192.6 192.3 0.3 0.2% Total Gross Margin (1) $ 919.1 $ 895.4 $ 23.7 2.6% Increase in gross margin due to the following factors: $ 25.1 Ele
Slide 29: Weather (Full Year)
Appendix 29 Weather (Full Year) We estimate favorable weather in 2018 has contributed approximately $1.3M pretax benefit as compared to normal and $2.1M pretax detriment as compared to 2017.
Slide 30: Operating Expenses (Full Year)
Appendix 30 Operating Expenses (Full Year) (dollars in millions) Twelve Months Ended December 31, 2018 2017 Variance Operating, general & admin. $ 307.1 $ 294.8 $ 12.3 4.2% Property and other taxes 171.3 162.6 8.7 5.4% Depreciation and depletion 174.5 166.1 8.4 5.1% Operating Expenses $ 652.9 $ 623.
Slide 31: Operating to Net Income (Full Year)
Appendix 31 Operating to Net Income (Full Year) (dollars in millions) Twelve Months Ended December 31, 2018 2017 Variance Operating Income $ 266.3 $ 271.8 ($ 5.5) (2.0%) Interest Expense (92.0) (92.3) 0.3 0.3% Other Income / (Expense) 4.0 (3.4) 7.4 217.6% Income Before Taxes 178.3 176.1 2.2 1.2% Inc
Slide 32: Income Tax Reconciliation (Full Year)
Appendix 32 Income Tax Reconciliation (Full Year)
Slide 33: Balance Sheet
Appendix 33 Balance Sheet Improvement in debt to capitalization ratio; which is now closer to bottom end of 50%-55% targeted range.
Slide 34: Cash Flow
Appendix 34 Cash Flow Cash from operating activities improved by $59.3 million primarily due to higher net income, improved customer receipts, the receipt of insurance proceeds during the current period.
Slide 35: Summary Financial Results (Fourth Quarter)
Appendix 35 Summary Financial Results (Fourth Quarter) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. See appendix for additional disclosure.
Slide 36: Gross Margin (Fourth Quarter)
Appendix 36 Gross Margin (Fourth Quarter) (dollars in millions) Three Months Ended December 31, 2018 2017 Variance(1) Electric $ 176.6 $ 175.0 $ 1.6 0.9% Natural Gas 59.8 60.5 (0.7) (1.2%) Total Gross Margin $ 236.4 $ 235.5 $ 0.9 0.4% Increase in gross margin due to the following factors: $ (6.1) Im
Slide 37: Weather (Fourth Quarter)
Appendix 37 Weather (Fourth Quarter) We estimate unfavorable weather in fourth quarter 2018 resulted in a $1.0M pretax detriment as compared to normal and $2.8M pretax detriment as compared to period in 2017.
Slide 38: Operating Expenses (Fourth Quarter)
Appendix 38 Operating Expenses (Fourth Quarter) (dollars in millions) Three Months Ended December 31, 2018 2017 Variance Operating, general & admin. $ 85.2 $ 76.2 $ 9.0 11.8% Property and other taxes 43.0 44.1 (1.1) (2.5%) Depreciation and depletion 43.6 41.7 1.9 4.6% Operating Expenses $ 171.8 $ 16
Slide 39: Operating to Net Income (Fourth Quarter)
Appendix 39 Operating to Net Income (Fourth Quarter) (dollars in millions) Three Months Ended December 31, 2018 2017 Variance Operating Income $ 64.6 $ 73.5 $ (8.9) (12.1%) Interest Expense (23.8) (22.3) (1.5) (6.7%) Other Income / (Expense) 2.2 - 2.2 - Income Before Taxes 43.0 51.2 (8.2) (16.0%) In
Slide 40: Income Tax Reconciliation (Fourth Quarter)
Appendix 40 Income Tax Reconciliation (Fourth Quarter)
Slide 41: Adjusted Non-GAAP Earnings (Fourth Quarter)
Appendix 41 Adjusted Non-GAAP Earnings (Fourth Quarter) The adjusted non- GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures
Slide 42: 2018 Non-GAAP Adjustment for TCJA
Appendix 42 2018 Non-GAAP Adjustment for TCJA
Slide 43: South Dakota Electric Supply Resource Plan
43 South Dakota Electric Supply Resource Plan NorthWestern and HDR Engineering investigated various retirement & replacement scenarios* to assess Black Eagle Power House potential for modernizing its generation fleet and improve reliability and operational flexibility. A generally distributed genera
Slide 44: Montana DRAFT Electricity Supply Plan
44 Montana DRAFT Electricity Supply Plan The total planned energy generation reductions in the Pacific Northwest region exceed 3,700 MWs through 2032. The Northwest Power and Conservation Council forecasts regional capacity shortfalls as early as 2021. NorthWestern Energy’s continued reliance on the
Slide 45: Qualified Facility Earnings Benefit
Appendix 45 Qualified Facility Earnings Benefit The $25.1 million earnings improvement related to certain Qualified Facilities (QF) contracts in the 2nd quarter 2018 is a result of: • A $17.5 million benefit resulting from the reduction of the estimated future liability of unrecoverable QF costs. Th
Slide 46: Montana Natural Gas Rate Filing
Appendix 46 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 47: NorthWestern Energy Profile
Appendix 47 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 48: 2018 System Statistics
Appendix 48 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 49: Our Commissioners
Appendix 49 Our Commissioners
Slide 50: Non-GAAP Financial Measures (1 of 3)
Appendix 50 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 51: Non-GAAP Financial Measures (2 of 3)
Appendix 51 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 52: Non-GAAP Financial Measures (3 of 3)
Appendix 52 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 53: Upetivering a
Upetivering a bright future
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