Slide 1: Investor Update March 2016
Investor Update March 2016 Madison River at Three Forks, 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
Slide 3: About NorthWestern
About NorthWestern 3 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 4: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term 4 • 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 • Constructive regulatory relationship • Customer service sa
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 See “Non-GAAP Financial Measure” slide in appendix for Net Debt and EBITDA reconciliation
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-$3.40. - 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 • 15 member peer group: ALE (Allete), AVA (Avista), BKH (Black Hills), CNL (Cleco), EDE (Empire District Electric), EE (El Paso Electric), GXP (Great Plains), IDA (IDA Corp), MGEE (Madison Gas & Electric), PNM (PNM Resources), POR (Portland Electric), STR (Questar), VVC (
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 Our 2016 guidance range of $3.20 - $3.40 per diluted share is based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service territories; • Excludes any potential additional impact as a result of th
Slide 15: The Hydro Facilities
The Hydro Facilities 15 Overview of Hydro Facilities Black Eagle (1) Hydro Asset Integration • Montana Asset Optimization Study: With the acquisition of the hydros, we are modeling different scenarios in an attempt to optimize the integration and operation of our entire generation fleet and determin
Slide 16: South Dakota Electric Operations
16 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 benefitting our customers’ bills over the long-term. Beethoven Wind Project:
Slide 17: Natural Gas Reserves Opportunity
Owned Owned Target Total Annual Need Natural Gas Reserves Opportunity 17 As we continue to add to our natural gas reserves portfolio, we anticipate a reduction in supply cost volatility for our customers. First ~6 Bcf annual production acquired for ~$100M Remaining 6-7 Bcf annual production needed t
Slide 18: Infrastructure Projects
Infrastructure Projects 18 • 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 19: DGGS Update – Still waiting on FERC
DGGS Update – Still waiting on FERC 19
Slide 20: Capital Spending Forecast
Capital Spending Forecast 20 Current estimated cumulative capital spending for 2016 through 2020 is $1.47 billion. We anticipate funding the capital projects with a combination of cash flows, aided by NOLs now anticipated to be available into 2020, and long-term debt. If other opportunities arise th
Slide 21: 'Clean' Owned & Contracted Supply Portfolio
21 ‘Clean’ Owned & Contracted 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, whic
Slide 22: 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 23: EPA's Clean Power Plan (CPP)
23 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 24: Other Significant Achievements in 2015
Other Significant Achievements in 2015 24 Strong year for safety at NorthWestern • Fewest OSHA recordable events of any year. • One of the best years for Lost Time Incidents. • Tragic fatality of a respected senior lineman. Record best customer satisfaction scores with JD Power & Associates • Receiv
Slide 25: Conclusion
Conclusion 25 Pure Electric and Gas Utility Solid Utility Foundation Strong Earnings and Cash Flows Attractive Future Growth Prospects Best Practices Corporate Governance
Slide 26: Appendix
Appendix 26
Slide 27: Summary Financial Results (Qtr & Full Year)
Summary Financial Results (Qtr 4 & Full Year) 27
Slide 28: Weather (Fourth Quarter)
Weather (Fourth Quarter) 28 Maximum Temperature from Normal Minimum Temperature from Normal
Slide 29: 2015 Weather
29 2015 Weather Q1 2015 NorthWestern service territory has significantly more heating degree-days than cooling degree- days. As a result, first and fourth quarter weather anomalies tend to be more impactful to earnings. We estimate the mild weather has unfavorably impacted our total gross margin by
Slide 30: Non-GAAP Adjusted Earnings (Fourth Quarter '15 vs '14)
Non-GAAP Adjusted Earnings (Fourth Quarter ‘15 vs ’14) 30 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 determi
Slide 31: Non-GAAP Adjusted Earnings (Full Year '15 vs '14)
Non-GAAP Adjusted Earnings (Full Year ‘15 vs ’14) 31 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 o
Slide 32: 2014 to 2015 Reconciliation (4th Qtr & Full Year)
32 2014 to 2015 Reconciliation (4th Qtr & Full Year)
Slide 33: Balance Sheet
Balance Sheet 33 Property plant & equipment (PP&E) increased by 8% as a result of the acquisition of the Beethoven wind project and continued investment to improve system safety, reliability and capacity. 55.4% Debt to capitalization slightly above our targeted 50-55% due to seasonality of cash flow
Slide 34: Cash Flow
Cash Flow 34 $89.8 million improvement in cash flow provided by operating activities was primarily due to higher net income after non-cash adjustments.
Slide 35: Income Tax Reconciliation (Qtr & YTD)
Income Tax Reconciliation (Qtr 4 & YTD) 35
Slide 36: 2015 to 2016 EPS & Dividend Bridge
2015 to 2016 EPS & Dividend Bridge Basic assumptions include, but are not limited to: • Normal weather in our electric and natural gas service territories; • Excludes any potential additional impact as a result of the FERC decision regarding revenue allocation at our Dave Gates Generating Station; •
Slide 37: Big Stone and Neal Air Quality Projects
Big Stone and Neal Air Quality Projects 37 Big Stone Power Plant Neal Power Plant
Slide 38: Meeting Montana Customer Demands
- 100,000 200,000 300,000 400,000 Hydro Contracted Owned Generation Light Load Demand Light Load Hours (MWh's) MW h's - 100,000 200,000 300,000 4 , 500,000 Hydro Contracted Owned Generation Heavy Load Demand Heavy Load Hours (MWh's) MW h's Meeting Montana Customer Demands 38 We expect to be able to
Slide 39: 2015 System Statistics
2015 System Statistics 39 Note: Statistics above are as of 12/31/2015 (1) Nebraska is a natural gas only jurisdiction (1)
Slide 40: Strong Executive Team
Strong Executive Team Robert C. Rowe President and Chit Executve Otieer Heather H. Graheme Vee President and General Counsel Current pesion since August 2008, + Sead ment see Aug 208 rezords management + ae pestn see 2010, ‘Chairman of Westem Energy Intute (2012-2013) and Co-Cha of IEE. an Instat j
Slide 41: Experienced & Engaged Board of Directors
Experienced & Engaged Board of Directors 41
Slide 42: Our Commissioners
Our Commissioners 42 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 43: Non-GAAP Financial Measures
Non-GAAP Financial Measures 43 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 44: Delivering a bright future
Upelivering a bright future