Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Q2 2018 Earnings Presentation
50 slides from Northwestern Energy's earnings presentation, Jul 23, 2018
Slide 1: Investor Update July 23-24, 2018
500kv line near Toston, MT Investor Update July 23-24, 2018 8-K July 23, 2018
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
3 About NorthWestern South Dakota Operations Electric 63,600 customers 3,560 miles – transmission & distribution lines 440 MW nameplate owned power generation Natural Gas 46,500 customers 1,681 miles of transmission and distribution pipeline Montana Operations Electric 369,100 customers 24,495 miles
Slide 4: NWE - An Investment for the Long Term
4 NWE - An Investment for the Long Term • 100% regulated electric & natural gas utility business Black Eagle dam Pure Electric & with over 100 years of operating history Gas Utility • Solid economic indicators in service territory • Diverse electric supply portfolio ~56% hydro & wind • Residential e
Slide 5: A Diversified Electric and Gas Utility
5 A Diversified Electric and Gas Utility NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential and 80% Montana Data as of 12/31/2017. Over $3.5 billion of rate base investment to serve our customers
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
7 Strong Utility Foundation . 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
8 Solid Economic Indicators Source: NorthWestern customer growth - 2008-2016 Forms 10-K Unemployment Rate: US Department of Labor via SNL Database 2/21/17 Electric: EEI Statistical Yearbook (published December 2015, table 7.2) Natural Gas: EIA.gov (Data table "Number of Natural Gas Consumers") Sourc
Slide 9: A History of Growth
9 A History of Growth $3.30-$3.50 $3.10 - $3.30 $2.60$3.20-$3.40 - $2.75 2008-2017 CAGR’s: GAAP EPS: 7.3% - Non-GAAP EPS: 6.8% - Dividend: 5.3% See appendix for “Non-GAAP Financial Measures”
Slide 10: Track Record of Delivering Results
10 Track Record of Delivering Results * Peer Group: ALE, BKH, EE, IDA, MGEE, NWN, OGE, OTTR, PNM, POR, SR, & VVC 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 th
Slide 11: Investment for Our Customers' Benefit
11 Investment for Our Customers’ Benefit 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
12 Balance Sheet Strength and Liquidity 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: Strong Cash Flows
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, on average, exceeded maintenance capex and dividend payments by approximately $24 million per year. 2016 CFO is less th
Slide 14: 2018 Earnings Guidance
14 2018 Earnings Guidance $3.30-$3.45 $3.10 - $3.30 $2.60 - $2.75 NorthWestern reaffirms its 2018 earnings guidance range of $3.35 - $3.50 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 t
Slide 15: Summary Financial Results (Six Months Ended June 30)
15 Summary Financial Results (Six Months Ended June 30) (1) Gross Margin, defined as revenues less cost of sales, is a non‐GAAP Measure. See appendix for additional disclosure.
Slide 16: Maintaining Full Year Non-GAAP Guidance
16 Maintaining Full Year Non-GAAP Guidance In order to meet 2018 $3.30-$3.45 guidance,$3.10 we will- $3.30 $2.60 - $2.75 need to deliver EPS of $1.61 - $1.76 during the second half of the year. This compares to $1.70 earned in the second half of 2017. The non-GAAP measures presented in the table to
Slide 17: Financing Activities
17 Financing Activities $100 million At-The-Market Long-Term Debt Refinancing Equity Distribution Program • In October 2017, we priced $250 million • Initiated in September 2017 principal, 4.03% - 30 year Montana First Mortgage Bonds • Proceeds to repay or refinance debt (including short-term debt),
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 • Dockets have been initiated in each of our jurisdictions to address the impact from the change in tax law and to provide any benefits to customers effective January 1st. We have made filings in each jurisdiction. We do not expect the FERC or Nebraska
Slide 20: Experienced Leadership & Solid Corp. Governance
20 Experienced Leadership & Solid Corp. Governance Board of Directors (left to right) Linda G. Sullivan – Independent Director since April 27, 2017 – Audit Committee (Chair) Dana J. Dykhouse – Independent Director since January 30, 2009 – Human Resources (Chair) and Audit Committees Britt E. Ide – I
Slide 21: Recent Significant Achievements
21 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
Slide 22: Looking Forward
22 Looking Forward Regulatory • Regulatory treatment of tax reform - determine best way Black Eagle Power House 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 • Anticipat
Slide 23: Montana Critical Capacity Shortfall
23 Montana Critical Capacity Shortfall NorthWestern’s current planning reserve margin is negative 28%. The 2015 Energy Resource Procurement Plan (ERPP) projected this to grow to negative 50% by 2035 without the addition of incremental owned or contracted portfolio resources. The 2018 ERPP, expected
Slide 24: Capital Spending Forecast
24 Capital Spending Forecast 2018 Significant Updates Out: Approximately $123 million of previously included investment in capacity generation has been removed pending update of Integrated Resource Plans in both Montana and South Dakota (expected to be completed by year-end 2018). In: Approximately
Slide 25: Conclusion
25 Conclusion Best Practices Corporate Governance Attractive Future Pure Electric Growth & Gas Utility Prospects Strong Solid Utility Earnings & Foundation Cash Flows
Slide 26: Delivering a bright future
Upelivering a bright future NorthWestern Energy
Slide 27: Summary Financial Results (Second Quarter)
Appendix 27 Summary Financial Results (Second Quarter) (1) Gross Margin, defined as revenues less cost of sales, is a non‐GAAP Measure. See appendix for additional disclosure.
Slide 28: Gross Margin (Second Quarter)
Appendix 28 Gross Margin (Second Quarter) (dollars in millions) Three Months Ended June 30, 2018 2017 Variance Operating Revenues $ 261.8 $ 283.9 ($ 22.1) (7.8%) Cost of Sales 32.2 84.0 (51.8) (61.7%) Gross Margin $ 229.6 $ 199.9 $ 29.7 14.9% Increase in gross margin due to the following factors: Gr
Slide 29: Weather (Second Quarter)
Appendix 29 Weather (Second Quarter) Mean Temperature from Normal We estimate unfavorable weather in second quarter 2018 impacted gross margin by $1.4M as compared to normal but was approximately $0.6M favorable as compared to 2017.
Slide 30: Operating Expenses (Second Quarter)
Appendix 30 Operating Expenses (Second Quarter) (dollars in millions) Three Months Ended June 30, 2018 2017 Variance Operating, general & admin. $ 73.8 $ 72.6 $ 1.2 1.7% Property and other taxes 43.0 39.5 3.5 8.9% Depreciation and depletion 43.5 41.5 2.0 4.8% Operating Expenses $ 160.3 $ 153.6 $ 6.7
Slide 31: Operating to Net Income (Second Quarter)
Appendix 31 Operating to Net Income (Second Quarter) (dollars in millions) Three Months Ended June 30, 2018 2017 Variance Operating Income $ 69.2 $ 46.3 $ 22.9 49.5% Interest Expense (23.2) (23.4) 0.2 0.9% Other Income / (Expense) 0.9 (0.5) 1.4 280.0% Income Before Taxes 46.9 22.4 24.5 109.4% Income
Slide 32: Income Tax Reconciliation (Second Quarter)
Appendix 32 Income Tax Reconciliation (Second Quarter)
Slide 33: Balance Sheet
Appendix 33 Balance Sheet NorthWestern’s Ratio of debt to total capitalization decreased from 53.7% at 12/31/17 to 51.1% at 6/30/18.
Slide 34: Cash Flow
Appendix 34 Cash Flow Cash from operating activities improved by $68 million primarily due to higher net income, improved collections of customer receipts and increased recovery of certain costs through supply trackers.
Slide 35: Adjusted Non-GAAP Earnings (Second Quarter)
Appendix 35 Adjusted Non-GAAP Earnings (Second Quarter) (1) During the first quarter of 2018, we revised our presentation of revenues associated with being a market participant in the Southwest Power Pool to net them with the associated cost of sales. These revenues were previously recorded gross in
Slide 36: Gross Margin (Six Months Ended June 30)
Appendix 36 Gross Margin (Six Months Ended June 30) (dollars in millions) Six Months Ended June 30, 2018 2017 Variance Operating Revenues $ 603.3 $ 651.2 ($ 47.9) (7.4%) Cost of Sales 128.3 203.8 (75.5) (37.0%) Gross Margin $ 475.0 $ 447.4 $ 27.6 6.2% Increase in gross margin due to the following fa
Slide 37: Weather (Six Months Ended June 30)
Appendix 37 Weather (Six Months Ended June 30) Mean Temperature from Normal We estimate favorable weather in in the first half of 2018 contributed approximately $3.4M pretax benefit as compared to normal and $2.2M pretax benefit as compared to the same period in 2017.
Slide 38: Operating Expenses (Six Months Ended June 30)
Appendix 38 Operating Expenses (Six Months Ended June 30) (dollars in millions) Six Months Ended June 30, 2018 2017 Variance Operating, general & admin. $ 148.2 $ 150.9 ($ 2.7) (1.8%) Property and other taxes 85.9 79.4 6.5 8.2% Depreciation and depletion 87.3 83.0 4.3 5.2% Operating Expenses $ 321.4
Slide 39: Operating to Net Income (Six Months Ended June 30)
Appendix 39 Operating to Net Income (Six Months Ended June 30) (dollars in millions) Six Months Ended June 30, 2018 2017 Variance Operating Income $ 153.7 $ 134.1 $ 19.6 14.6% Interest Expense (46.2) (46.8) 0.6 1.3% Other Expense (0.3) (1.6) 1.3 81.3% Income Before Taxes 107.3 85.7 21.6 25.2% Income
Slide 40: Income Tax Reconciliation (Six Months Ended June 30)
Appendix 40 Income Tax Reconciliation (Six Months Ended June 30)
Slide 41: Adjusted Non-GAAP Earnings (Six Months Ended June 30)
Appendix 41 Adjusted Non-GAAP Earnings (Six Months Ended June 30) (1) During the first quarter of 2018, we revised our presentation of revenues associated with being a market participant in the Southwest Power Pool to net them with the associated cost of sales. These revenues were previously recorde
Slide 42: Qualified Facility Earnings Benefit
Appendix 42 Qualified Facility Earnings Benefit The $25.1 million earnings improvement related to certain Qualified Facilities (QF) contracts is a result of: •A $17.5 million benefit resulting from the reduction of the estimated future liability of unrecoverable QF costs. The primary driver of the r
Slide 43: Montana Natural Gas Rate Filing
Appendix 43 Montana Natural Gas Rate Filing $430.2M Montana PSC Docket D2016.9.68 9.55% 4.47% 6.96% $5.1M Derivation of Rate Increase ($Millions) Revenue Request in Initial Application ..... $10.9 Property Tax (adjustment to actual) ….….. ($2.0) Income Tax correction and other misc. ..... 0.5 Rebutt
Slide 44: NorthWestern Energy Profile
Appendix 44 NorthWestern Energy Profile
Slide 45: 2017 System Statistics
Appendix 45 2017 System Statistics (1) (2) 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 &
Slide 46: Our Commissioners
Appendix 46 Our Commissioners
Slide 47: Non-GAAP Financial Measures (1 of 3)
Appendix 47 Non-GAAP Financial Measures (1 of 3) 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 meas
Slide 48: Non-GAAP Financial Measures (2 of 3)
Appendix 48 Non-GAAP Financial Measures (2 of 3) 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 t
Slide 49: Non-GAAP Financial Measures (3 of 3)
Appendix 49 Non-GAAP Financial Measures (3 of 3) 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
Slide 50: Delivering a bright future
Upelivering a bright future NorthWestern Energy