Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Williams Capital West Coast Utilities Conference 2018
50 slides from Northwestern Energy's conference presentation, Mar 21, 2018
Slide 1: Williams Capital - West Coast Utilities Conference
8-K March 21, 2018 Williams Capital - West Coast Utilities Conference March 21-22, 2018 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 369,100 customers 24,495 miles – transmission & distribution lines 809 MW nameplate owned power generation Natural Gas 196,700 customers 7,287 miles of transmission and distribution pipeline 17.75 Bcf of gas storage capacity Own 55.9 Bcf of proven nat
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 ~56% 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 Over $3.5 billion of rate base investment to serve our customersData as of 12/31/2017.
Slide 6: Highly Carbon-Free Supply Portfolio
6 Highly Carbon-Free Supply Portfolio Based upon 2017 MWH’s of owned and long-term contracted resources. Approximately 56% 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 2008-2017 CAGR’s: GAAP EPS: 7.3% - Non-GAAP EPS: 6.8% - 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 on GAAP Earnings within 9.5% - 11.0% band over the last 6 years with average of 9.9%. 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 year
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 Investment grade credit ratings, generally 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
Slide 13: Cash Flow, Maintenance Capex and Dividends
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, on average, exceeded maintenance capex and dividend payments by approximately $24 million per year. 2016 CFO is less than 2015 largely due t
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
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 in 2017. Corporate Governance Final
Slide 16: Looking Forward
Looking Forward 16 Regulatory • Regulatory treatment of tax reform - determine best way to provide long-term benefit to customers and system while keeping investors ‘whole’. • Working toward successful implementation of new Power Cost and Credit Adjustment Mechanism • Anticipate filing an electric r
Slide 17: Financing Activities
Financing Activities 17 Big Sky Substation 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 B
Slide 18: Regulatory & Legal Update
18 Regulatory & Legal Update Montana Property Tax Tracker Filing • On January 29th the MPSC issued an order in our 2017 property tax tracker filing by further reducing our recovery of Montana property taxes by a total of $3.5 million impacting both 2017 and 2018 (approximately $1.75 million each yea
Slide 19: Estimated Impacts of the Tax Cuts & Jobs Act
19 Estimated Impacts of the Tax Cuts & Jobs Act Tax reform had no impact on our net income in 2017. As a result of the reduction in the federal corporate tax rate, we reduced our deferred tax liability by approximately $321 million. This reduction was offset in regulatory assets and liabilities. • O
Slide 20: Critical Capacity Shortfall
Critical Capacity Shortfall 20 NorthWestern’s current planning reserve margin is negative 28% and projected to grow to negative 50% by 2035 without the addition of incremental owned or contracted portfolio resources. • The resource initiatives and actions developed in our Montana 2015 Electricity Re
Slide 21: Capital Spending Forecast
Capital Spending Forecast 21 The updated current estimated cumulative 5 year capital spending for is $1.596 billion (previously $1.582 billion). We anticipate funding the expenditures with a combination of cash flows (aided by NOLs available into 2020), the remainder of our current equity distributi
Slide 22: 2018 Earnings Guidance
2018 Earnings Guidance 22 See appendix for additional disclosures regarding “Non-GAAP Financial Measures” $2.60 - $2.75 $3.10 - $3.30 $3.30-$3.45 NorthWestern’s 2018 earnings guidance range of $3.35 - $3.50 per diluted share is based upon, but not limited to, the following major assumptions and expe
Slide 23: Preliminary 2017 to 2018 Bridge
Preliminary 2017 to 2018 Bridge 23 2017 Non-GAAP → 2018 Midpoint Prior to ATM Equity Dilution: $3.30 → $3.53 = 7.0% Increase After anticipated ATM Equity Dilution: $3.30 → $3.43 = 3.9% Increase Dividend Growth $2.10 → $2.20 = 4.8% increase NorthWestern’s 2018 earnings guidance range of $3.35 - $3.50
Slide 24: Conclusion
Conclusion 24 Best Practices Corporate Governance Pure Electric & Gas Utility Solid Utility Foundation Strong Earnings & Cash Flows Attractive Future Growth Prospects
Slide 25: Upelivering a
Upelivering a bright future Energy
Slide 26: Summary Financial Results (Fourth Quarter)
Summary Financial Results (Fourth Quarter) 26 (1) Gross Margin is a non-GAAP Measure. See appendix for additional disclosure. (1)
Slide 27: Gross Margin (Fourth Quarter)
(dollars in millions) Three Months Ended December 31, 2017 2016 Variance Electric $ 175.0 $ 167.9 $ 7.1 4.2% Natural Gas 60.5 55.0 5.5 10.0% Gross Margin $ 235.5 $ 222.9 $ 12.6 5.7% 27 Gross Margin (Fourth Quarter) (1) Gross Margin is a non-GAAP Measure. See appendix for additional disclosure. (1) I
Slide 28: Weather (Fourth Quarter)
Weather (Fourth Quarter) 28 Mean Temperature from Normal Oct.-Dec. 2017 Favorable weather has contributed approximately $1.8 million pretax benefit for the quarter as compared to normal, and $2.8 million pretax benefit as compared to same period in the prior year.
Slide 29: Operating Expenses (Fourth Quarter)
Operating Expenses (Fourth Quarter) 29 (dollars in millions) Three Months Ended December 31, 2017 2016 Variance Operating, general & admin. $ 78.7 $ 82.2 $ (3.5) (4.3%) Property and other taxes 44.1 36.8 7.3 19.8% Depreciation and depletion 41.7 39.7 2.0 5.0% Operating Expenses $ 164.5 $ 158.7 $ 5.8
Slide 30: Operating Income to Net Income (Fourth Quarter)
(dollars in millions) Three Months Ended December 31, 2017 2016 Variance Operating Income $ 71.0 $ 64.2 $ 6.8 10.6% Interest Expense (22.3) (23.0) 0.7 3.0% Other Income 2.5 1.3 1.2 92.3% Income Before Taxes 51.2 42.5 8.7 20.5% Income Tax (Expense) / Credit (3.3) 1.6 (4.9) (312.9%) Net Income $ 47.9
Slide 31: Balance Sheet
Balance Sheet 31 Debt to total capitalization decreased to 53.7% and now within targeted 50%-55% range.
Slide 32: Cash Flow
Cash Flow 32 Improvement in cash from operations is primarily due to refunds in 2016 associated with the DGGS FERC ruling and interim rates in our South Dakota electric rate case of approximately $30.8 million and 7.2 million, respectively.
Slide 33: Income Tax Reconciliation (Fourth Quarter)
Income Tax Reconciliation (Fourth Quarter) 33 Our income taxes are higher in fourth quarter 2017 versus the prior year largely due to higher pre-tax income and lower plant and depreciation of flow through items.
Slide 34: Adjusted Earnings (Fourth Quarter '17 vs '16)
Adjusted Earnings (Fourth Quarter ‘17 vs ’16) 34 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 calculat
Slide 35: Summary Financial Results (Full Year)
Summary Financial Results (Full Year) 35 (1) Gross Margin is a non-GAAP Measure. See appendix for additional disclosure. (1)
Slide 36: Gross Margin (Full Year)
Gross Margin (Full Year) 36 (dollars in millions) Twelve Months Ended December 31, 2017 2016 Variance Electric $ 703.1 $ 678.8 $ 24.3 3.6% Natural Gas 192.3 177.5 14.8 8.3% Gross Margin $ 895.4 $ 856.3 $ 39.1 4.6% Increase in gross margin due to the following factors: $ 15.7 Electric retail volumes
Slide 37: Weather (Full Year)
Weather (Full Year) 37 Heating Degree Days Cooling Degree Days We estimate favorable weather in 2017 contributed approximately $3.4 million pretax benefit as compared to normal and $18.6 million pretax benefit as compared to 2016. Source: National Centers for Environmental Information
Slide 38: Operating Expenses (Full Year)
Operating Expenses (Full Year) 38 Increase in operating expenses due mainly to the following factors: $2.2 million increase in OG&A $ 1.9 Bad debt expense 1.5 Operating expenses recovered in trackers 1.2 Maintenance costs (1.5) Employee benefits and compensation costs (1.0) Insurance reserves 0.1 Ot
Slide 39: Operating Income to Net Income (Full Year)
Operating Income to Net Income (Full Year) 39 $2.7 million decrease in interest expense was primarily due to refinancing $250 million of debt in November 2017 and $2.9 million of interest included in our 2016 results associated with an MPSC disallowance offset partially by higher interest expense on
Slide 40: Income Tax Reconciliation (Full Year)
Income Tax Reconciliation (Full Year) 40 The increase in income tax expense was primarily due to higher pretax income and the inclusion in our 2016 results of a $17.0 million income tax benefit due to the adoption of a tax accounting method change related to the costs to repair generation assets (of
Slide 41: Non-GAAP Adjusted Earnings (Full Year '17 vs '16)
Non-GAAP Adjusted Earnings (Full Year ‘17 vs ’16) 41 The non-GAAP measures presented in the table are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or calc
Slide 42: Montana Natural Gas Rate Filing
Montana Natural Gas Rate Filing 42 Montana PSC Docket D2016.9.68 Derivation of Rate Increase ($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 43: NorthWestern Energy Profile
NorthWestern Energy Profile 43
Slide 44: 2017 System Statistics
2017 System Statistics 44 Note: Statistics above are as of 12/31/2017 except for Electric Transmission for Others (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 jurisd
Slide 45: Public Service Commissions
Montana Public Service Commission Began Term Commissioners are elected in Name Party — Serving a statewide elections from each of Travis Kavulla R Jan-11 Jan-19 five districts. Chairperson is foger Koopman R Jan-13 Jan-21 elected by fellow Commissioners. Brad Johnson (Chairperson) Jon-15 —— Jan-19 i
Slide 46: DGGS Update – Denied Rehearing Request
DGGS Update – Denied Rehearing Request 46 Note: Please see Regulatory Matters footnote and Risk Factors section of our recent Form 10-K and Form 10-Q for additional disclosures.
Slide 47: Non-GAAP Financial Measures (1 of 3)
Non-GAAP Financial Measures (1 of 3) 47 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 measure is a
Slide 48: Non-GAAP Financial Measures (2 of 3)
Non-GAAP Financial Measures (2 of 3) 48 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 49: Non-GAAP Financial Measures (3 of 3)
Non-GAAP Financial Measures (3 of 3) 49 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 50: Upelivering a
Upelivering a bright future
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