Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Investor Day (December 2013)
77 slides from Northwestern Energy's investor day presentation, Dec 9, 2013
Slide 1: 2013 Investor / Analyst Day
1 2013 Investor / Analyst Day New York City, NY | December 09, 2013
Slide 2: Forward Looking Statements
2 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 future business and financia
Slide 3: Bob Rowe, President and CEO
Bob Rowe President and CEO 3
Slide 4: Agenda
• Welcome and opening ………………............... Bob Rowe, President & CEO • Introduction to our Board of Directors ............. E. Linn Draper Jr, Board Chairman • Company and management overview ............. Bob Rowe, President & CEO • Audit Chair perspective …………….….........… Stephen Adik, Audit Cha
Slide 5: E. Linn Draper Jr., Chairman of the Board
E. Linn Draper Jr. Chairman of the Board 5
Slide 6: Board of Directors
(Left to right) Dir ec tor Si nc e: Bo ard Au dit No mi na tin g & C orp . G ov ern an ce Hu ma n R es ou rce s NA CD G ov ern an ce Fe llow Denton Louis Peoples Nevada Retired Chief Executive Officer and Vice Chairman of the Board of Orange and Rockland Utilities, Inc. 2006 M M M Y Dorothy M. Bradl
Slide 7: Bob Rowe, President and CEO
Bob Rowe President and CEO 7
Slide 8: A Well-Rounded Management Team
A Well-Rounded Management Team 8 (Left to right) Ye ars ex pe rie nc e i n f iel d Po sit ion si nc e: Kendall G. Kliewer VP and Controller Responsible for accounting, financial reporting, accounts payable, payroll and compensation and benefits administration. 16 2004 Patrick R. Corcoran VP- Gov't &
Slide 9: About Northwestern
About Northwestern 9 Our Vision: Enriching lives through a safe, sustainable energy future Our Mission: Working together to deliver safe, reliable and innovative energy solutions Our Values: S - safety E - excellence R - respect V - value I - integrity C - community E - environment
Slide 10: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term 10 We’re a fully-regulated and financially solid utility; with – Diversity across states, service type and customer segments – A 100 year history of competitive customer rates, system reliability and customer satisfaction – A strong track record of significant ea
Slide 11: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 11 The “80/20” rules of NorthWestern Gross Margin in 2012: Electric: $528M Natural Gas: $146M Other $ 1M Gross Margin in 2012 Montana: $570M South Dakota: $ 95M Nebraska: $ 10M Average Customers in 2012: Residential: 557k Commercial: 107k Industrial: 6k Above d
Slide 12: Solid Economic Indicators
3.47% 4.46% 5.60% 3.67% 0% 1% 2% 3% 4% 5% 6% US National Average Montana South Dakota Nebraska Source: Economic & Social Research Institute (ESRI) via SNL Database 10-30-13 Projected Population Growth 2012-2017 (cumulative growth) Solid Economic Indicators 12 Top Left: Unemployment rate consistently
Slide 13: Investment in our System
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 2008 2009 2010 2011 2012 Milli ons Estimated Rate Base Natural Gas Reserves Spion Kop DGGS Colstrip Unit 4 All other rate base Investment in our System 13 Over the past 5 years we have been adding to our Montana energy supply portfolio
Slide 14: Strong Corporate Governance
Strong Corporate Governance 14 Fortnightly 40 NorthWestern Energy was recently recognized as one of the top 40 best energy companies in the United States by Fortnightly 40. The report compares shareholder value performance by looking at uniform data sets among the leading publicly traded electric an
Slide 15: Strong Corporate Citizenship
Strong Corporate Citizenship 15 Montana Business of the Year NorthWestern Energy was recently selected as the 2012 Business of the Year by the Montana Ambassadors. The Ambassadors are a group of 120 business leaders from across Montana, the Pacific Northwest and the Bay Area of California who work t
Slide 16: Stephen P. Adik, Audit Committee Chairman
Stephen P. Adik Audit Committee Chairman 16
Slide 17: Brian Bird, Vice President & CFO
Brian Bird Vice President & CFO 17
Slide 18: 2013 Earnings Guidance
$1.78 $2.02 $2.14 $2.53 $2.66 $- $1.25 $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 $3.00 2008 2009 2010 2011 2012 2013E GAAP Diluted EPS 2013 Earnings Guidance 18 Updated and increased 2013 guidance range of $2.45-$2.60 based upon, but not limited to, the following major assumptions and expectations: • A co
Slide 19: Track Record of Delivering Results
Track Record of Delivering Results 19 Notes: - ROE in 2011 & 2012, on a Non-GAAP Adjusted basis, would be 10.5% and 9.8% respectively. - 2013 ROE and 2013 Dividend payout ratio estimate based on midpoint of updated guidance range of $2.45 - $2.60. - 2011 and 2012 Dividend Payout Ratio based upon Non
Slide 20: Investment for our Customers' Benefit
Investment for our Customers’ Benefit Over the past 5 years, we have been adding to our Montana energy supply portfolio and making additional investments to enhance system safety, reliability and capacity. We have made these enhancements with minimal impact to customers’ bills while delivering solid
Slide 21: Total Shareholder Return
Total Shareholder Return 21 Strong total shareholder return since emergence from bankruptcy particularly in the last 5 year. Peer Group: ALE, AVA, BKH, CNL, EE, EDE, GXP, IDA, MGEE, POR, PNM, UIL, UNS, VVC, & WR -50% 0% 50% 100% 150% 200% NWE Peer Average S&P 500 DJU Total Shareholder Return 11/2/04
Slide 22: Strong Cash Flows
While maintenance capex and total dividend payments have continued to grow over the past 5 years (6.1% and 2.1% CAGR respectively), Cash Flow from Operations has continued to outpace maintenance capex and provided approximately $40-60 million of positive Free Cash Flow per year. We anticipate our Ne
Slide 23: Balance Sheet Strength
Balance Sheet Strength 23 Annual ratio is average of each quarter end debt/cap ratio Excludes Basin Creek capital leases Goal: 50% - 55% $0 $50 $100 $150 $200 $250 $300 M illi on s Year Debt Maturity Schedule 50.4% 54.0% 55.5% 54.8% 54.3% 30% 40% 50% 60% 2008 2009 2010 2011 2012 Debt to Capital Rati
Slide 24: Net Investment in Existing Business
Net Investment in Existing Business 24 Maintenance capital expenditures have cumulatively outpaced depreciation by $150 million over the last five years (2008 to 2012), while maintaining a positive Free Cash Flow during the same period. ($150) ($100) ($50) $0 $50 $100 $150 $200 $250 $300 2008 2009 2
Slide 25: 2014 Capital Reconciliation
2014 Capital Reconciliation 25 2014 budgeted capital is $272 million, or $18M higher than the anticipated 2014 Capital Requirements as previously reported in our 2012 10-K. $50 $69 $134 $19 $0 $50 $100 $150 $200 $250 $300 2014 Budget 2014 Budgeted Capital (in millions) $50 $68 $119 $18 $0 $50 $100 $
Slide 26: 2014 Earnings Guidance
2014 Earnings Guidance 26 Continued investment in our system to serve our customers and communities is expected to provide average earnings growth of 4-6% annually. That, coupled with an anticipated dividend yield of 3-4% creates the potential for a targeted 7-10% total return for our investors. 201
Slide 27: Bob Rowe, President and CEO
Bob Rowe President and CEO 27
Slide 28: Investment Opportunity Outlook
Investment Opportunity Outlook 28 • Energy Supply – Pending hydro transaction – Big Stone/Neal pollution control – Additional acquisition opportunities for Montana natural gas reserves • Transmission – Network upgrades • Jack Rabbit - Big Sky 161kV line • Carbon - Stillwater 100kV – Transmission Sys
Slide 29: Investment Project Summary
High High High High High High 2013 2014 2015 2016 2017 2018 Distribution System Infrastructure Project (DSIP) Natural gas reserves Spion Kop - Montana wind (40 MW) South Dakota peaking generator (60 MW) Neal pollution control equipment Big Stone pollution control equipment Pending Montana hydro asse
Slide 30: Montana Base Load Electric Opportunity
Montana Base Load Electric Opportunity 30 127% 122% 120% 105% 102% 98% 97% 91% 84% 78% 77% 69% 64% 60% 60% 53% 44% 0% 20% 40% 60% 80% 100% 120% 140% WR GXP EE CNL UNS IDA EDE VVC ALE AVA UIL NWE (Hydro) MGEE PNM BKH POR NWE Peer Average 99% 31% 44% 0% 20% 40% 60% 80% 100% NWE - SD NWE - MT NWE - Tot
Slide 31: Hydro - Supporting our Values
Hydro - Supporting our Values 31 Our Vision Statement: Working together to deliver safe, reliable and innovative energy solutions that create value for our customers, communities, employees and investors. • Opportunity to acquire clean, reliable, long-lived generation assets near the bottom of commo
Slide 32: John Hines, Vice President – Energy Supply
John Hines Vice President – Energy Supply 32
Slide 33: Energy Supply Overview
Energy Supply Overview 33 Primary responsibilities: • Undertake planning for effectively meeting the portfolio requirements of our electricity and natural gas customers • Acquire, and where applicable, operate and maintain our electric generation fleet • Operate electric real-time and term (out to 1
Slide 34: 2014 Energy Supply Capital Budget
Energy Supply Transmission Distribution Common $0 $50 $100 $150 $200 $250 $300 2014 Budget 2014 Capital (in millions) 2014 Energy Supply Capital Budget 34 Colstrip Unit 4 35 3 7 5 $0 $5 $10 $15 $20 $25 $30 $35 $40 Big Stone - environmental upgrades Neal 4 - environmental upgrades Colstrip Unit 4 Mai
Slide 35: Montana Hydro Acquisition
Montana Hydro Acquisition 35 • Announced, in September 2013, the acquisition of eleven base load hydroelectric generating facilities representing 633 megawatts of capacity and one storage reservoir from PPL Montana • These assets are consistent with our vision of providing safe and reliable energy f
Slide 36: Montana Sources of Supply with Hydro Assets
36 Montana Sources of Supply with Hydro Assets (Total Annual Energy - Excludes Kerr Dam1) Hydro – Owned & Contracted Resources MONTANA Yellowstone River ll t r Yellowstone River ll t ll t Ye lo stone River l t r Ye lo stone River ll t Yellowstone ll t Yellowstone ll t ll t Ye lo stone l t Ye lo ston
Slide 37: Meeting Customer Demand
Meeting Customer Demand 37 The addition of the hydro generation assets into our Montana electric portfolio aligns well with forecasted customer demand. We expect to be able to provide nearly all the power during the light load periods with some flexibility to use market purchases or other resources
Slide 38: Hydro Transaction: Pre-signing and Post-signing
Pre-signing • NorthWestern has been actively interested in these assets for several years – Provided proposal in June 2013 for hydro assets • Valuation of the assets took into consideration various factors including: – Fit within the supply portfolio – Forward market curve; adjusted for carbon per M
Slide 39: Hydro - A Great Fit at the Right Time
Hydro - A Great Fit at the Right Time 39 – Strong balance sheet, low interest rates and favorable utility equity valuations to finance the transaction. – Assets valuations at favorable (lower) prices as compared to buying during high commodity price periods. Thompson Falls Dam • Existing resources w
Slide 40: Big Stone and Neal Air Quality Projects
Big Stone and Neal Air Quality Projects 40 Big Stone Power Plant Neal Power Plant Big Stone Neal Location Northeast South Dakota Northwest Iowa Ownership 23.4% of 475 MW coal plant 8.7% of 644 MW coal plant Project Subject to Best Available Retrofit Technology (BART) requirements of the Regional Haz
Slide 41: Natural Gas Reserves Opportunity
Battle Creek ~1% Bear Paw North ~8% Bear Paw South ~28% Unfilled ~13% Natural Gas Reserves Opportunity 41 We continue to pursue opportunities to secure low cost gas reserves for our customers. • Remaining 13% unfilled position (assuming successful close on Bear Paw South) to reach our targeted 50% o
Slide 42: Southern Bear Paw (Devon) Transaction
Southern Bear Paw (Devon) Transaction 42 Acquisition of Bear Paw South • Entered into an agreement in May of 2013 to purchase 64.6 Bcf proven reserves and 82% interest in Havre Pipeline Company for $70 million. • The regulatory waiver, necessary due to a previous stipulation, filed in June with the
Slide 43: Mike Cashell, Vice President – Transmission
Mike Cashell Vice President – Transmission 43
Slide 44: Transmission Overview
Transmission Overview 44 • NorthWestern has a robust and methodical planning and prioritization process for transmission systems, with focus on: – Meeting increasing demand in service territories – Meeting reliability requirements – Meeting growing regulatory compliance obligations – Meeting require
Slide 45: 2014 Transmission Capital Budget
Energy Supply Transmission Distribution Common $0 $50 $100 $150 $200 $250 $300 2014 Budget 2014 Capital (in millions) 10 9 6 6 5 4 3 3 2 21 $0 $5 $10 $15 $20 $25 M illi on s 2014 Transmisson Capital (in millions) 2014 Transmission Capital Budget 45 Transmission capital of $69M (gas and electric) acc
Slide 46: Transmission Projects
Transmission Projects 46 NorthWestern Energy continues to make significant investments to upgrade our transmission system to add capacity and improve reliability. Two such projects are: Jack Rabbit – Big Sky 161kV Line and Carbon - Stillwater 100kV line and substation upgrades. With a total capital
Slide 47: Transmission System Infrastructure Project
Transmission System Infrastructure Project 47 Transmission System Infrastructure Program (TSIP) • Gas Transmission Program – Moving beyond basic compliance with federal safety regulations to systematic prioritization and addressing of pipeline integrity management for long-term customer benefit. – F
Slide 48: NERC Alert – Facilities Ratings
Transmission System “NERC Alert – Facilities Ratings” 48 • The North American Electric Reliability Corporation (NERC) issued a Recommendation and Guidance to Industry on the "Consideration of Actual Field Conditions in Determination of Facility Ratings." • This recommendation is to verify actual fie
Slide 49: Curt Pohl, Vice President – Distribution
Curt Pohl Vice President – Distribution 49
Slide 50: Distribution Overview
Distribution Overview 50 Demand MT SD/NE Total Daily MWs 750 172 922 Peak MWs 1,784 324 Annual GWhs 6,400 1,500 7,900 Annual Bcf 19 8 27 Customers MT SD/NE Total Electric 342,000 61,600 403,600 Natural gas 183,300 86,300 269,600 525,300 147,900 673,200 Sy tem (miles) MT SD/NE Total Electric 17,500 2
Slide 51: Asset Management Approach
Frequency of asset replacement Very frequent replacement Replace only at failure Prohibitively Expensive Unacceptable Operations Desired Economic Operating Range Asset Management Approach 51
Slide 52: 2014 Distribution Capital Budget
Energy Supply Transmission Distribution Common $0 $50 $100 $150 $200 $250 $300 2014 Budget 2014 Capital (in millions) 52 23 20 11 4 4 3 17 $0 $10 $20 $30 $40 $50 $60 M illi on s 2014 Distribution Capital (in millions) 2014 Distribution Capital Budget 52 Distribution capital of $134M (gas and electri
Slide 53: DSIP Investment Outlook
DSIP Investment Outlook 53 • Montana Distribution System Infrastructure Project (DSIP) to maintain a safe and reliable electric and natural gas distribution system. – The primary goals: reverse the trend in aging infrastructure, maintain reliability, proactively manage safety, build capacity into th
Slide 54: Pat Corcoran, Vice President – Regulatory
Pat Corcoran Vice President – Regulatory 54
Slide 55: Regulatory Activities: Major Activities
Regulatory Activities 55 Major Activities Filing Update • Electric and natural gas general rate filings – state and federal – Annual first look cost of service analysis • Montana electricity supply resources approval filings – PPL Montana hydroelectric generation acquisition filing • Federal Energy
Slide 56: Regulatory Activities: Annual and Biennial Filings
Regulatory Activities 56 Annual and biennial filings update • Annual compliance filings – Qualifying facilities • Annual tracker filings – Energy supply tracker filings • 2012 Montana electric energy supply filing – Dave Gates Generation Stations (DGGS) outage costs – Demand Side Management (DSM) co
Slide 57: Legal – Heather Grahame, VP & General Counsel
Heather Grahame – VP & General Counsel 57 Legal • Material legal proceedings disclosed in SEC filings consist of only one matter: Sierra Club and Montana Environmental Information Center v. PPL Montana LLC, etc. • Strong, small internal legal team – Effectively manages external legal costs – Partner
Slide 58: Customer Care, HR and Corporate Communications
Bobbi Schroeppel - VP 58 Customer Care, HR and Corporate Communications • Successful Customer Information System (CIS) implementation at significantly lower costs as compared to other recently installed systems • Improvements in customer service has resulted in best JD Power scores received to date
Slide 59: Financial Reporting and Employee Benefits
Kendall Kliewer – VP & Controller 59 Financial Reporting and Employee Benefits • Timely and transparent financials (transparency a significant factor in Forbes 100 most trustworthy companies) • Taken steps to better manage employee benefit costs while providing a competitive benefits package
Slide 60: Bob Rowe, President and CEO
Bob Rowe President and CEO 60
Slide 61: Conclusion
Conclusion 61 Fully- regulated utility Best practices corporate governance Strong track record of earnings and dividend growth Strong cash flows aided by Net Operating Loss (NOL) carryforwards Realistic investment opportunities to invest Free Cash Flow Aberdeen Peaker Plant Ground Breaking October 1
Slide 62: Questions?
Questions? 62
Slide 63: Appendix
a Appendix Northi
Slide 64: Adjusted EPS Schedule
Adjusted EPS Schedule 64 2013 Non- GAAP Adjusted EPS guidance range of $2.45 - $2.60 per diluted share with a midpoint of $2.53 Q1 Q2 Q3 Q4 2013 2013 Reported GAAP diluted EPS $1.01 $0.37 $0.40 $1.78 Non-GAAP Adjustments: Weather (0.02) (0.02) (0.04)$ Hydro Transaction related legal and professional
Slide 65: Consolidated Statement of Income
Consolidated Statement of Income 65 (in millions, except per share) 2013 2012 2013 2012 Operating Revenues $262.3 $235.9 $835.5 $789.5 Cost of Sales 104.3 93.0 343.4 327.9 Gross Margin 158.0 142.9 492.1 461.6 Operating Expenses Operating, general & administrative 72.5 63.1 208.7 195.7 MSTI impairmen
Slide 66: Earnings Reconciliation – Three Months Ended September 30, 2013
3 Month Earnings Reconciliation 66 NORTHWESTERN CORPORATION Three Months Ended September 30, 2013 ($millions, except EPS) Th ree M on ths E nd ed , Se pte mb er 30 , 2 01 2 DG GS DS M los t re ve nu es Sp ion K op Na tur al Ga s p rod uc tio n Mo nta na na tur al ga s r ate in cre as e Pr op ert y t
Slide 67: Earnings Reconciliation – Nine Months Ended September 30, 2013
9 Month Earnings Reconciliation 67 NORTHWESTERN CORPORATION Nine Months Ended September 30, 2013 ($millions, except EPS) Ni ne M on ths E nd ed , Se pte mb er 30 , 2 01 2 Na tur al ga s p rod uc tio n DG GS Sp ion K op Ele ctr ic tra ns mi ss ion Na tur al ga s r eta il v olu me s Mo nta na na tur a
Slide 68: Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows 68 (in millions) 2013 2012 Operating Activities Net Income $67.9 $39.7 Non-Cash adjustments to net income 123.6 124.0 Changes in working capital 6.5 68.7 Other (26.7) (9.8) Cash provided by operating activities 171.3 222.6 Investing Activities PP&E additions (153
Slide 69: Consolidated Balance Sheet
Consolidated Balance Sheet 69 (in millions) Sept. 30, 2013 Dec. 31, 2012 Cash 10.9 9.8 Restricted cash 8.2 6.7 Accounts receivable, net 129.2 143.7 Inventories 62.6 54.2 Other current assets 69.7 88.8 Goodwill 355.1 355.1 PP&E and other non-current assets 2,997.9 2,827.3 Total Assets 3,633.7$ 3,485.
Slide 70: Effective Tax Rate Reconciliation
Effective Tax Rate Reconciliation 70 (in millions) 2013 2012 2013 2012 Income (Loss) Before Income Taxes $17.5 ($12.4) $76.9 $41.7 Income tax calculated at 35% federal statutory rate 6.1 (4.3) 26.9 14.6 Permanent or flow through adjustments: Flow-through repairs deductions (3.1) (1.8) (12.9) (9.5) F
Slide 71: Total Return History
-20.4% 10.9% 10.8% 24.1% -3.0% 4.5%4.4% 6.8% 5.7% 5.7% 4.1% 5.3% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 2008 2009 2010 2011 2012 Average '08-'12 Dividend Return Stock Price % Change Realized Total Shareholder Return (Market) 2008-2012 -16.0% 17.7% 16.5% 29.8% 1.1% 9.8% Total Return Histor
Slide 72: Non-GAAP Financial Measures
Non-GAAP Financial Measures 72 The data presented above includes financial information prepared in accordance with GAAP, as well as another financial measure, Gross Margin, Free Cash Flows, Net Debt and EBITDA, but is considered a “non-GAAP financial measure.” Generally, a non-GAAP financial measure
Slide 73: Our Commissioners
Our Commissioners 73 Name Party Began Serving Term Ends Kirk Bushman R Jan-13 Jan-17 Bill Gallagher (Chairman) R Jan-11 Jan-15 Travis Kavulla R Jan-11 Jan-15 Roger Koopman R Jan-13 Jan-17 Bob Lake R Jan-13 Jan-17 Commissioners are elected in statewide elections from each of five districts. Chairpers
Slide 74: FERC's ALJ Ruling – We Got the Crust
FERC’s ALJ Ruling – We Got the Crust 74 Relying on the regulatory process to provide an equitable outcome should be as American as…. apple pie. FERC Total Direct (45MW) 45/105 39/105 21/105 105/105 43% 37% 20% 100% Fixed Costs ($millions) $16.3 $14.2 $7.6 $38.1 Variable Costs (Fuel, etc) 8.3 7.2 3.9
Slide 75: The Back Story on DGGS
The Back Story on DGGS 75 Background •NorthWestern Energy operates a transmission system and balancing authority within Montana and is charged with the responsibility of providing safe and reliable electric service to all of its customers. This includes retail and wholesale customers. • Part of Nort
Slide 76: The Back Story on DGGS (continued)
The Back Story on DGGS (continued) 76 Support for DGGS (continued) • On April 29, 2010, NorthWestern made a filing with FERC proposing to collect costs associated with DGGS under the same cost allocation methodology and for the same magnitude of Regulating Resource as had been previously approved by
Slide 77: Delivering a bright future
Upelivering a bright future