Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Baird Utility Corporate Access Day 2014
49 slides from Northwestern Energy's conference presentation, Sep 10, 2014
Slide 1: Baird Utility Corporate Access Day
Baird Utility Corporate Access Day Chicago, IL | Sept. 10, 2014
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 Our Vision: Enriching lives through a safe, sustainable energy future Our Mission: Working together to deliver safe, reliable and innovative energy solutions Our Values: S - safety E - excellence R - respect V - value I - integrity C - community E - environment
Slide 4: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term 4 We’re a fully-regulated and financially solid utility; with – Diversity across states, service type and customer segments – A 100 year history of competitive customer rates, system reliability and customer satisfaction – A strong track record of significant ear
Slide 5: Industry recognitions and awards
Fortnightly 40 NorthWestern Energy was recently recognized as one of the top 40 best energy companies in the United States by Fortnightly 40. The report compares shareholder value performance by looking at uniform data sets among the leading publicly traded electric and gas companies across a range
Slide 6: Solid Economic Indicators
Solid Economic Indicators 6 Top Left: Unemployment rate consistently below National Average for our service territory. National Ranking (SD 2nd, NE 3rd & MT 10th) Top: Bad debt / revenue write-off is less than ½ of a percent even during tough economic times – Our customers pay their bills. Left: Pro
Slide 7: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 7 The “80/20” rules of NorthWestern Gross Margin in 2013: Electric: $506M Natural Gas: $167M Other $ 2M Gross Margin in 2013: Montana: $561M South Dakota: $103M Nebraska: $ 11M Average Customers in 2013: Residential: 561k Commercial: 108k Industrial: 6k Above d
Slide 8: Strong Utility Foundation
600 700 800 2009 2010 2011 2012 2013 In d ex S co re NorthWestern Energy Score JD Power 26 Combination Electric and Natural Gas Company Average JD Power - Customer Service Index Score 0 25 50 75 100 125 150 M inutes NorthWestern 3-Year Average Customer Average Interruption Duration Index (CAIDI) 0.0
Slide 9: 2014 Earnings Guidance
$2.02 $2.14 $2.53 $2.66 $2.46 $- $1.50 $1.75 $2.00 $2.25 $2.50 $2.75 $3.00 2009 2010 2011 2012 2013 2014E GAAP Diluted EPS 2014 Earnings Guidance 9 2014 guidance range of $2.60-$2.75 based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric an
Slide 10: Track Record of Delivering Results
Track Record of Delivering Results 10 Notes: - ROE in 2011, 2012 & 2013, on a Non-GAAP Adjusted basis, would be 10.5%, 9.8% & 9.7% respectively. - 2014 ROE and 2014 Dividend payout ratio estimate based on midpoint of guidance range of $2.60- $2.75. - 2011 and 2012 Dividend Payout Ratio based upon No
Slide 11: Hard Assets Providing Real Value
Hard Assets Providing Real Value 11 (Left) We believe continued investment in our system to provide safe, reliable, environmentally responsible and cost-effective service for our customers will produce additional value for our shareholders. (Below) NWE total shareholder return has outperformed our p
Slide 12: Investment for Our Customers' Benefit
$60 $70 $80 $90 $100 $110 $120 $130 2008 2009 2010 2011 2012 2013 Typical NorthWestern Electric and Natural Gas Bill (average Montana, South Dakota and Nebraska monthly residential customer bill) Electric (750 kW) Natural Gas (10 Dkt) Investment for Our Customers’ Benefit Over the past 5 years we ha
Slide 13: Strong Cash Flows
$(200) $(150) $(100) $(50) $- $50 $100 $150 $200 $250 $300 2009 2010 2011 2012 2013 Dividends Maintenance Capex CFO CFO Less CapEx & Dividends M ill io ns While maintenance capex and total dividend payments have continued to grow since 2009 (4.1% and 4.6% CAGR respectively), Cash Flow from Operation
Slide 14: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity 14 Annual ratio is average of each quarter end debt/cap ratio Excludes Basin Creek capital leases Goal: 50% - 55% Senior Secured Rating Senior Unsecured Rating Commercial Paper Outlook Fitch A- BBB+ F2 Positive Watch Moody's A1 A3 Prime-2 Stable S&P A- BBB A-2 St
Slide 15: Net Investment in Existing Business
Net Investment in Existing Business 15 Maintenance capital expenditures have cumulatively outpaced depreciation by $190 million over the last five years (2009 to 2013), while maintaining a positive Free Cash Flow during the same period. ($150) ($100) ($50) $0 $50 $100 $150 $200 $250 2009 2010 2011 2
Slide 16: Investment Project Summary
High High High High High MT - Distribution System Infrastructure Project (DSIP) MT - Natural gas reserves MT - Spion Kop - wind (40 MW) SD - Aberdeen peaking generator (60 MW) SD - Neal pollution control equipment SD - Big Stone pollution control equipment MT - pending hydro asset acquisition Invest
Slide 17: Montana Hydro Acquisition - Update
Montana Hydro Acquisition - Update 17 • Announced, in September 2013, the $900 million acquisition of eleven baseload hydroelectric generating facilities representing 633 megawatts of capacity and one storage reservoir from PPL Montana. • On September 4, 2014, after a yearlong process, the Montana P
Slide 18: Hydro – Next Steps
Hydro – Next Steps 18 • It is anticipated the Montana Public Service Commission (MPSC) will approve the written order at either the September 18th or 23rd work sessions. Upon approval, we will be seeking authority from FERC to issue securities in connection with the transaction. We anticipate a FERC
Slide 19: The Hydro Facilities
The Hydro Facilities 19 Plant Net Capacity (MW) Ownership% COD River Source FERC License Expiration 5-Yr Avg. Capacity Factor(2) Black Eagle 21 100% 1927 Missouri 2040 73.6% Cochrane 69 100% 1958 Missouri 2040 49.1% Hauser 19 100% 1911 Missouri 2040 79.3% Holter 48 100% 1918 Missouri 2040 72.4% Kerr
Slide 20: Hydro - Supporting Our Values
Hydro - Supporting Our Values 20 Our Vision Statement: Working together to deliver safe, reliable and innovative energy solutions that create value for our customers, communities, employees and investors. The acquisition of these highly valuable assets should allow NorthWestern to further our missio
Slide 21: Hydro – Owned and Contracted Resources
Coal (Colstrip 4) 29% Hydro (Pending) 42% Hydro (QF/contracted) 1% Wind (Spion Kop) 2% Wind (QF/contracted) 11%Natural Gas 1% Thermal (QF/contracted) 13% 21 Hydro – Owned and Contracted Resources MONTANA Yellowstone River ll t i r Yellowstone River ll t i ll t i Ye lo stone River l t i r Ye lo stone
Slide 22: Hydro - Montana Generation Profile
Hydro - Montana Generation Profile 22 99% 31% 44% NWE SD NWE MT NWE Total 99% 63% 69% NWE SD NWE MT NWE Total This transaction will allow us to approximately double owned resources in MT and significantly reduce our reliance on third-party power purchase agreements and spot market purchases. (1) Per
Slide 23: Meeting Customer Demands
Meeting Customer Demands 23 We expect to be able to provide nearly all the power during the light load periods with some flexibility to use market purchases or other resources to meet demand during heavy load periods. The addition of the hydro generation assets into our Montana electric portfolio al
Slide 24: Hydro asset benefits and fit
• Existing resources with no development risk. • Location within the service territory eliminates need for additional transmission to serve our customers. • Excellent fit for our portfolio’s needs. Meets our light-load need but we will need additional resources to meet our heavy-load needs. – Upon c
Slide 25: Big Stone and Neal Air Quality Projects
Big Stone and Neal Air Quality Projects 25 Big Stone Power Plant Neal Power Plant Big Stone Neal Location Northeast South Dakota Northwest Iowa Ownership 23.4% of 475 MW coal plant 8.7% of 644 MW coal plant Project Subject to Best Available Retrofit Technology (BART) requirements of the Regional Haz
Slide 26: Southern Bear Paw Transaction
Southern Bear Paw Transaction 26 • Finalized acquisition of Bear Paw South – On December 2, 2013, we finalized the purchase of 63 Bcf proven reserves and 82% interest in Havre Pipeline Company for $68.7 million. – Our largest natural gas reserves acquisition to date adding 29 employees to our 14 exi
Slide 27: Natural Gas Reserves Opportunity
Natural Gas Reserves Opportunity 27 We continue to pursue opportunities to secure low cost gas reserves for our customers. • Remaining 18% unfilled position to reach our targeted 50% owned supply. • Other potential opportunities to procure reserves to provide up to 50% (or 3-4 Bcf of natural gas ann
Slide 28: Distribution System Infrastructure Project
Distribution System Infrastructure Project 28 • Montana Distribution System Infrastructure Project (DSIP) to maintain a safe and reliable electric and natural gas distribution system. – The primary goals: reverse the trend in aging infrastructure, maintain reliability, proactively manage safety, bui
Slide 29: Capital Spending
$182 $200 $170 $156 $147 $52 $50 $50 $50 $38 $29 $- $50 $100 $150 $200 $250 $300 2014 2015 2016 2017 2018 $M ill io ns Capital Spending Maintenance Capex Distribution System Infrastructure Project (DSIP) Energy Supply (primarily SD environmental projects) Capital Spending 29 DSIP – Distribution Syst
Slide 30: Dave Gates Generating Station Update
Dave Gates Generating Station Update (DGGS) 30 • We operate a transmission system and balancing authority within Montana and are responsible for providing safe and reliable electric services to both retail and wholesale customers, or face stiff penalties for non-compliance. • DGGS was designed and c
Slide 31: Conclusion
Conclusion 31 Fully- regulated utility Best practices corporate governance Strong track record of earnings and dividend growth Strong cash flows aided by Net Operating Loss (NOL) carryforwards Realistic investment opportunities to invest Free Cash Flow Aberdeen Peaker Plant Ground Breaking October 1
Slide 32: Appendix
a Appendix North
Slide 33: 2013 and 2014 Adjusted EPS Schedule
2013 and 2014 Adjusted EPS Schedule 33 Q1 Q2 Q3 Q4 2014 2014 Reported GAAP diluted EPS 1.17$ 0.20$ $1.37 Non-GAAP Adjustments: Weather (0.05) 0.01 (0.04)$ Hydro Transaction related legal and professional fees 0.04 0.04 0.08$ 2014 Adjusted diluted EPS 1.16$ 0.25$ -$ -$ $1.41 Q1 Q2 Q3 Q4 2013 2013 Rep
Slide 34: Income Statement
Income Statement 34 (in millions, except per share) 2014 2013 2014 2013 Operating Revenues $270.3 $260.2 $640.0 $573.2 Cost of Sales (Other) 112.5 106.9 279.9 239.1 Gross Margin 157.8 153.2 360.1 334.1 Operating Expenses Operating, general & administrative 74.4 67.4 146.4 136.2 Property and other ta
Slide 35: EPS Reconciliation (Qtr 2014 vs 2013)
35 EPS Reconciliation (Qtr 2 2014 vs 2013) ($millions, except EPS) Th re e M on th s E nd ed , Ju ne 3 0, 2 01 3 N at ur al g as p ro du ct io n M ar gi n D S M lo st re ve nu e re co ve rie s N at ur al g as re ta il vo lu m es N at ur al g as p ro du ct io n ex pe ns e B ad d eb t e xp en se N on
Slide 36: EPS Reconciliation (YTD 2014 vs 2013)
36 EPS Reconciliation (YTD through Qtr 2 2014 vs 2013) ($millions, except EPS) S ix M on th s E nd ed , Ju ne 3 0, 2 01 3 N at ur al g as p ro du ct io n N at ur al g as a nd e le ct ric re ta il vo lu m es M on ta na n at ur al g as ra te in cr ea se D S M lo st re ve nu e re co ve rie s N at ur al
Slide 37: Cash Flow
Cash Flow 37 (in millions) 2014 2013 Operating Activities Net Income 53.3$ 52.2$ Non-Cash adjustments to net income 95.4 87.6 Changes in working capital (6.4) 4.6 Other (17.8) (14.6) Cash provided by operating activities 124.6 129.8 Investing Activities PP&E additions (112.0) (88.5) Asset acquisitio
Slide 38: Balance Sheet
Balance Sheet 38 (in millions) As of June 30, As of December 31, 2014 2013 Cash 16.9$ 16.6$ Restricted cash 15.6 6.9 Accounts receivable, net 130.3 174.9 Inventories 52.9 55.6 Other current assets 74.9 67.0 Goodwill 355.1 355.1 PP&E and other non-current assets 3,146.0 3,039.2 Total Assets 3,791.8$
Slide 39: Effective Tax Reconciliation
Effective Tax Reconciliation 39 (in millions) 2014 2013 2014 2013 Income (Loss) Before Income Taxes $9.0 $16.4 $62.5 $59.4 Income tax calculated at 35% federal statutory rate 3.1 5.8 21.9 20.8 Permanent or flow through adjustments: State income, net of federal provisions - (0.6) 0.4 (1.9) Flow-throu
Slide 40: NorthWestern Energy Profile
NorthWestern Energy Profile 40 TICKER: NWE Jurisdiction and Service Implementation Date Rate Base (in millions) (1) Estimated Rate Base (in millions) (2) Authorized Overall Rate of Return Authorized Return on Equity Authorized Equity Level Montana electic delivery (4) Januray 2011 632.5$ 774.5$ 7.80
Slide 41: 2013 System Statistics
2013 System Statistics 41 Note: Statistics above are as of 12/31/2013 (1) Nebraska is a natural gas only jurisdiction •MT Natural Gas reserves increased in 2013 with the addition 63 Bcf from the Bear Paw South acquisition. (1) Energy Supply Transmission Distribution Electric (MW) MT SD Total 2013 Tx
Slide 42: Well Rounded Board of Directors
Well Rounded Board of Directors 42 Members of the Board of Directors tour backstage at The Mansfield Center for the Performing Arts in Great Falls, Montana. From the left: Dana J. Dykhouse – Chief Executive Officer of First PREMIER Bank. Director since 2009 Dorothy M. Bradley – Retired District Cour
Slide 43: Strong Executive Team
Strong Executive Team 43 NorthWestern Energy’s executive officers tour backstage at The Mansfield Center for the Performing Arts in Great Falls, Montana. From the left: Michael R. Cashell – VP of Transmission. 27 years utility industry experience; current position since 2011 Curtis T. Pohl – VP of D
Slide 44: Our Commissioners
Our Commissioners Montana Public Service Comunission. five districts. Chairperson is elected by fellow Commissioners. Term Party it Ends Kirk Bushman R Jon-13 — Jan-17 Bill Gallagher (Chairman) = -R Jon-1 Jan-15 Travis Kavulla R Jon-11— Jan-15 Roger Koopman R Jon-13— Jan-17 Lake R Jan-13°— Jan-17 +h
Slide 45: FERC's April 17, 2014 Order
FERC’s April 17, 2014 Order 45 Relying on the regulatory process to provide an equitable outcome should be as American as…. apple pie.
Slide 46: The Back Story on DGGS
The Back Story on DGGS 46 Background •NorthWestern Energy operates a transmission system and balancing authority within Montana and is charged with the responsibility of providing safe and reliable electric service to all of its customers. This includes retail and wholesale customers. • Part of Nort
Slide 47: The Back Story on DGGS (continued)
The Back Story on DGGS (continued) 47 Support for DGGS (continued) • On April 29, 2010, NorthWestern made a filing with FERC proposing to collect costs associated with DGGS under the same cost allocation methodology and for the same magnitude of Regulating Resource as had been previously approved by
Slide 48: Non-GAAP Financial Measures
Non-GAAP Financial Measures 48 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 measur
Slide 49: Delivering a bright future
Upelivering a bright future
NorthWestern — Baird Utility Corporate Access Day 2014 on 6ix