Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Investor Presentation (December 2017)
48 slides from Northwestern Energy's investor presentation, Dec 4, 2017
Slide 1: Investor Update December 2017
8-K December 4, 2017 Investor Update December 2017 Sunrise - Anaconda, MT
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
About NorthWestern 3 Montana Operations Electric 363,800 customers 24,450 miles – transmission & distribution lines 809 MW nameplate owned power generation Natural Gas 194,100 customers 7,250 miles of transmission and distribution pipeline 18 Bcf of gas storage capacity Own 61 Bcf of proven natural
Slide 4: NWE - An Investment for the Long Term
NWE - An Investment for the Long Term 4 • 100% regulated electric & natural gas utility business with over 100 years of operating history • Solid economic indicators in service territory • Diverse electric supply portfolio ~54% hydro & wind Black Eagle dam Pure Electric & Gas Utility Solid Utility F
Slide 5: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 5 NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential and 80% Montana Nearly $3.5 billion of rate base investment to serve our customers Data as of 12/31/2016.
Slide 6: Highly Carbon-Free Supply Portfolio
6 Highly Carbon-Free Supply Portfolio Based upon 2016 MWH’s of owned and long-term contracted resources. Approximately 54% 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
Strong Utility Foundation 7 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
Solid Economic Indicators 8 • Customer growth rates historically exceed National Averages. • Unemployment rates in all three of our states are meaningfully below National Average. Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2
Slide 9: A History of Growth
A History of Growth 9 2008-2016 CAGR’s: GAAP EPS: 8.5% - Non-GAAP EPS: 7.6% - Dividend: 5.3% See appendix for “Non-GAAP Financial Measures” $2.60 - $2.75 $3.10 - $3.30 $3. 0-$3.40 $3.30-$3.50
Slide 10: Track Record of Delivering Results
Track Record of Delivering Results 10 Return on Equity within 9.5% - 11.0% band over the last 6 years with average of 10.4% on GAAP earnings. See appendix for “Non-GAAP Financial Measures” Total Shareholder Return is better than our 13 peer average for the 10 year period but lags in the 1, 3 & 5 yea
Slide 11: Investment for Our Customers' Benefit
Investment for Our Customers’ Benefit 11 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
Balance Sheet Strength and Liquidity 12 Solid credit ratings, 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 of $250 million of MF
Slide 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 continued to outpace maintenance capex by approximately $30 million per year. 2016 CFO is less than 2015 largely due to $30.8M refund to cust
Slide 14: Experienced Leadership & Solid Corp. Governance
Experienced Leadership & Solid Corp. Governance 14 Board of Directors (left to right) Executive Management Team (left to right) Linda G. Sullivan – Independent Director since April 27, 2017 – Audit Committee Dana J. Dykhouse – Independent Director since January 30, 2009 – Human Resources (chair) and
Slide 15: Recent Significant Achievements
Recent Significant Achievements 15 Strong year for safety in 2016 • Fewest OSHA recordable events of any year. • Best year for least lost time incidents. Record best customer satisfaction scores • Received our best Overall Customer Satisfaction scores in the JD Power residential utility survey in 20
Slide 16: Looking Forward
Looking Forward 16 Montana Regulatory • Working toward successful implementation of new Power Cost and Credit Adjustment Mechanism (PCCAM) • Anticipate filing an electric rate case by September 2018 (based on a 2017 test year). Cost control efforts • Continue to monitor costs, including labor, benef
Slide 17: Financing Activities
Financing Activities 17 Long-Term Debt Refinancing • In October 2017, we priced $250 million principal, 4.03% - 30 year Montana First Mortgage Bonds • We closed the transaction in early November 2017. • Proceeds used to redeem existing $250 million – 6.34% Montana First Mortgage Bonds due in 2019 At
Slide 18: Property Tax Tracker Rules and Natural Gas Rate Filing
Property Tax Tracker Rules Filing – In March 2017, the MPSC proposed new rules to establish minimum filing requirements for property tax trackers. • Current MT Property tax tracker rules allows recovery of 60 percent of the change in state and local taxes and fees. • In June 2017, the MPSC adopted n
Slide 19: Power Cost & Credit Adjustment Mechanism
Power Cost & Credit Adjustment Mechanism 19 PCCAM - as proposed by NorthWestern Procedural Timeline: May 2017 MPSC issued Notice of Commission Action (NCA) initiating process July 7, 2017 MPSC issued additional NCA addressing arguments in our motion to reconsider the original NCA. (July 7, 2017 – D2
Slide 20: Energy Supply Resource Contract Length
20 Energy Supply Resource Contract Length Qualified Facilities (QF) Decision: Under the Public Utility Regulatory Policies Act (PURPA), electric utilities are required, with exceptions, to purchase energy and capacity from independent power producers that are Qualified Facilities (QF). • In July 201
Slide 21: Critical Capacity Shortfall
Critical Capacity Shortfall 21 The resource initiatives and actions developed in our 2015 Electricity Supply Resource Procurement Plan identify the critical future needs of our portfolio, including solutions to resolve our current negative planning reserve margin of 28%, which is projected to grow t
Slide 22: Capital Spending
Capital Spending 22 Approximately $100 million of this capital spend is earmarked for Montana generation capacity and could be impacted by the recent 15 year contract limitations implemented by the MPSC. We suspended a competitive solicitation process for addressing capacity needs in Montana and a f
Slide 23: 2017 Earnings Guidance
2017 Earnings Guidance 23 NorthWestern reaffirms our updated 2017 earnings guidance range of $3.30 - $3.45 (originally $3.30 - $3.50) per diluted share and is based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service te
Slide 24: Preliminary 2017 to 2018 Bridge
Preliminary 2017 to 2018 Bridge Preliminary & Non-GAAP 2017 Midpoint → 2018 Midpoint Prior to ATM Equity Dilution: $3.37 → $3.54 = 5.0% Increase After anticipated ATM Equity Dilution: $3.37 → $3.43 = 1.8% Increase Dividend Growth $2.10 → $2.20 = 4.8% increase Continued investment in our system to se
Slide 25: Conclusion
Conclusion 25 Best Practices Corporate Governance Pure Electric & Gas Utility Solid Utility Foundation Strong Earnings & Cash Flows Attractive Future Growth Prospects
Slide 26: Upelivering a bright future
Upelivering a bright future
Slide 27: Summary Financial Results (Third Quarter)
Summary Financial Results (Third Quarter) 27 (1) Gross Margin is a non-GAAP Measure. See appendix for additional disclosure. (1)
Slide 28: Gross Margin (Third Quarter)
28 Gross Margin (Third Quarter) (dollars in millions) Three Months Ended September 30, 2017 2016 Variance Electric $ 183.5 $ 176.9 $ 6.6 3.7% Natural Gas 28.9 27.9 1.0 3.6% Gross Margin $ 212.4 $ 204.8 $ 7.6 3.7% Increase in gross margin due to the following factors: $ 5.1 Electric retail volumes 0.
Slide 29: Weather (Third Quarter)
Weather (Third Quarter) 29 Mean Temperature from Normal July-Sept. 2017 Favorable weather has contributed approximately $0.4 million pretax benefit for the quarter as compared to normal, and $1.8 million pretax benefit as compared to same period in the prior year.
Slide 30: Operating Expenses (Third Quarter)
Operating Expenses (Third Quarter) 30 Increase in operating expenses due mainly to the following factors: $1.9 million increase in OG&A $ 1.8 Employee benefits $ 0.6 Operating expenses recovered in trackers $ 0.4 Bad debt expense $ 0.3 Non-employee directors deferred compensation $ (0.6) Maintenance
Slide 31: Interest, Other Income and Income Tax Variances
$2.1 million increase in interest expense was primarily due to lower interest expense in the third quarter of 2016 as a result of a benefit related to a debt refinancing transaction, which reduced interest expense. $0.9 million increase in other income due primarily to higher capitalization of allow
Slide 32: Balance Sheet
Balance Sheet 32 Total company debt to capitalization in line with targeted range of 50% - 55%.
Slide 33: Cash Flow
Cash Flow 33 The $42 million improvement in Cash provided by Operating Activities is largely attributed to refunds associated with the DGGS FERC ruling and the South Dakota electric rate case of approximately $30.8 million* and $7.2 million respectively, to customers during the first nine months of
Slide 34: Income Tax Reconciliation (Third Quarter)
Income Tax Reconciliation (Third Quarter) 34 During the third quarter of 2016, we filed a tax accounting method change with the IRS related to costs to repair generation property. This resulted in an income tax benefit of approximately $15.5 million during the three months ended September 30, 2016,
Slide 35: Adjusted Earnings (Third Quarter '17 vs '16)
Adjusted Earnings (Third Quarter ‘17 vs ’16) 35 The non-GAAP measures presented in the table 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 determined or calculate
Slide 36: Summary Financial Results (YTD thru Qtr 3)
Summary Financial Results (YTD thru Qtr 3) 36 (1) Gross Margin is a non-GAAP Measure. See appendix for additional disclosure. (1)
Slide 37: Weather (YTD thru Qtr 3)
Weather (YTD thru Qtr 3) 37 Year-to-date, favorable weather has contributed approximately $1.6 million pretax benefit as compared to normal, and $15.8 million pretax benefit as compared to same period in prior year.
Slide 38: Non-GAAP Adjusted Earnings (YTD '17 vs '16)
Non-GAAP Adjusted Earnings (YTD ‘17 vs ’16) 38 The non- GAAP measures presented in the table 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 determined or calculate
Slide 39: Full Year Adjusted Non-GAAP Guidance
In order to meet our adjusted Non-GAAP full-year guidance, in the range of $3.30 to $3.45 per share, in 2017 we anticipate these improvements over Q4 2016: • Margin improvement more commensurate with Q1, aided by rate relief from Montana natural gas case. • Timing of expenses and appropriate cost co
Slide 40: Montana Natural Gas Rate Filing
Montana Natural Gas Rate Filing 40 Montana PSC Docket D2016.9.68 Derivation of Rate Increase ($Millions) Revenue Request in Initial Application ..... $10.9 Property Tax (adjustment to actual) ….….. ($2.0) Income Tax correction and other misc. ..... 0.5 Rebuttal Revenue Request …………….. $9.4 1st Stipu
Slide 41: NorthWestern Energy Profile
NorthWestern Energy Profile 41
Slide 42: 2016 System Statistics
2016 System Statistics 42 Note: Statistics above are as of 12/31/2016 (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 (1) (2)
Slide 43: Public Service Commissions
Montana Public Service Commission i bod Commissioners are elected in Name Party Serving Ends statewide elections from each of Travis Kavulla R Jan-14 Jan-19 listricts. Roger Koopmar R Jon-13 Jan-21 elected by fellow Commissioners. Brad Johnson (asta R Jan-15 Jan-19 sunnligber torn afd poate elec ® J
Slide 44: Colstrip Unit / Sierra Club Litigation
44 Colstrip Unit 4 / Sierra Club Litigation Background • On March 6, 2013, the Sierra Club and the Montana Environmental Information Center (MEIC) (both are plaintiffs) filed suit in the United States District Court for the District of Montana (court) against the six individual Owners of the Colstri
Slide 45: DGGS Update – Denied Rehearing Request
DGGS Update – Denied Rehearing Request 45 Note: Please see Regulatory Matters footnote and Risk Factors section of our recent Form 10-K and Form 10-Q for additional disclosures.
Slide 46: Non-GAAP Financial Measures (1 of 2)
Non-GAAP Financial Measures (1 of 2) 46 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 the contro
Slide 47: Non-GAAP Financial Measures (2 of 2)
Non-GAAP Financial Measures (2 of 2) 47 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 maintena
Slide 48: Delivering a bright future
Upelivering a bright future