Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — American Gas Association Financial Forum 2019
42 slides from Northwestern Energy's conference presentation, May 21, 2019
Slide 1: American Gas Association Financial Forum
American Gas Association May 21-23, 2019 Financial Forum 8-K May 21, 2019
Slide 2: Forward Looking Statements
2 Forward Looking Statements Forward Looking Statements O’Dell 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 Reform Act of 1995. Forward-l
Slide 3: About NorthWestern
3 About NorthWestern South Dakota Operations Electric 63,800 customers 3,572 miles – transmission & distribution lines 440 MW nameplate owned power generation Natural Gas 46,900 customers 1,697 miles of transmission and distribution pipeline Montana Operations Electric 374,000 customers 24,767 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 ~55% hydro, wind & solar • Reside
Slide 5: A Diversified Electric and Gas Utility
5 A Diversified Electric and Gas Utility (1) September 2018 Montana electric rate review, filed with rate base of $2.34 billion, calculated with 13th month average and known and measurable adjustments. NorthWestern’s ‘80/20’ rules: Approximately 80% Electric, 80% Residential and 80% Montana. Over $3
Slide 6: Highly Carbon-Free Supply Portfolio
6 Highly Carbon-Free Supply Portfolio Based upon 2018 MWH’s of owned and long-term contracted resources. Approximately 55% 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 2009-2018 CAGR’s: GAAP EPS: 7.6% - Non-GAAP EPS: 5.9% - Dividend: 5.7% See appendix for “Non-GAAP Financial Measures”
Slide 10: Track Record of Delivering Results
10 Track Record of Delivering Results * Peer Group: ALE, AVA, BKH, EE, IDA, MGEE, NWN, OGE, OTTR, PNM, POR & SR Return on Equity on GAAP Earnings within 9.5% - 11.0% band over the last 8 years with average of 10.3%. Total Shareholder Return is better than our 12 peer average for the 1 & 10 year peri
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, debt to cap within our targeted 50%-55% range and no long-term debt maturities until 2023.
Slide 13: Strong Cash Flows
13 Strong Cash Flows While maintenance capex and total dividend payments have continued to grow since 2011 (11.9% and 11.2% CAGR respectively), Cash Flow from Operations (CFO) has, on average, exceeded maintenance capex and dividend payments by approximately $7 million per year. Note: 2016 CFO is le
Slide 14: Earnings Growth
14 Earnings Growth $3.30-$3.45 $3.10 - $3.30 $2.60 - $2.75 Non-GAAP Adjusted EPS Growth averaged 6.3% from 2013-2018 We are not providing 2019 EPS guidance at this time due to the pending Montana rate case. However, continued investment in our system to serve our customers and communities is expecte
Slide 15: Recent Significant Achievements
15 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 16: Looking Forward
16 Looking Forward Regulatory • MPSC to review Montana general electric rate review, filed in September 2018. • FERC rate case filed in May 2019 for associated Montana transmission assets. Continue to Invest in our T&D infrastructure • Comprehensive infrastructure capital investment program to ensur
Slide 17: Montana Electric Rate Case
17 Montana Electric Rate Case Background The filing also requests: Black Eagle Power House • First general electric rate case in Montana since 2009. • Approval to capitalize Demand • While we have efficiently managed operating and administrative costs, Side Management Costs increased Montana propert
Slide 18: NWE Energy Supply Resource Plans
18 NWE Energy Supply Resource Plans South Dakota Electricity Supply Resource Plan Ryan Dam Upgrade • Published fall of 2018, the plan focuses on modernization of our fleet to improve reliability and flexibility, maintain compliance in Southwest Power Pool, and lowering operating costs. The plan iden
Slide 19: Relevant Montana Legislation
19 Relevant Montana Legislation There were several potentially significant bills currently being considered by the Montana Legislature. In addition to many other less substantive bills, we closely monitored the impacts of the following: • Legislation that would have allow us to acquire up to an addi
Slide 20: Solid Leadership & Corporate Governance
20 Solid Leadership & Corporate Governance Board of Directors (left to right) Stephan Adik – Chairman of the Board - Independent Director since November 1, 2004 Anthony Clark – Independent Director since December 6, 2016 – Governance & Innovation and Human Resources Committees Dana Dykhouse – Indepe
Slide 21: Capital Investment Forecast
21 Capital Investment Forecast $1.6 billion of total capital investment over five years. Increased investment in first three years (relative to last two years) is primarily a result of advanced metering infrastructure (AMI) project. We anticipate funding the expenditures with a combination of cash f
Slide 22: Conclusion
22 Conclusion Best Attractive Pure Strong Solid Utility Practices Future Electric & Earnings & Foundation Corporate Growth Gas Utility Cash Flows Governance Prospects
Slide 23: Delivering a bright future
Upetivering a bright future NorthWestern Energy
Slide 24: Montana Electric Tracker Update
Montana Electric Tracker Update The MPSC issued a final order in January 2019 approving a Power Cost & Credit Adjustment Mechanism (PCCAM) with the following provisions: • A baseline of power supply costs; • Symmetrical deadband of +/- $4.1 million from the established baseline. Supply cost variance
Slide 25: Estimated Impacts of the Tax Cuts & Jobs Act
25 Estimated Impacts of the Tax Cuts & Jobs Act Montana: In December 2018, the MPSC approved a settlement agreement providing a $20.5 million one-time customer credit to electric and natural gas customers. In addition, the settlement provides: • A $1.3 million annual reduction in natural gas rates b
Slide 26: Summary Financial Results (First Quarter)
Appendix 26 Summary Financial Results (First Quarter) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure.
Slide 27: Gross Margin (First Quarter)
Appendix 27 Gross Margin (First Quarter) (dollars in millions) Three Months Ended March 31, 2019 2018 Variance Electric $ 196.0 $ 181.0 $ 15.0 8.3% Natural Gas 72.5 64.4 8.1 12.6% Total Gross Margin (1) $ 268.5 $ 245.4 $ 23.1 9.4% Increase in gross margin due to the following factors: $ 7.9 Natural
Slide 28: Weather (First Quarter)
Appendix 28 Weather (First Quarter) Extremely cold February and March contributed approximately $14.0M pretax gross margin benefit as compared to normal and $9.2M pretax benefit as compared to first quarter 2018.
Slide 29: Operating Expenses (First Quarter)
Appendix 29 Operating Expenses (First Quarter) (dollars in millions) Three Months Ended March 31, 2019 2018 Variance Operating, general & admin. $ 81.1 $ 74.3 $ 6.8 9.2% Property and other taxes 44.8 42.8 2.0 4.7% Depreciation and depletion 45.6 43.8 1.8 4.1% Operating Expenses $ 171.5 $ 160.9 $ 10.
Slide 30: Operating to Net Income (First Quarter)
Appendix 30 Operating to Net Income (First Quarter) (dollars in millions) Three Months Ended March 31, 2019 2018 Variance Operating Income $ 97.0 $ 84.5 $ 12.5 14.8% Interest Expense (23.8) (23.0) (0.8) (3.5%) Other Income / (Expense) 1.1 (1.1) 2.2 200.0% Income Before Taxes 74.4 60.4 14.0 23.2% Inc
Slide 31: Balance Sheet
Appendix 31 Balance Sheet Improvement in debt to capitalization ratio; which is now closer to bottom end of 50%-55% targeted range. Debt to Total Capitalization was 52.0% at March 31, 2018
Slide 32: Cash Flow
Appendix 32 Cash Flow Cash from operating activities decreased by $61.6 million primarily due to an increase in market purchases of supply resulting in an under collection of supply costs from customers in the current period, credits to Montana customers during the current period related to TCJA, an
Slide 33: Adjusted Non-GAAP Earnings (First Quarter)
Appendix 33 Adjusted Non-GAAP Earnings (First Quarter) The adjusted non- GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures
Slide 34: South Dakota Electric Supply Resource Plan
34 South Dakota Electric Supply Resource Plan NorthWestern and HDR Engineering investigated various retirement & replacement scenarios* to assess Black Eagle Power House potential for modernizing its generation fleet and improve reliability and operational flexibility. A generally distributed genera
Slide 35: Montana DRAFT Electricity Supply Plan
35 Montana DRAFT Electricity Supply Plan The total planned energy generation reductions in the Pacific Northwest region exceed 3,700 MWs through 2032. The Northwest Power and Conservation Council forecasts regional capacity shortfalls as early as 2021. NorthWestern Energy’s continued reliance on the
Slide 36: NorthWestern Energy Profile
Appendix 36 NorthWestern Energy Profile (1) Rate base reflects amounts on which we are authorized to earn a return. (2) Rate base amounts are estimates as of December 31, 2018 (3) The revenue requirement associated with the FERC regulated portion of Montana electric transmission and DGGS are include
Slide 37: 2018 System Statistics
Appendix 37 2018 System Statistics (1) (2) Note: Statistics above are as of 12/31/2018 (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 & 45MW MPSC jurisdictions) peaker
Slide 38: Our Commissioners
Appendix 38 Our Commissioners
Slide 39: Non-GAAP Financial Measures (1 of 3)
Appendix 39 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 40: Non-GAAP Financial Measures (2 of 3)
Appendix 40 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 41: Non-GAAP Financial Measures (3 of 3)
Appendix 41 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 42: Delivering a bright future
Upetivering a bright future NorthWestern Energy