Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Non-Deal Roadshow (October 2020)
66 slides from Northwestern Energy's roadshow presentation, Oct 27, 2020
Slide 1: NWE Investor Relations Update – Guggenheim NDR
NWE Investor Relations Update – Guggenheim NDR October 27, 2020 8-K’ed on October 27, 2020
Slide 2: Forward Looking Statements
2 Forward Looking Statements Forward Looking Statements Boulder RiverO’Dell in Montana Creek - Madison River Valley - Montana 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 Refor
Slide 3: COVID-19: Our Response
3 COVID-19: Our Response COVID-19 has consumed our everyday life. This rapidly evolving pandemic has affected all aspects of our operations. We implemented a comprehensive set of actions to help our customers, communities and employees, all while maintaining our commitment to provide safe and reliab
Slide 4: About NorthWestern
4 About NorthWestern South Dakota Operations Electric 63,800 customers 3,529 miles – transmission & distribution lines 404 MW nameplate owned power generation Natural Gas 47,500 customers 1,713 miles of transmission and distribution pipeline Montana Operations Electric 379,400 customers 24,781 miles
Slide 5: NWE - An Investment for the Long Term
5 NWE - An Investment for the Long Term • 100% pure 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 ~58% hydro, wind & solar • Residential
Slide 6: A Diversified Electric and Gas Utility
6 A Diversified Electric and Gas Utility (1) (1) NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential and 80% Montana. Nearly $3.9 billion of rate base investment to serve our customers Data as reported in our 2019 10-K (1) Gross Margin, defined as revenues less cost of sales, i
Slide 7: Highly Carbon-Free Supply Portfolio
7 Highly Carbon-Free Supply Portfolio MT NWE Contracted energy from Colstrip Energy Limited Partners (CELP), Yellowstone Energy Limited Partners (YELP) as well as a majority of the contracted wind, hydro and solar are federally mandated Qualifying Facilities, as defined under the Public Utility Regu
Slide 8: Strong Utility Foundation
8 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 Low gas leaks per mile – just outside 1st quartile
Slide 9: Solid Economic Indicators
9 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 10: A History of Growth
10 A History of Growth $3.30-$3.50 $3.10 - $3.30 $2.60$3.20-$3.40 - $2.75 2010-2019 CAGR’s: GAAP EPS: 7.1% - Non-GAAP EPS: 5.7% - Dividend: 6.0% See appendix for “Non-GAAP Financial Measures”
Slide 11: Track Record of Delivering Results
11 Track Record of Delivering Results * Peer Group: ALE, AVA, BKH, IDA, MGEE, NWN, OGE, OGS, OTTR, PNM, POR & SR Return on Equity on GAAP Earnings within 9.5% - 11.0% band over the last 8 years with average of 10.2%. Total Shareholder Return is in line or better than our 12 peer average for the1, 3
Slide 12: Investment for Our Customers' Benefit
12 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 13: Balance Sheet Strength and Liquidity
13 Balance Sheet Strength and Liquidity Investment grade credit ratings, generally liquidity in excess of $100 million target, debt to cap within our targeted 50%-55% range and no long-term debt maturities until 2023. *Liquidity target increased to $200 million due to economic conditions impacted by
Slide 14: Earnings Growth
14 Earnings Growth Updated $3.30-$3.45 2020 $2.60 - $2.75 Guidance Range Non-GAAP Adjusted EPS Growth Averaged 5.4% from 2013 - 2019 NorthWestern is affirms its 2020 previously revised earnings guidance range of $3.30 to $3.45 per diluted share based upon, but not limited to, the following major ass
Slide 15: 2019 Non-GAAP to 2020 Revised EPS Bridge
15 2019 Non-GAAP to 2020 Revised EPS Bridge $3.30-$3.45 $2.60 - $2.75 Since second quarter earnings, the primary change reflected in the earnings bridge above is due to prolonged Covid-19 related impacts; including lower See appendix for additional disclosures regarding “Non-GAAP Financial Measures”
Slide 16: COVID-19: Margin Expectations
16 COVID-19: Margin Expectations Covid-19 impacts on gross margin continued into the third quarter with all three customer classes impacted more than forecasted - residential up and commercial and industrial down. Industrial load was incrementally impacted by non-COVID related closures of a few indu
Slide 17: COVID-19: Expense Expectations
17 COVID-19: Expense Expectations Expenses we expect to increase: • Bad debt expense • We assume significant recovery through a regulatory mechanism • COVID related charitable contributions Expenses we expect to decrease: • Distribution customer work • Contract services and material costs • Fleet fu
Slide 18: Maintaining Capital Investment Forecast
18 Maintaining Capital Investment Forecast $1.8 billion of total capital investment over five years We anticipate financing this capital with a combination of cash flow from operations (aided by NOLs available into 2021), first mortgage bonds and equity issuances. We expect to issue equity in 2021 t
Slide 19: Looking Forward (Regulatory)
19 Looking Forward (Regulatory) • We submitted accounting order requests in Montana and South Dakota to allow for the deferral of uncollectible accounts expense in excess of amounts currently recovered. The SDPUC issued an order in August 2020 authorizing deferral of costs for possible recovery thro
Slide 20: Looking Forward (Other)
20 Looking Forward (Other) Electric Resource Planning • South Dakota: Construction is underway for a 60MW flexible reciprocating internal combustion engines in Huron, SD to be Western Energy Imbalance Market (EIM) online in late 2021 with a construction cost of approximately $80 million. • Montana:
Slide 21: ESG Publications
21 ESG Publications Environmental Social Governance Code of Conduct Annual Report Environmental Report http://www.northwesternenergy.com/docs/default- http://www.northwesternenergy.com/our- source/documents/corporategovernance/code-of-conduct.pdf company/investor-relations/annual-reports http://www.
Slide 22: ESG - Environmental
22 ESG - Environmental NWE Montana & South Dakota combined Based upon 2019 MWH’s of owned and long-term contracted resources. 58% of NorthWestern Energy’s 2019 Electric Generation Portfolio Delivered was Carbon-Free (based on megawatt hours) Mystic Dam Beethoven Wind Farm 57% Carbon Free Nameplate P
Slide 23: ESG - Social
23 ESG - Social Community Customers Employees Typical Residential Bills Lower than $2.1 Billion Economic Output in National Average Safety Culture Transformation 2019 ($1.88B in Montana & $268M in SD/NE) $2.1 million Donations, Sponsorships & Economic Development in 2019 112 Number of nonprofits tha
Slide 24: ESG - Governance
24 ESG - Governance 5th Best Score Among 50 Publicly Traded North American Utility and Power Companies by Diverse Leadership Board of Directors Executive Team Moody’s Investment Services on Best Governance Practices Corporate Governance What We Do: • Annual election of all directors. • Majority vote
Slide 25: Our Carbon Reduction Vision for NorthWestern Energy in Montana
25 Our Carbon Reduction Vision for NorthWestern Energy in Montana 90% carbon reduction by 2045 NorthWestern Energy commits to reduce the carbon intensity of our electric energy portfolio for Montana 90% by 2045.* * As compared with our 2010 carbon intensity as a baseline Already over 60% carbon free
Slide 26: Conclusion
26 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 27: Delivering a bright future
Upetivering a bright future NorthWestern Energy
Slide 28: CU4 Acquisition - Customer & Community Considerations
Appendix 28 CU4 Acquisition - Customer & Community Considerations • Affordable Capacity: Acquiring a larger share of Colstrip will reduce exposure to market prices and keep energy & capacity affordable. Customer bills are expected to stay flat as a result of the transaction. Increased operating cost
Slide 29: CU4 Acquisition - Investor & Credit Considerations
Appendix 29 CU4 Acquisition - Investor & Credit Considerations • Protects Existing Ownership Interests: Increased ownership of CU4 provides greater say in future capital decisions to ensure the plant continues to operate and meet all environmental guidelines. Per the Joint Owners Agreement, closure
Slide 30: NWE Capacity as compared to Regional Peers
Appendix 30 NWE Capacity as compared to Regional Peers NWE’s capacity deficit exposes our customers to greater market exposure (price and availability) than any of our regional peers.
Slide 31: CU4 Acquisition - General Transaction Structure
Appendix 31 CU4 Acquisition - General Transaction Structure PSE retains environmental & pension liabilities as of transaction close and responsibility for decommissioning and remediation costs at time of eventual facility closure. 12.5% or 92.5MW of Colstrip Unit 4 NWE PSE $0.50 purchase price Appro
Slide 32: CU4 Acquisition - Proposed Post-Closing Structure
Appendix 32 CU4 Acquisition - Proposed Post-Closing Structure NWE Customers PSE 47.5 MW provided to NWE’s 45 MW PPA, ~5 Year, unit $ default supply customers. contingent, Mid-C day-ahead Resolves 12.5% of the index subject to an hourly price $ capacity deficit with floor. Price floor ensures fixed n
Slide 33: Existing Colstrip Ownership
Appendix 33 Existing Colstrip Ownership Colstrip Power Plant Colstrip Transmission System Facility Owner (%) Unit 1 Unit 2 Unit 3 Unit 4 AVISTA Corporation - - 15% 15% NorthWestern Energy - - - 30% PacifiCorp - - 10% 10% Portland General - - 20% 20% Puget Sound Energy 50% 50% 25% 25% Talen Energy 50
Slide 34: Significant Capacity Deficit in Montana
Appendix 34 Significant Capacity Deficit in Montana NorthWestern Energy’s current resources provide about 755 MW of peaking capacity, which is the energy available during periods of our customers’ highest demand. An additional 645 MW of peaking capacity must currently be purchased from the market to
Slide 35: A Recent Example
Appendix 35 A Recent Example In early February, 2019, NorthWestern experienced a nearly five day span* when the wind didn’t blow and the sun was scant. We were forced to rely upon an already strained market and transmission system for a significant amount of our required capacity (shown in red hatch
Slide 36: Significant Capacity Retirements in the Pacific NW
Appendix 36 Significant Capacity Retirements in the Pacific NW Retired ahead of schedule (Jan ‘20) Planned retirements in the Pacific Northwest region exceed 3,600 MW and the Northwest Power and Conservation Council forecasts regional capacity shortfalls as early as 2021. NorthWestern’s continued re
Slide 37: Timeline of Montana Generation Portfolio
37 Timeline of Montana Generation Portfolio Owned and Long-Term Resource Portfolio Timeline Since 2011, we have added 780 MW of generation, both owned and long-term contract, to our generation portfolio, all of which is from carbon-free resources.
Slide 38: Comparison of Installed Capacity
38 Comparison of Installed Capacity California is dealing with significant capacity issues DESPITE having a greater amount of dispachable generation and fewer renewables than NorthWestern Energy in Montana (as a percentage of the total).
Slide 39: Capacity Cost Alternatives
Appendix 39 Capacity Cost Alternatives 92% The 185 MW Colstrip Unit 4 purchase would resolve 185,000 kW approximately 25% x 92% capacity credit 97% of our estimated 170,200 kW of capacity 725 MW capacity deficit for $1.00. 170,200 kW ÷ 97% capacity credit = 175,500 kW Alternative 175,500 kW need x $
Slide 40: Summary Financial Results (Third Quarter)
Appendix 40 Summary Financial Results (Third Quarter) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure.
Slide 41: Gross Margin (Third Quarter)
Appendix 41 Gross Margin (Third Quarter) (dollars in millions) Three Months Ended September 30, 2020 2019 Variance Electric $ 183.0 $ 182.5 $ 0.5 0.3% Natural Gas 29.6 28.1 1.5 5.3% (1) Total Gross Margin $ 212.6 $ 210.6 $ 2.0 0.9% Increase in gross margin due to the following factors: Covid-19 $2.4
Slide 42: Weather (Third Quarter)
Appendix 42 Weather (Third Quarter) We estimate unfavorable weather in Q3 2020 resulted in a $0.6M pretax detriment as compared to normal and $5.1M pretax benefit as compared to Q3 2019.
Slide 43: Operating Expenses (Third Quarter)
Appendix 43 Operating Expenses (Third Quarter) (dollars in millions) Three Months Ended September 30, 2020 2019 Variance Operating, general & admin. $ 73.3 $ 77.0 ($ 3.7) (4.8%) Property and other taxes 45.3 44.1 1.2 2.7% Depreciation and depletion 44.3 43.2 1.1 2.5% Operating Expenses $ 162.9 $ 164
Slide 44: Operating to Net Income (Third Quarter)
Appendix 44 Operating to Net Income (Third Quarter) (dollars in millions) Three Months Ended September 30, 2020 2019 Variance Operating Income $ 49.7 $ 46.4 $ 3.3 7.1% Interest Expense (23.7) (23.7) - 0.0% Other Income (Expense) 0.8 (0.4) 1.2 300.0% Income Before Taxes 26.8 22.2 4.6 20.7% Income Tax
Slide 45: Income Tax Reconciliation (Third Quarter)
Appendix 45 Income Tax Reconciliation (Third Quarter)
Slide 46: Balance Sheet
Appendix 46 Balance Sheet (dollars in millions) Cash and cash equivalents Restricted cash Accounts receivable, net Inventories Other current assets Goodwill PP&E and other non-current assets Total Assets Payables Current Maturities - debt and leases Other current liabilities Long-term debt & capital
Slide 47: Cash Flow
Appendix 47 Cash Flow Cash from operating activities increased by $68.6M primarily due to the improved collections of energy supply costs in the current period, as compared with higher procured supply costs, and payments reducing cash flows in 2019 including credits to Montana customers of approxima
Slide 48: Adjusted Non-GAAP Earnings (Third Quarter)
Appendix 48 Adjusted Non-GAAP Earnings (Third Quarter) The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that are non- recurring or variance from normal weather, however they should not be considered a substitute for financial results and measures det
Slide 49: Summary Financial Results (Nine Months Ended September 30)
Appendix 49 Summary Financial Results (Nine Months Ended September 30) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. See appendix for additional disclosure.
Slide 50: Gross Margin (Nine Months Ended September 30)
Appendix 50 Gross Margin (Nine Months Ended September 30) (dollars in millions) Nine Months Ended September 30, 2020 2019 Variance(1) Electric $ 533.4 $ 555.5 ($ 22.1) (4.0%) Natural Gas 131.4 138.6 (7.2) (5.2%) Total Gross Margin $ 664.8 $ 694.1 ($ 29.3) (4.2%) Decrease in gross margin due to the f
Slide 51: Weather (Nine Months Ended September 30)
Appendix 51 Weather (Nine Months Ended September 30) We estimate unfavorable weather through the first 9 months of 2020 has contributed approximately $4.1M pretax detriment as compared to normal and $12.1M pretax detriment as compared to the same period in 2019.
Slide 52: Operating Expenses (Nine Months Ended September 30)
Appendix Operating Expenses (Nine Months Ended September 30) (dollars in millions) Nine Months Ended September 30, 2020 2019 Variance Operating, general & admin. $ 224.0 $ 238.9 ($ 14.9) (6.2%) Property and other taxes 136.8 133.2 3.6 2.7% Depreciation and depletion 134.3 129.8 4.5 3.5% Operating Ex
Slide 53: Operating to Net Income (Nine Months Ended September 30)
Appendix 53 Operating to Net Income (Nine Months Ended September 30) (dollars in millions) Nine Months Ended September 30, 2020 2019 Variance Operating Income $ 169.7 $ 192.2 ($ 22.5) (11.7%) Interest Expense (72.3) (71.0) (1.3) (1.8%) Other (Expense) / Income (1.0) 0.9 (1.9) 211.1% Income Before Ta
Slide 54: Income Tax Reconciliation (Nine Months Ended September 30)
Appendix 54 Income Tax Reconciliation (Nine Months Ended September 30)
Slide 55: Adjusted Non-GAAP Earnings (Nine Months Ended September 30)
Appendix 55 Adjusted Non-GAAP Earnings (Nine Months Ended September 30) The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that were non- recurring or variance from normal weather, however they should not be considered a substitute for financial result
Slide 56: Qualified Facility Earnings Adjustment
Appendix 56 Qualified Facility Earnings Adjustment The gain in 2020 for our QF liability was $3.1 million in total, it was comprised of $2.2 million adjustment to the liability and $0.9 million lower actual costs over last 12 months (QF contract year). This $3.1 million benefit is $3.3 million less
Slide 57: Quarterly PCCAM Impacts
Appendix 57 Quarterly PCCAM Impacts In 2017, the Montana legislature revised the statute regarding our recovery of electric supply costs. In response, the MPSC approved a new design for our electric tracker in 2018, effective July 1, 2017. The revised electric tracker, or PCCAM established a baselin
Slide 58: NorthWestern Energy Profile
Appendix 58 NorthWestern Energy Profile Note: Data as reported in our 2019 10-K
Slide 59: 2019 System Statistics
Appendix 59 2019 System Statistics (1) (2) Note: Statistics above are as of 12/31/2019 except for electric transmission for others which is 2018 data (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 1
Slide 60: Experienced & Engaged Board of Directors
Appendix 60 Experienced & Engaged Board of Directors Stephen P. Adik Anthony T. Clark Dana J. Dykhouse Jan R. Horsfall Britt E. Ide • Chairman of the • Committees: Governance, • Committees: Human • Committees: Operations • Committees: Governance, Board Human Resources Resources (chair), Audit (chair
Slide 61: Strong Executive Team
Appendix 61 Strong Executive Team Robert C. Rowe Heather H. Grahame Curtis T. Pohl • President and • General Counsel and Vice • Vice President - Chief Executive Officer President of Regulatory Distribution • Current position since and Federal Government • Current position since 2008 Affairs 2003 • C
Slide 62: Our Commissioners
Appendix 62 Our Commissioners
Slide 63: Non-GAAP Financial Measures (1 of 3)
Appendix 63 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 64: Non-GAAP Financial Measures (2 of 3)
Appendix 64 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 65: Non-GAAP Financial Measures (3 of 3)
Appendix 65 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 66: Delivering a bright future
Upetivering a bright future NorthWestern Energy
NorthWestern Corporation (NorthWestern Energy) — Non-Deal Roadshow (October 2020) on 6ix