Analyst Day
December 3, 2008
Westin New York at Times Square
Palace Room, Ninth Floor
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 – regulated as of 1/1/09
SD – 312 MW – regulated
Total Assets: $2,593 MM (2)
Total Capitalization: $1,629 MM (2)(3)
Total Employees: 1,360 (1)
Located in relatively stable economies with potential grid expansion in the Northwest.
Colstrip Unit 4 update…
Our 222 MW interest in Colstrip Unit 4 to go into rate base
MPSC issued a finalorder on November 13, 2008 –
To rate base CU4 at $407 million
Recognize that $161 million NOL balance belongs to the Company
The MCC has filed a request for reconsideration with MPSC
The MPSC has 10 days to reconsider; silence = denial
The MPSC can extend the 10 day period to decide on reconsideration
If motion to reconsider is granted, timeline is undetermined
If motion to reconsider is denied (or silent), MCC has 30 days to appeal to state
district court
Investigation of violation of prior MPSC order related to CU4
MPSC passed motion on October 30 to draft an order –
That NorthWestern violated the bankruptcy stipulation in four instances
Total fine to be determined but estimated to be less than $1 million
NorthWestern will carefully review the final order
Colstrip Unit 4 in rate base to have positive
earnings and credit ratings impact.
Rates
related to
CU4 go
into
effect on
1/1/09,
even if
under
appeal.
regulatory update…
Rate case to be filed in Montana in 2009
Filing will include both electric and natural gas distribution businesses
Expect to file in 2Q 2009 on 2008 test year
Expect decision by April 1, 2010
In 2007 rate cases, we agreed to defer rate cases in South Dakota for 3 years
Mill Creek Generation Station filed with MPSC
Filed for pre-approval on the plant in August 2008
Expect decision by June 30, 2009
Plant will not be built without pre-approval
FERC Filing on MSTI expected in early ‘09
Relates to the “open season”
Reflects the change and increase in the generation queue in Montana
2008 commission election results
MT - Two new commissioners (now four Democrats and one Republican)
SD/NE – Both commission compositions stayed the same
Establishing constructive regulatory regulations in all jurisdictions.
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
Rate case to be filed in Montana on electric and gas distribution
business in 2Q ‘09
Secured credit ratings of A-(MT) BBB+(SD) / BBB / Baa2
Unsecured credit ratings are investment grade from Moody’s,
S&P and Fitch
Growth prospects strong
Electric generation and transmission opportunities
Solid operations with growth prospects.
Brian Bird
Chief Financial Officer
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
$1.65 to $1.80 per fully diluted share
base earnings of company since ’05…
Earnings
profile is
improving.
2005
2006
2007
2008 P
GAAP earnings per share
1.73
$
1.06
$
1.45
$
$1.65 - $1.80
Adjustments:
Weather
(0.01)
$
(0.05)
$
0.01
$
(0.03)
$
Nat Gas recovery on prior disallowance
(0.08)
$
-
$
-
$
-
$
PPL settlement received
(0.12)
$
-
$
-
$
-
$
Sold SO2 credits
(0.08)
$
-
$
-
$
-
$
Ammondson verdict
-
$
0.33
$
-
$
-
$
M&A and legal costs, net of insurance recoveries
-
$
0.28
$
0.06
$
0.03
$
Hedge (gains)/losses
-
$
(0.07)
$
-
$
-
$
One time gain on MGP settlements
-
$
-
$
(0.21)
$
-
$
One time gain on property tax settlement
-
$
-
$
-
$
(0.03)
$
Ongoing earnings per share
1.44
$
1.54
$
1.31
$
$1.62 - $1.77
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
2005
2006
2007
2008 P
CAGR = 5.44%
potential impact of CU4 in rate base in ‘09…
Existing contracts offset rate payers’ revenue
requirement by just under 50%.
Colstrip Unit 4 Rate Base Approved
**
$407.0
million
Equity ratio
50%
Authorized ROE
10%
Potential annual earnings of our interest of CU4
$20.4
million
Earnings of unregulated electric in '07
$10.3
*
Potential accretive annual earnings of rate basing CU4
$10.1
million
'09 shares outstanding - Fully Diluted
36.4
million
Potential accretive impact on EPS
$0.28
per share
---------------------------------------------------------------------------------------------------------------------------
* Approximates the projected '08 income for unregulated electric.
** The Montana Consumer Council has filed for a motion for the MPSC to reconsider
the 11-13-09 final order.
impact of accounting order on pension expense…
The accounting order allows us to align our expenses with our
anticipated recovery of the increased pension costs.
The projections for the
accounting order are
estimates only. Actual
results may differ.
2005
2006
2006
2008
2009
2010
2011
2012
Original MPSC Accounting Order:
Expected pension expense
Original MT estimate before market decrease
18.84
$
21.95
$
21.95
$
22.30
$
22.30
$
Change in MT due to decrease in stock market
15.18
$
15.18
$
Total pension expense under original MPSC Accounting Order
18.84
$
21.95
$
21.95
$
37.48
$
37.48
$
**
**
Proposed new MPSC Accounting Order:
*
*
*
*
*
Total pension expense under proposed MPSC Accounting Order
18.84
$
21.95
$
21.95
$
30.59
$
30.59
$
30.59
$
30.59
$
30.59
$
Payments to be made to MT Pension in next 5 years:
31.20
$
15.75
$
22.00
$
21.74
$
47.00
$
35.00
$
22.00
$
21.00
$
Total Company
Expense - MT
30.59
$
30.59
$
30.59
$
30.59
$
30.59
$
Expense - SD
0.71
$
1.27
$
1.27
$
1.27
$
1.27
$
Total Company Pension Expense
31.30
$
31.86
$
31.86
$
31.86
$
31.86
$
Payments - MT
21.74
$
47.00
$
35.00
$
22.00
$
21.00
$
Payments - SD
0.19
$
7.00
$
5.20
$
3.30
$
3.20
$
Total Company Pension Payments
21.93
$
54.00
$
40.20
$
25.30
$
24.20
$
* See 8-k dated 11-14-08.
** See 10-Q.
free cash flow…
Existing core business is self sustaining.
Free cash flow in 2008 was used to buy back $78 million in
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 and Short Term Debt / Total Capitalization
52.3%
49.5%
liquidity highlights…
Total liquidity currently in the $120 million range
No collateral currently posted to commodity suppliers
Commodity supplier open credit lines of $311 million or
362% of 60-day commodity cost
Debt maturities in late 2009
Unsecured revolver matures on Nov. 1, 2009
Current balance is $60 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
Will be refinanced or extended in late 2009
Current rate is LIBOR + 1.25%
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
Colstrip Unit 4 regulatory ruling is expected to be ratings positive.
Dave Gates
Vice President – Wholesale Operations
generation growth highlights…
120-150 MW plant near
Anaconda, MT
Built for regulation services to
balance supply and load for
NWE’s Balancing Area
Rate-based cost of service
investment
Estimated to cost approximately
$200 million
Existing services are becoming
more expensive and scarce
In service date for Mill Creek Generation Station = Jan 1, 2011
Mill Creek Generating Unit in Montana
Mill Creek timeline…
MGST has been filed for pre-approval,
with the MPSC w/decision expected in 2Q ’09.
update on generation queue in MT…
New generation in Montana will need to find an end user.
0
1000
2000
3000
4000
5000
6000
7000
Coal
Gas
Hydro
Wind
MATL
In-Service
Signed
LGIA
Total
MT
Existing
Generation
Feb 08
Oct 08
Nov 08
Potential Generation Development in Montana
transmission project developments…
Line already exists – represents an
upgrade
Upgrades substation capacity
Increases load capacity of existing line
NorthWestern announced partnership
with others
Portland General
Puget Sound Energy
Pacificorp
Avista
Needed to relieve congestion to the West
Market interest is increasing for
Montana’s high quality wind profile
Cost estimate of ourportion of 500 kV
upgrade = $50M - $75M
Anticipated ownership interest of 30% on upgrade
In service date of January 1, 2012.
Colstrip 500 kV Upgrade
transmission project developments…
In service date of January 1, 2014.
230 kV “Collector System”
Our project with no partners
Open Season early ‘09 to
determine configuration
Needed to collect the potential
renewables in Montana
Cost estimate of “collector”
project = $200M
transmission project developments cont’d…
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 early ‘10
Construction begins after environmental
review
Considering strategic partnering
Estimated to be on line early 2014.
MSTI
Bob Rowe
President and CEO
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
Non-discretionary cap
ex is funded 100% by
free cash flow.
Don’t anticipate needing
equity unless we
proceed with MSTI.
We will move forward
with the funding of these
projects only when they
make economic sense.
growth project potential…
Possibility to double and diversify earnings as compared with our
existing $1.5 billion rate base as of 1/1/09.
(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 6.5%
Currently trading at just below 1.0 x book value
Opportunity for growth
January 1, 2009 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
Free cash flow supports the existing business
S&P 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
2009 earnings will be entirely from regulated business
Recent rate relief received in all jurisdictions
Outstanding bankruptcy litigation nearly completed