Slide 1: Investor Update October 2016
Madison River at Three Forks, MT Artist – Monte Dolack Black Eagle dam – Missouri River – Montana 8-K on October 24, 2016 Investor Update October 2016
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
Slide 3: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term 3 • 100% Regulated electric & natural gas utility business • 100 year history of competitive customer rates, system reliability and customer satisfaction • Solid economic indicators in service territory • A diverse electric supply portfolio that is approximately
Slide 4: About NorthWestern
About NorthWestern 4 Montana Operations Electric 359,000 customers 24,350 miles – transmission & distribution lines 851 MW nameplate owned power generation Natural Gas 191,500 customers 7,200 miles of transmission and distribution pipeline 18 Bcf of gas storage capacity Owns 66 Bcf of proven natural
Slide 5: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 5 Gross Margin in 2015: Electric: $663M Natural Gas: $178M Gross Margin in 2015: Montana: $729M South Dakota: $102M Nebraska: $ 10M Average Customers in 2015: Residential: 579k Commercial: 111k Industrial: 7k NorthWestern’s ‘80/20’ rules: Approximately 80% Elec
Slide 6: NorthWestern Energy Profile
NorthWestern Energy Profile 6 Financial and Company Statistics
Slide 7: Solid Economic Indicators
Solid Economic Indicators 7 • Unemployment rates in all three of our states are meaningfully below National Average. • Customer growth rates historically exceed National Averages. Source: NorthWestern customer growth - 2008-2015 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2
Slide 8: Strong Utility Foundation
Strong Utility Foundation 8 Electric source: Edison Electric Institute Typical Bills and Average Rates Report, 1/1/16 Natural gas source: US EIA - Monthly residential supply and delivery rates as of 1/29/16 Customer service satisfaction scores in line or better than survey average (JD Powers) Re
Slide 9: Track Record of Delivering Results
Track Record of Delivering Results 9 Notes: - ROE in 2011, 2012 , 2013, 2014 & 2015 on a Non-GAAP Adjusted basis, would be 10.5%, 9.8%, 9.6% ,9.4% & 9.9% respectively. - 2016 ROAE and 2016 Dividend payout ratio estimate based on midpoint of our updated guidance range of $3.20-$3.35. - Details regard
Slide 10: Investment for Our Customers' Benefit
Investment for Our Customers’ Benefit 10 Over the past 7 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 11: Total Shareholder Return
Total Shareholder Return 11 • 13 member peer group: ALE (Allete), AVA (Avista), BKH (Black Hills), EE (El Paso Electric), GXP (Great Plains), IDA (IDA Corp), MGEE (Madison Gas & Electric), OGE (OGE Energy), OTTR (Otter Tail Power), PNM (PNM Resources), POR (Portland Electric),, VVC (Vectren), WR (We
Slide 12: Strong Cash Flows
While maintenance capex and total dividend payments have continued to grow since 2011 (16.6% and 14.8% CAGR respectively), Cash Flow from Operations has continued to outpace maintenance capex and averaged approximately $38 million of positive Free Cash Flow per year. With the addition of production
Slide 13: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity 13
Slide 14: 2016 Earnings Guidance
2016 Earnings Guidance 14 NorthWestern reaffirms our full-year 2016 adjusted (Non-GAAP) guidance range of $3.20 - $3.35 per diluted share, based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service territories; • A conso
Slide 15: Regulatory Update
15 Regulatory Update Regulatory Item Current / Anticipated Action FERC / DGGS: April 2014 order regarding cost allocation at DGGS between retail and wholesale customers. FERC denied our request for rehearing and required us to make refunds. Refunds were made in June 2016. Also in June 2016, we filed
Slide 16: The Hydro Facilities
The Hydro Facilities 16 Overview of Hydro Facilities Black Eagle Hydro Asset Integration • Montana Asset Optimization Study: As part of reintegrating the hydro facilities into our generation portfolio, we initiated an asset optimization study to maximize the value of our diverse generation portfolio
Slide 17: Highly Renewable Supply Portfolio
17 Highly Renewable Supply Portfolio Based upon 2015 delivered electric portfolio, approximately 54% of our total company owned and contracted supply is renewable or supports renewables. * Wind Owned delivered in 2015 includes a partial year of production from the Beethoven wind farm, which was acqu
Slide 18: South Dakota Electric Operations
18 South Dakota Electric Operations The owned and rate-based cost of energy from the Beethoven wind project over the next 20 years is expected to be $44 million ($25 million net present value) less than the PPA alternative, thus benefitting our customers’ bills over the long-term. Beethoven Wind Pro
Slide 19: Infrastructure Projects
Infrastructure Projects 19 • In Montana, our Distribution System Infrastructure Project (DSIP) and Transmission System Infrastructure Project (TSIP), both of which are currently in process, are to maintain a safe and reliable electric and natural gas distribution and transmission system. – The prima
Slide 20: Capital Spending Forecast
Capital Spending Forecast 20 Estimated capital spending of $1.66 billion over the next 5 years, including approximately $187 million to meet a shortfall in dispatchable generation capacity in Montana and South Dakota. We anticipate issuing a request for proposal (RFP) in Montana during the first qua
Slide 21: Montana 2015 Electric Supply Resource Plan
Montana 2015 Electric Supply Resource Plan 21 The resource initiatives and actions developed in 2015 Electricity Supply Resource Procurement Plan identify the critical future needs of our portfolio, including solutions to resolve our current negative planning reserve margin. The plan identifies how
Slide 22: Montana 2015 Electric Supply Resource Plan
Montana 2015 Electric Supply Resource Plan 22 Spending on the generation assets will be subject to the development of a plan for clear regulatory recovery. * Assumes no retirements and no additions. ** Montana supply plan would add 689MW of capacity and require approximately $1.3 billion of investme
Slide 23: Natural Gas Reserves Opportunity
Owned Owned Target Total Annual Need Natural Gas Reserves Opportunity 23 As we continue to add to our natural gas reserves portfolio, we anticipate a reduction in supply cost volatility for our customers. As a result of the October 2015 natural gas tracker order, we are required to make a filing pri
Slide 24: Conclusion
Conclusion 24 Pure Electric and Gas Utility Solid Utility Foundation Strong Earnings and Cash Flows Attractive Future Growth Prospects Best Practices Corporate Governance
Slide 25: Appendix
Appendix 25
Slide 26: Summary Financial Results (Third Quarter)
Summary Financial Results (Third Quarter) 26
Slide 27: Gross Margin (Third Quarter)
27 Gross Margin (Third Quarter) (dollars in millions) Three Months Ended September 30, 2016 2015 Variance Electric $ 176.9 $ 172.3 $ 4.6 2.7% Natural Gas 27.9 26.8 1.1 4.1% Gross Margin $ 204.8 $ 199.1 $ 5.7 2.9% Increase in gross margin due to the following factors: $ 9.2 South Dakota electric rate
Slide 28: Weather (Third Quarter)
Weather (Third Quarter) 28 Average Temperature Ranks (last 122 years) Mean Temperature from Normal While near normal for the quarter, cooler than normal late summer weather in Montana had an unfavorable impact, primarily to our electric volumes.
Slide 29: Operating Expenses (Third Quarter)
Operating Expenses (Third Quarter) 29 Decrease in operating expenses due mainly to the following factors: $11.0 million decrease in OG&A $ (4.0) Hydro operations (Kerr Conveyance) $ (2.9) Non-employee directors deferred compensation $ (1.7) Distribution System Infrastructure Project (DSIP) expenses
Slide 30: Operating to Net Income (Third Quarter)
Operating to Net Income (Third Quarter) 30 $1.0 million decrease in interest expense was primarily due to debt refinancing transactions partially offset by lower capitalization of allowance for funds used during construction (AFUDC) and increased debt outstanding associated with the Beethoven wind p
Slide 31: Balance Sheet
Balance Sheet (dollars in millions) As of September 30, 2016 Cash Restricted cash Accounts receivable, net Inver Other current assets Goodwill PP&E and other non-current assets Total Assets Payables Current maturities of long-term debt & capital leases Short-term borrowings Other current liabilities
Slide 32: Cash Flow
Cash Flow 32 The $46.5 million decrease in operating cash flows is primarily due 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 2016. * DGGS refund of
Slide 33: Income Tax Reconciliation (Third Quarter)
Income Tax Reconciliation (Third Quarter) 33 The $16.1 million improvement in income taxes is primarily driven by additional flow- through repairs deductions, as a result of a tax accounting method change with the IRS related to costs to repair generation property, and higher production tax credits.
Slide 34: Adjusted Earnings (Third Quarter '16 vs '15)
Adjusted Earnings (Third Quarter ‘16 vs ’15) 34 The 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 determined or cal
Slide 35: Summary Financial Results (YTD thru Qtr 3)
Summary Financial Results (YTD thru Qtr 3) 35
Slide 36: Weather (YTD thru Qtr 3)
Weather (YTD thru Qtr 3) 36 Northwestern’s service territory is much more impacted by variances to Heating Degree Days (HDD) than Cooling Degree Days (CDD) (i.e. approximately 16x more HDD’s than CDD’s in Montana). All three of our jurisdictions have experienced 10- 13% fewer HDD’s in 2016 than norm
Slide 37: Non-GAAP Adjusted Earnings ('16 vs '15)
Non-GAAP Adjusted Earnings (‘16 vs ’15) 37 The 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 determined or calculat
Slide 38: Non-GAAP Adjusted EPS
Non-GAAP Adjusted EPS 38 The 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 determined or calculated in accordance w
Slide 39: 2015 to 2016 Reconciliation (3rd Quarter & YTD)
39 2015 to 2016 Reconciliation (3rd Quarter & YTD) (1) Income Tax Benefit (Expense) calculation on reconciling items assumes normal effective tax rate of 38.5% (2) These items have offsets in operating expenses or income tax expenses that result in no impact to net income.
Slide 40: 2015 System Statistics
Owned Energy Supply Transmission Distribution Electric (MW) MT SD Total 2015 Tx for Others MT SD Total Demand MT SD / NE Total Base load coal 222 210 432 Electric (GWh) 11,300 100 11,400 Daily MWs 750 187 937 Wind 40 80 120 Natural Gas (Bcf) 22.5 29.5 52.0 Peak MWs 1,790 306 2,096 Hydro 442 - 442 An
Slide 41: Experienced & Engaged Board of Directors
Experienced & Engaged Board of Directors 41 Dr. E. Linn Draper Jr. • Chairman of the Board • Independent • Director since November 1, 2004 Stephan P. Adik • Committees: Audit (chair), Human Resources • Independent • Director since November 1, 2004 Dorothy M. Bradley • Committees: Human Resources, Go
Slide 42: Strong Executive Team
Strong Executive Team 42 Robert C. Rowe • President and Chief Executive Officer • Current position since 2008 Brian B. Bird • Vice President and Chief Financial Officer • Current position since 2003 Michael R. Cashell • Vice President - Transmission • Current Position since 2011 Patrick R. Corcoran
Slide 43: Our Commissioners
Our Commissioners 43 Name Party Began Serving Term Ends Kirk Bushman R Jan-13 Jan-17 Travis Kavulla R Jan-11 Jan-19 Roger Koopman R Jan-13 Jan-17 Brad Johnson (Chairman) R Jan-15 Jan-19 Bob Lake R Jan-13 Jan-17 Commissioners are elected in statewide elections from each of five districts. Chairperson
Slide 44: EPA's 2030 carbon target for Montana
EPA’s 2030 carbon target for Montana NWE’s CO2 intensity* decreased by approximately 37% with the addition of the hydro facilities to our Montana generation portfolio. However EPA’s Clean Power Plan targets are statewide and not utility specific targets. * lbs CO2 per MWH produced CO2 Intensity* 37%
Slide 45: Colstrip Unit / Sierra Club Litigation
45 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 46: EPA's Clean Power Plan (CPP)
46 EPA’s Clean Power Plan (CPP) The February 9th Supreme Court 5-4 vote to stay the EPA CPP rules • We will be working with state agencies and other stakeholders to evaluate the implications. • We hope the EPA takes this opportunity to address Montana’s serious concerns with the 47% statewide reduct
Slide 47: DGGS Update – Denied Rehearing Request
DGGS Update – Denied Rehearing Request 47 Note: Please see Regulatory Matters footnote and Risk Factors section of our recent Form 10-K and Form 10-Q for additional disclosures.
Slide 48: Non-GAAP Financial Measures
Non-GAAP Financial Measures 48 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 maintenance capex
Slide 49: Delivering a bright future
Upelivering a bright future