EEI Financial Conference
November 10, 2008
JW Marriott
Phoenix, Arizona
forward-looking statement…
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 future business and financial
performance, and often contain words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” or “will.”
The information in this presentation is based upon our current
expectations as of the date hereof. Our actual future business and
financial performance may differ materially and adversely from those
expressed in any forward-looking statements. We undertake no obligation
to revise or publicly update our forward-looking statements or this
presentation for any reason. Although our expectations and beliefs are
based on reasonable assumptions, actual results may differ materially.
The factors that may affect our results are listed in certain of our press
releases and disclosed in the Company’s public filings with the SEC.
who we are…
(1)
As of 12/31/07
(2)
As of 9/30/08
(3)
Book capitalization calculated as total debt, excluding capital leases, plus shareholders’ equity.
650,000 customers
388,000 electric
262,000 natural gas
Approximately 123,000 square
miles of service territory in
Montana, Nebraska and South Dakota
Total generation (mostly base load coal)
MT – 222 MW – unregulated
SD – 312 MW – regulated
Total assets: $2,593 MM (2)
Total capitalization: $1,629 MM (2)(3)
Total employees: 1,360 (1)
Located in stable economies with potential grid expansion in the Northwest.
business segment contribution…
YE Dec 31, 2007
ELECTRIC
UTILITY
GAS
UTILITY
UNREGULATED
ELECTRIC
OTHER /
ELIMINATIONS
TOTAL
Gross Margin
346,976
127,626
56,152
901
531,655
% of Total
65%
24%
11%
0%
Operating Income
90,692
36,067
20,407
(7,073)
140,093
% of Total
65%
26%
15%
-5%
Net Income
33,730
14,599
10,274
(5,412)
53,191
% of Total
63%
27%
19%
-10%
Nearly all income from regulated assets.
2008 third quarter year-to-date results…
Earnings have increased 33% over prior year.
2008
2007
B(W)
Operating Revenues
934,725
892,036
42,689
Cost of Sales
508,941
499,555
(9,386)
Gross Margin
425,784
392,481
33,303
Operating Expenses
Operating, general & administrative
177,348
173,611
(3,737)
Property and other taxes
65,898
61,645
(4,253)
Depreciation
63,608
61,412
(2,196)
Total Operating Expenses
306,854
296,668
(10,186)
Operating Income
118,930
95,813
23,117
Interest Expense
(47,478)
(42,380)
(5,098)
Investment Income and Other
1,640
1,646
(6)
Income (Loss) from Cont. Ops. Before Taxes
73,092
55,079
18,013
Benefit (Provision) for Income Taxes
(26,759)
(20,326)
(6,433)
Net Income (Loss)
46,333
34,753
11,580
Nine Months Ended September 30,
Unaudited (dollars in 000's)
2008 guidance…
2008 = 2007 plus rate increases in all jurisdictions
Increased guidance after third quarter results
Increased from $1.60 to $1.75 per fully diluted share
Includes an increase in pension expense
Increase due to –
Share buyback
Lower legal costs (insurance recoveries)
Better pricing at Colstrip Unit 4 (hedge in place)
$1.65 to $1.80/fully diluted share
free cash flow…
Existing core business not in need of equity.
Free cash flow in 2008 was used to buy back company stock
The 2009 increase in pension funding expense will be offset by
reducing growth cap ex
The debt maturing in late 2009 is expected to be refinanced but
free cash flow can alleviate those maturities
(in millions)
Projected 2008
Cash flow from operations
245,000
Maintenance cap ex
(105,000)
Growth cap ex
(20,000)
Dividends
(50,000)
Free cash flow
70,000
strong balance sheet…
Plan to maintain a 50%-55% debt to total capitalization ratio.
Unaudited (Dollars in 000's)
September 30
2008
2007
Cash
8,575
12,773
Restricted Cash
16,166
14,482
Accounts Receivable, Net
108,540
143,482
Inventories
90,896
63,586
Other Current Assets
54,077
44,031
Goodwill
355,128
355,128
PP&E and Other Non-current Assets
1,960,432
1,913,898
Total Assets
2,593,814
$
2,547,380
$
Payables
72,340
91,588
Other Current Liabilities
275,152
209,245
Long & Short Term Capital Leases
38,335
40,391
Long & Short Term Debt
825,365
805,977
Other Non-current Liabilities
628,393
577,155
Shareholders' Equity
754,229
823,024
Total Liabilities and Equity
2,593,814
$
2,547,380
$
Long & Short Term Debt / Total Capitalization
52.3%
49.5%
liquidity highlights…
Total liquidity currently in the $145 million range
Debt maturities in late 2009
Unsecured revolver matures on Nov. 1, 2009
Current balance is $50 million
Letters of credit balance is approximately $17 million
Current rate is LIBOR + .75%
The $100 million non-recourse loan to purchase our interest in
Colstrip Unit 4 matures on Dec. 28, 2009
If Colstrip Unit 4 is rate based, we expect to refinance in late ‘09
If Colstrip Unit 4 is sold, the proceeds will pay off this loan
Current rate is LIBOR + 1.25%
Increase in pension expense will be offset by delaying the
SD peakers to better match local reserve margins
Liquidity position remains strong
More than 75% of the long-term debt matures after 2009
(most of that is due in 2014 or after)
credit ratings…
Fitch S&P Moody’s
Senior Secured Rating BBB A- (MT) Baa2
BBB+ (SD)
Senior Unsecured BBB- BBB Baa3
Corporate Rating BBB- BBB N/A
Outlook Positive Stable Positive
Either Colstrip Unit 4 outcome is expected to be ratings positive.
Colstrip Unit 4 update…
Rate base option before the MPSC
MPSC held work session on Oct. 31
Passed motion to draft an order –
To rate base CU4 at $407M
Recognize that $161M NOL balance belongs to the company
The draft order is due to be reviewed by the MPSC on Nov. 13
MPSC may revise its position until final order issued
Investigation of violation of prior MPSC order related to CU4
MPSC held work session on Oct. 31
Passed motion to draft an order –
That NorthWestern violated prior order in four instances
Total fine to be determined but estimated to be less than $1 million
NorthWestern will carefully review the final order
Final order anticipated to be issued in mid-November.
NorthWestern’s future…
Operationally strong
Cost competitive
Above-average reliability
Award-winning customer service
Financially strong
Steady earnings growth and strong cash flow
Sufficient liquidity with no significant maturities within next
12 months
Secured credit ratings of A-(MT) BBB+(SD) / BBB / Baa2
Unsecured credit ratings are investment grade from Moody’s,
S&P, Fitch
Growth prospects strong
Electric generation and transmission opportunities
Solid operations with growth prospects.
generation growth highlights…
Mill Creek Generating Unit in Montana
What: 120-150 MW plant near Anaconda, Montana
Built for regulation services to balance supply and load
Estimated to cost around $200 million
Why: Existing services are becoming more expensive and scarce
South Dakota Peaking Generation
What: Construction of two 45 MW combustion turbines
Estimated to cost around $90 million
Why:
To meet increasing peak demand within our South Dakota service territory
In service dates
Mill Creek = 2011 SD Peaking Units = 2013
transmission project developments…
Colstrip 500 kV Upgrade
NorthWestern announced partnership with others on
the project
Avista, PacifiCorp, Portland General, Puget Sound Energy
Needed to relieve congestion to the West
Cost estimate of 500 kV upgrade = $50M - $75M
Anticipate ownership interest of 25% on upgrade
230 kV “wind collector system”
Our project with no partners
Needed to collect the potential wind generation in Montana
Cost estimate of “collector” project = $150M - $200M
In service dates
500kV Upgrade = 2012 230kv Collector = 2014
transmission project developments cont’d…
MSTI
Developing a request for FERC declaratory order on incentive
rate principles
Beginning an updated Open Season for long term contracts to
be completed by early 2009
Continuing the public outreach process
Expect to complete the WECC path rating process Q1 ’09
Expect to publish an Environmental Impact Statement in late
’09 or early ‘10
Construction begins after environmental review
Considering strategic partnering
Estimated to be on line early 2014.
cap ex spending – next few years…
Includes more than $1 billion of potential generation and transmission growth projects.
$0
$100
$200
$300
$400
$500
$600
$700
2009
2010
2011
2012
2013
2014
Regulated Utilities Maintenance Capex
Colstrip Upgrade
230 kV Collector
Mill Creek Generator
MSTI
growth project potential…
Possibility to double and diversity earnings.
(in millions)
Timing
Mill Creek Generator
10.0
$
to
11.3
$
200
$
to
225
$
Jan 2011
Colstrip 500 kV transmission upgrade**
2.5
$
to
3.0
$
50
$
to
60
$
Jan 2012
South Dakota Peaking generation
3.8
$
to
4.5
$
75
$
to
90
$
Jan 2013
230 kV Wind Collector system
7.5
$
to
10.0
$
150
$
to
200
$
Jan 2014
MSTI transmission line (500 kV scenario)
37.5
$
to
50.0
$
750
$
to
1,000
$
Jan 2014
Totals
61.3
$
to
78.8
$
1,225
$
to
1,575
$
* For illustrative purposes = Cost of project times 50% equity ratio times estimated ROE of 10%.
** Assumes a 25% ownership of the $200 million project.
Cost of Project
Annual Earnings
Opportunity *
NorthWestern = value…
Value
Dividend yield of approximately 6.7%
Currently trading at approximately .95x book value
Opportunity for growth
Possibility of rate basing our 222 MW interest in CU4
Possibility of increasing rate base on growth projects
with investment in excess of $1 billion
Potential additional annual earnings of more than
$60 million post 2014
Strong balance sheet/credit ratings
Moody’s recently upgraded Northwestern debt
All unsecured debt is now investment grade with
Moody’s, S&P and Fitch
Current value with growth opportunities.
summary…
Objectives achieved
related to focus on
core business
Strong balance sheet
No equity required for existing core business
Modest debt maturities in short term
Investment grade rated debt
Increasing regulatory clarity
Solid foundation
Growth prospects
Unique geographic location to expand electric
and natural gas infrastructure
Increasing need to move energy through our
service area
Identified projects provide opportunity to nearly
double rate base and earnings
Nearly all earnings from regulated business
Recent rate relief received in all jurisdictions
Outstanding bankruptcy litigation nearly completed