NorthWestern Energy Group, Inc. · NASDAQ:NWE
NorthWestern Energy — 49th EEI Financial Conference 2014
48 slides from NorthWestern Energy's conference presentation, November 2014
Slide 1: 49th EEI Financial Conference
Thompson Falls 49th EEI Financial Conference | November 2014
Slide 2: Forward Looking Statements
Forward Looking Statements Company Information NorthWestern Corp. Forward Looking Statements dba: NorthWestern Energy During the course of this presentation, there will be forward- www.northwesternenergy.com looking statements within the meaning of the “safe harbor” Corporate Support Office provisio
Slide 3: About NorthWestern
About NorthWestern Electric Operations (Pre-Hydro) Montana: 344,500 customers - 187 communities 24,400 miles - transmission and distribution lines 262 MW of base-load power generation 105 MW of regulating services generation South Dakota: 62,100 customers - 110 communities 3,350 miles - transmission
Slide 4: NorthWestern Energy Profile
NorthWestern Energy Profile Rate Base as of 12/31/2013 Estimated Authorized TICKER: NWE Implementation Rate Base (in millions) Rate Base (in millions) Overall Rate of Authorized Authorized Return on Equity Jurisdiction and Service Date (1) (2) Return Equity Level Stock Price (as of 9/30/14) $45.36 M
Slide 5: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term • 100% Regulated electric & natural gas utility business Pure Play • 100 year history of competitive customer rates, system reliability and customer satisfaction Electric & Gas Utility • Solid economic indicators in service territory • Constructive regulatory rel
Slide 6: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility The “80/20 rules” of NorthWestern Gross Margin in 2013: Gross Margin in 2013: Electric: $506M Montana: $561M Natural Gas: $167M South Dakota: $103M 75% Electric Other $ 2M Nebraska: $ 11M 25% Natural Gas 83% Montana 83% Residential 15% South Dakota 16% Commerci
Slide 7: Solid Economic Indicators
Solid Economic Indicators Unemployment Rate Write-Off to Revenue Ratio (as reported in June each year) 1.00% US National Average Montana 0.80% South Dakota Nebraska 12% 10% 0.60% 8% 0.40% 6% 4% 0.20% 2% 0.25% 0.30% 0.25% 0.29% 0.26% 0.30% 0.21% 0.22% 0% 0.00% 2010 2011 2012 2013 2014 2007 2008 2009
Slide 8: Strong Utility Foundation
Strong Utility Foundation JD Power - Customer Service Index Score 800 $140 "Typical Bill" Residential Rate Comparison JD Power 26 Combination Electric and Natural Gas Company Average $120 National Average National Average $100 Index Score $80 700 $60 $40 $20 $- MT SD MT SD NE 600 Electric (750 kwh)
Slide 9: 2014 Earnings Guidance
2014 Earnings Guidance Diluted Earnings Per Share $3.00 GAAP Diluted EPS $2.60-$2.75 $2.75 Initial Guidance Range $2.50 Non-GAAP "Adjusted" EPS $2.25 $2.00 $1.75 $2.02 $2.14 $2.53 $2.66 $2.46 $1.50 2009 2010 2011 2012 2013 $- 2014E We are reaffirming our 2014 guidance range of $2.60-$2.75 based upon
Slide 10: Track Record of Delivering Results
Track Record of Delivering Results 12% Return on Equity 10% 11.0% 11.0% 8% 9.5% 9.6% 9.6% 9.8% Return on Equity within 9.5% - 11.0% band over 6% the last 5 years. 4% 2% Annual dividend 0% increases since 2009 2010 2011 2012 2013 2014 Midpoint emergence in 2004. $1.60 Dividend Per Share and Payout Ra
Slide 11: Investment for Our Customers' Benefit
Investment for Our Customers’ Benefit $3,000 Rate Base and Earnings per Share $3.00 Over the past 5 years we $2,500 $2.50 have been reintegrating Rate Base - Millions $2,000 $2.00 our Montana energy EPS - Dollars $1,500 $1.50 supply portfolio and $1,000 $1.00 invested to enhance system safety, relia
Slide 12: Total Shareholder Return
Total Shareholder Return NWE - Total Shareholder Return since Emergence Comparison NWE Peer Average S&P 500 DJU 250% Babcock & Brown Babcock & Brown Start of economic NWE added to S&P NWE annouces DGGS NWE announces hydro 200% Transaction announced Transaction Terminated downturn Small Cap 600 Index
Slide 13: Strong Cash Flows
Strong Cash Flows Components of Free Cash Flow $300 $250 While maintenance capex and total $200 dividend payments have continued to grow (1) $150 (2) since 2009 (4.1% and 4.6% CAGR $100 respectively), Cash Flow from Operations Millions $50 $- has continued to outpace maintenance $(50) capex and aver
Slide 14: Balance Sheet Strength and Liquidity
Balance Sheet Strength and Liquidity Credit Ratings 60% Debt to Capital Ratio Senior Senior Secured Unsecured Commercial 50% Rating Rating Paper Outlook Fitch A A- F2 Stable 54.0% 55.5% 54.8% 54.3% 53.8% 40% Moody's A1 A3 Prime-2 Stable S&P A- BBB A-2 Stable 30% 2009 2010 2011 2012 2013 A security r
Slide 15: Net Investment in Existing Business
Net Investment in Existing Business $250 Maintenance Capex vs. Depreciation $200 $150 $100 ($millions) $50 $0 ($50) ($100) ($150) 2009 2010 2011 2012 2013 Distribution System Infrastructure Project (DSIP) Capital Maintenance capex Depreciation Cumulative capex in excess of depreciation Maintenance c
Slide 16: Montana Hydro Acquisition - Update
Montana Hydro Acquisition - Update • On September 26, 2014, after a yearlong process, the Montana Public Service Commission issued a final order approving our application to purchase eleven hydroelectric generating facilities (633 MW) from PPL Montana, subject to certain conditions, including the fo
Slide 17: The Hydro Facilities
The Hydro Facilities Overview of Hydro Facilities(1) Net FERC 5-Yr Avg. Capacity License Capacity Plant (MW) COD River Source Expiration Factor(2) Black Eagle 21 1927 Missouri 2040 73.6% Cochrane 69 1958 Missouri 2040 49.1% Hauser 19 1911 Missouri 2040 79.3% Holter 48 1918 Missouri 2040 72.4% (3) 19
Slide 18: Hydro - A Great Fit at the Right Time
Hydro - A Great Fit at the Right Time • Existing resources built for our distribution and transmission 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. • Non-carbon emitting - reduces environmental com
Slide 19: Hydro – Owned and Contracted Resources
Hydro – Owned and Contracted Resources Montana Annual Production (Excludes Kerr Dam1) NorthWestern Owned Facilities Pro forma for Hydro Transaction1 Coal Missouri Missouri Missouri River River River (Colstrip 4) Clark Clark ClarkFork Clark Clark Clark Fork Fork Fork Fork Fork Ryan Ryan Ryan Ryan Rya
Slide 20: Meeting Montana Customer Demands
Meeting Montana Customer Demands Light Load Hours (MWh's) 400,000 Conveyance of Kerr Dam to Confederated Salish and Kootenai Tribes 300,000 MWh's 200,000 100,000 - Hydro Owned & Contract Light Load Demand Heavy Load Hours (MWh's) 500,000 Conveyance of Kerr Dam to Confederated Salish and Kootenai Tri
Slide 21: Big Stone and Neal Air Quality Projects
Big Stone and Neal Air Quality Projects Big Stone Neal Big Stone Power Plant Location Northeast South Dakota Northwest Iowa Ownership 23.4% of 475 MW coal plant 8.7% of 644 MW coal plant Subject to comply with Subject to Best Available national ambient air quality Retrofit Technology (BART) standard
Slide 22: Natural Gas Reserves Opportunity
Natural Gas Reserves Opportunity We continue to pursue opportunities to secure Total Annual Need low cost gas reserves for our customers. First ~6 Bcf annual • Three acquisitions totaling approximately $100 million production since September 2010: Owned acquired for ~$100M • 84.6 Bcf of natural gas
Slide 23: Distribution System Infrastructure Project
Distribution System Infrastructure Project • 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/improve reliability and safety; – build ca
Slide 24: Transmission System Infrastructure Project
Transmission System Infrastructure Project • Montana Transmission System Infrastructure Project (TSIP) to maintain a safe and reliable electric and natural gas transmission system. – The primary project goals: – reverse the trend in aging infrastructure; – maintain/improve reliability and safety; –
Slide 25: Dave Gates Generating Station Update (DGGS)
Dave Gates Generating Station Update (DGGS) • 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 cons
Slide 26: 2014 to 2015 Preliminary EPS & Dividend Bridge
2014 to 2015 Preliminary EPS & Dividend Bridge Low Midpoint High 2014 Non-GAAP Adjusted EPS guidance range $2.60 - $2.75 PRELIMINARY 2015 ESTIMATES 2014 Adjusted EPS midpoint $2.68 $2.68 $2.68 Basic assumptions include, 2015 Earnings drivers (after-tax per share) but are not limited to: Gross margin
Slide 27: Capital Spending Forecast
Capital Spending Forecast 2014 Excludes $900M Hydro Current estimated cumulative Acquisition Estimate as of October 2014 $350 capital spending for 2014 $306 $300 $309 $300 $272 $16 $10 $9 $12 through 2018 is $1.45 billion $40 $259 $250 $38 $32 $39 $9 (upper chart), an increase of $54 $51 $52 $56 $32
Slide 28: Conclusion
Conclusion Pure Play Strong Attractive Best Practices Electric and Solid Utility Earnings and Future Growth Corporate Gas Utility Foundation Cash Flows Prospects Governance Aberdeen Peaker Plant Ribbon Cutting July 23, 2013 Aberdeen Peaker Plant 28 Ground Breaking October 14, 2011
Slide 29: Appendix
Appendix 29
Slide 30: Non-GAAP Adjusted EPS
Non-GAAP Adjusted EPS ESTIMATED TO MEET GUIDANCE 2014 Q1 Q2 Q3 YTD '14 Q4 '14 Full Year 2014 Low High Low High Reported GAAP diluted EPS $1.17 $0.20 $0.77 $2.13 $0.82 - $0.97 $2.95 - $3.10 Non-GAAP Adjustments: We anticipate an improvement in the Weather (0.05) 0.01 (0.04) ? (0.04) fourth quarter 20
Slide 31: Income Statement
Income Statement Three Months Ended Nine Months Ended (in millions, except per share items) September 30, September 30, 2014 2013 2014 2013 Operating Revenues $ 251.9 $ 262.3 $ 892.0 $ 835.5 Cost of Sales 94.6 104.3 374.5 343.4 Gross Margin 157.3 158.0 517.5 492.1 Operating Expenses Operating, gener
Slide 32: EPS Reconciliation (Qtr 2014 vs 2013)
EPS Reconciliation (Qtr 3 2014 vs 2013) NORTHWESTERN CORPORATION Three Months Ended September 30, 2014 ($millions, except EPS) Non-employee directors deferred Operating expenses recovered Electric transmission capacity DSM lost revenue recoveries Impact of higher share count Permanent and flow-throu
Slide 33: EPS Reconciliation (YTD through Qtr 2014 vs 2013)
EPS Reconciliation (YTD through Qtr 3 2014 vs 2013) NORTHWESTERN CORPORATION Nine Months Ended September 30, 2014 Operating expenses recovered in trackers ($millions, except EPS) Permanent and flow-through adjustments Montana natural gas rate increase Non-employee director deferred Electric transmis
Slide 34: Cash Flow
Cash Flow Nine Months Ending September 30, (in millions) 2014 2013 Operating Activities Net Income $ 83.5 $ 67.9 Non-Cash adjustments to net income 123.0 123.6 Changes in working capital 36.5 6.5 Other (38.1) (26.7) $34 million Cash provided by operating activities 205.0 171.3 year-to-date improveme
Slide 35: Balance Sheet
Balance Sheet (in millions) As of September 30, As of December 31, 2014 2013 Cash $ 17.7 $ 16.6 Restricted cash 38.4 6.9 Accounts receivable, net 120.7 174.9 Inventories 63.0 55.6 Other current assets 80.7 67.0 Goodwill 355.1 355.1 PP&E and other non-current assets 3,198.7 3,039.2 Total Assets $ 3,8
Slide 36: Effective Tax Reconciliation
Effective Tax Reconciliation Three Months Ended Nine Months Ended (in millions) September 30, September 30, 2014 2013 Variance 2014 2013 Variance Income Before Income Taxes $ 11.8 $ 17.5 $ (5.7) $ 74.3 $ 76.9 $ (2.6) Income tax calculated at 35% federal statutory rate 4.1 6.1 (2.0) 26.0 26.9 (0.9) P
Slide 37: Updated Effective Tax Rate Guidance
Updated Effective Tax Rate Guidance GAAP Non-GAAP REMOVE IMPACT OF: (in millions) Income before taxes $53.6 $8.9 $11.8 $74.3 ($2.7) $8.0 $79.6 Statutory tax rate (Federal & State) x 38.5% x 38.5% x 38.5% x 38.5% x 38.5% x 38.5% x 38.5% Tax expense before adjustments ($20.6) ($3.4) ($4.5) ($28.5) $1.
Slide 38: Third Quarter Non-GAAP Adjusted P&L
Third Quarter Non-GAAP Adjusted P&L GAAP Non-GAAP Non-GAAP GAAP Remove Impact of: Remove Impact of: Release of unrecognized tax Hydro transaction expense Hydro transaction expense benefits and safe harbor Prior year DSM revenue election (prior years) Non-emp. deferred Non-emp. deferred Favorable wea
Slide 39: Year-to-Date Non-GAAP Adjusted P&L
Year-to-Date Non-GAAP Adjusted P&L GAAP Non-GAAP Non-GAAP GAAP Remove Impact of: Remove Impact of: Release of unrecognized tax Hydro transaction expense Hydro transaction expense benefits and safe harbor Prior year DSM revenue election (prior years) Non-emp. deferred Non-emp. deferred Favorable weat
Slide 40: Hydro - Montana Generation Profile
Hydro - Montana Generation Profile Owned Resources for Retail Use as 12/31/2012 140% 120% 127% 122% 120% Peer Average - 93% 100% 80% 105% 102% 98% 97% 91% 84% 78% 60% 77% 64% 60% 60% 40% 53% 44% 20% 0% WR GXP EE CNL UNS IDA EDE VVC ALE AVA UIL MGEE PNM BKH POR NWE Owned Resources – NWE 2012 Actual O
Slide 41: Strong Corporate Governance
Strong Corporate Governance Forbes America's Most Trustworthy Companies 2013 For the 3rd consecutive time, NorthWestern Corporation was recognized by Forbes as one of "America's Most Trustworthy Companies," which identifies the most transparent and trustworthy businesses that trade on the American e
Slide 42: 2013 System Statistics
2013 System Statistics Energy Supply Transmission Distribution Electric (MW) MT SD Total 2013 Tx for Others MT SD Total Demand MT SD / NE (1) Total Base load coal 222 254 476 Electric (GWh) 10,300 100 10,400 Daily MWs 750 179 929 Wind 40 40 Natural Gas (Bcf) 22.8 - 22.8 Peak MWs 1,730 326 Other reso
Slide 43: Well Rounded Board of Directors
Well Rounded Board of Directors From the left: Dana J. Dykhouse – Chief Executive Officer of First PREMIER Bank. Director since 2009 Dorothy M. Bradley – Retired District Court Administrator for the 18th Judicial Court of Montana. Director since 2009 Denton Louis Peoples – Retired CEO and Vice Chair
Slide 44: Strong Executive Team
Strong Executive Team From the left: Michael R. Cashell – VP of Transmission. 27 years utility industry experience; current position since 2011 Curtis T. Pohl – VP of Distribution. 27 years utility industry experience; current position since 2003 Patrick R. Corcoran – VP of Government and Regulatory
Slide 45: Our Commissioners
Our Commissioners Montana Brad Johnson (R) elected Montana November 2014 – replacing Bill Gallagher Public Service Commission Travis Kavulla – re-elected Commissioners are elected in statewide elections from each of November 2014 five districts. Chairperson is elected by fellow Commissioners. Commis
Slide 46: FERC's April 17, 2014 Order
FERC’s April 17, 2014 Order Relying on the regulatory process to provide an equitable outcome should be as American as…. apple pie. 46
Slide 47: Non-GAAP Financial Measures
Non-GAAP Financial Measures Use of Non-GAAP Financial Measures - Free Cash Flow - 2009 to 2013 (in millions) 2009 2010 2011 2012 2013 Cash flow from operations $ 116.8 $ 218.9 $ 233.8 $ 251.2 $ 193.7 The data presented above includes financial information prepared in accordance with Adjustments * 88
Slide 48: Upetivering a
Upetivering a bright future NorthWestern Energy