Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Investor Presentation (October 2014)
51 slides from Northwestern Energy's investor presentation, Oct 27, 2014
Slide 1: Investor Update | October 2014
Investor Update | October 2014 Thompson Falls
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 Electric Operatio
Slide 4: NorthWestern Energy Profile
NorthWestern Energy Profile 4 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 5: NWE: An Investment for the Long Term
NWE: An Investment for the Long Term 5 • 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 6: A Diversified Electric and Gas Utility
A Diversified Electric and Gas Utility 6 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 83% Mon
Slide 7: Strong Utility Foundation
$- $20 $40 $60 $80 $100 $120 $140 MT SD MT SD NE Electric (750 kwh) Natural Gas (100 therms) National Average National Average "Typical Bill" Residential Rate Comparison 0 25 50 75 100 125 150 M in u te s NorthWestern 3-Year Average Customer Average Interruption Duration Index (CAIDI) 0.00 0.25 0.50
Slide 8: Solid Economic Indicators
Solid Economic Indicators 8 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 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 We are reaffirming our 2014 guidance range of $2.60-$2.75 based upon, but not limited to, the following major assumptions and expectations: • Normal wea
Slide 10: Track Record of Delivering Results
$1.34 $1.36 $1.44 $1.48 $1.52 $1.60 40% 50% 60% 70% 80% 90% 100% 110% 120% $1.20 $1.25 $1.30 $1.35 $1.40 $1.45 $1.50 $1.55 $1.60 2009 2010 2011 2012 2013 2014 Midpoint Annual Dividend Per Share Payout Ratio (based on GAAP EPS) Dividend Per Share and Payout Ratio Track Record of Delivering Results 10
Slide 11: Total Shareholder Return
Total Shareholder Return 11 * Peer Group: ALE, AVA, BKH, CNL, EDE, EE, GXP, IDA, MGEE, PNM, POR, UIL, VVC, WR NWE 59.3% 14 Peer Avg. * 48.4% S&P 500 86.1% DJUA 43.4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 3 Year Total Shareholder Return 10/1/2011 to 9/30/2014 NWE 4.5% 14 Peer Avg. * 11.0% S&P 500 19
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 Mil lion s While maintenance capex and total dividend payments have continued to grow since 2009 (4.1% and 4.6% CAGR respectively), Cash Flow from Operations
Slide 14: Balance Sheet Strength and Liquidity
$0 $50 $100 $150 $200 $250 $300 $350 '10 Q4 Q1 Q2 Q3 '11 Q4 Q1 Q2 Q3 '12 Q4 Q1 Q2 Q3 '13 Q4 Q1 Q2 Q3 M illi on s Liquidity Actual >$100M Target 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% Senio
Slide 15: Net Investment in Existing Business
Net Investment in Existing Business 15 ($150) ($100) ($50) $0 $50 $100 $150 $200 $250 2009 2010 2011 2012 2013 ($m illi on s) Maintenance Capex vs. Depreciation Distribution System Infrastructure Project (DSIP) Capital Maintenance capex Depreciation Cumulative capex in excess of depreciation Mainten
Slide 16: Montana Hydro Acquisition - Update
Montana Hydro Acquisition - Update 16 • 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 26, 2014, after a yearlong process, the Montana
Slide 17: Hydro – Next Steps
Hydro – Next Steps 17 • On September 26th, following receipt of the MPSC Final Order, we requested the final necessary approval from the Federal Energy Regulatory Commission (FERC) to issue securities in connection with the hydro transaction. We anticipate FERC approval to take 30 to 60 days from th
Slide 18: The Hydro Facilities
The Hydro Facilities 18 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% Ker
Slide 19: 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 compliance cost and risk compared to other
Slide 20: 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% 20 Hydro – Owned and Contracted Resources MONTANA Yellowstone River ll t r Yellowstone River ll t r ll t r Ye lowstone River l t r Ye lowst
Slide 21: Meeting Customer Demands
Meeting Customer Demands 21 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 22: Big Stone and Neal Air Quality Projects
Big Stone and Neal Air Quality Projects 22 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 23: Natural Gas Reserves Opportunity
Owned Owned Target Total Annual Need Natural Gas Reserves Opportunity 23 As we continue to add to our natural gas reserves portfolio, we anticipate a reduction in supply cost volatility for our customers. $- $20 $40 $60 $80 $100 $120 $140 $160 Transmission, Distribution & Storage Costs Natural Gas S
Slide 24: Distribution System Infrastructure Project
Distribution System Infrastructure Project 24 • 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
Slide 25: Transmission System Infrastructure Project
Transmission System Infrastructure Project 25 • 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 26: Dave Gates Generating Station Update (DGGS)
Dave Gates Generating Station Update (DGGS) 26 • 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 27: 2014 to 2015 Preliminary Earnings & Dividend Bridge
2014 to 2015 Preliminary Earnings & Dividend Bridge PRELIMINARY 2015 ESTIMATES Basic assumptions include, but are not limited to: • Normal weather in our electric and natural gas service territories; • Assumes successful integration and a full year earnings contribution from the pending hydro transa
Slide 28: Capital Spending Forecast
$182 $197 $200 $203 $170 $52 $51 $52 $54 $24 $38 $32 $16 $39 $40 $56 $10 $9 $12 $9 $272 $306 $300 $309 $259 $- $50 $100 $150 $200 $250 $300 $350 2014 2015 2016 2017 2018 $M illio ns Estimate as of October 2014 Maintenance Capex DSIP Big Stone TSIP Hydro Capital Spending Forecast 28 Current estimated
Slide 29: Conclusion
Conclusion 29 Pure Play Electric and Gas Utility Solid Utility Foundation Strong Earnings and Cash Flows Attractive Future Growth Prospects Best Practices Corporate Governance Aberdeen Peaker Plant Ground Breaking October 14, 2011 Aberdeen Peaker Plant Ribbon Cutting July 23, 2013
Slide 30: Appendix
Appendix 30
Slide 31: Non-GAAP Adjusted EPS
Non-GAAP Adjusted EPS We anticipate an improvement in the fourth quarter 2014 EPS over the same quarter in 2013 due primarily to customer and load growth, a full quarter of Bear Paw South earnings contribution (asset was placed into service in December 2013), cost controls and a lower effective tax
Slide 32: Income Statement
Income Statement 32 (in millions, except per share items) 2014 2013 2014 2013 Operating Revenues 251.9$ 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, general & administrative 68.1 72.5 214.6 208.7 Property and other taxes
Slide 33: EPS Reconciliation (Qtr 2014 vs 2013)
33 EPS Reconciliation (Qtr 3 2014 vs 2013) ($millions, except EPS) Thr ee M ont hs End ed, Sep tem ber 30, 201 3 DS M lo st r eve nue rec ove ries Ope ratin g ex pen ses rec ove red in tr ack er Ele ctric ret ail v olum es Ele ctric tra nsm issi on c apa city Nat ura l ga s pr odu ctio n Nat ura l g
Slide 34: EPS Reconciliation (YTD through Qtr 2014 vs 2013)
34 EPS Reconciliation (YTD through Qtr 3 2014 vs 2013) NORTHWESTERN CORPORATION Nine Months Ended September 30, 2014 ($millions, except EPS) Nin e M on ths En ded , Se pte mb er 30, 20 13 Na tura l ga s p rod uct ion Mo nta na nat ura l ga s ra te i ncr eas e Ele ctri c tr ans mis sio n c apa city E
Slide 35: Cash Flow
Cash Flow 35 (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) Cash provided by operating activities 205.0 171.3 Investing Activities PP&E additions (186.1) (154.0) Other (37.6) 3
Slide 36: Balance Sheet
Balance Sheet 36 (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 3,87
Slide 37: Effective Tax Reconciliation
Effective Tax Reconciliation 37 The $12.6 million release of unrecognized tax benefits resulted from the lapse of statute of limitation in the third quarter of 2014. In addition, we submitted a tax accounting method change related to the deductibility of repair costs to bring our existing method int
Slide 38: Updated Effective Tax Rate Guidance
(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) $1.0 ($3.1) ($30.6) Permanent or flow through adjustments: Flow-through
Slide 39: Quarter Non-GAAP Adjusted P&L
(in millions) Three Months Ended September 30, 2014 Fa vo ra bl e we at he r Hy dr o tra ns ac tio n ex pe ns e No n- em p. d ef er re d co m pe ns at io n Re le as e of u nr ec og ni ze d ta x be ne fit s an d sa fe h ar bo r el ec tio n (p rio r y ea rs ) Three Months Ended September 30, 2014 Thre
Slide 40: Year-to-Date Non-GAAP Adjusted P&L
Year-to-Date Non-GAAP Adjusted P&L (in millions) Nine Months Ended September 30, 2014 Fa vo ra bl e we at he r Hy dr o tra ns ac tio n ex pe ns e No n- em p. d ef er re d co m pe ns at io n Re le as e of u nr ec og ni ze d ta x be ne fit s an d sa fe h ar bo r el ec tio n (p rio r y ea rs ) Nine Mon
Slide 41: Hydro - Montana Generation Profile
Hydro - Montana Generation Profile 41 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 42: Forbes America's Most Trustworthy Companies 2013
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 exchanges. In the past, Forbe
Slide 43: 2013 System Statistics
2013 System Statistics 43 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 44: Well Rounded Board of Directors
Well Rounded Board of Directors 44 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 45: Strong Executive Team
Strong Executive Team 45 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 46: Our Commissioners
Our Commissioners 46 Name Party Began Serving Term Ends Kirk Bushman R Jan-13 Jan-17 Bill Gallagher (Chairman) R Jan-11 Jan-15 Travis Kavulla R Jan-11 Jan-15 Roger Koopman R Jan-13 Jan-17 Bob Lake R Jan-13 Jan-17 Commissioners are elected in statewide elections from each of five districts. Chairpers
Slide 47: FERC's April 17, 2014 Order
FERC’s April 17, 2014 Order 47 Relying on the regulatory process to provide an equitable outcome should be as American as…. apple pie.
Slide 48: The Back Story on DGGS
The Back Story on DGGS 48 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 49: The Back Story on DGGS (continued)
The Back Story on DGGS (continued) 49 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 50: Non-GAAP Financial Measures
Non-GAAP Financial Measures 50 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 51: Delivering a bright future
Upelivering a bright future