46th EEI Financial Conference
November 8, 2011
Presented by:
Bob Rowe, President & CEO
Brian Bird, Vice President, CFO & Treasurer
Outline
Who we are
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
2
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 future business and financial
performance, and often contain words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” or “will.”
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 unless otherwise noted. Our actual
future business and financial performance may differ materially and
adversely from our expectations 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.
expectations as of the date hereof unless otherwise noted. Our actual
future business and financial performance may differ materially and
adversely from our expectations 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.
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Who we are
ð Our Vision: Enriching lives through a safe, sustainable
energy future
energy future
ð Our Mission: Working together to deliver safe, reliable
and innovative energy solutions
and innovative energy solutions
ð Our Values:
Safety
Excellence
Respect
Value
Integrity
Community
Environment
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Geographically positioned for success
ð Our service territory covers some of
the best wind regimes in the nation
the best wind regimes in the nation
ð We have the opportunity to provide
transmission services into two different
markets (West and Midwest)
transmission services into two different
markets (West and Midwest)
Low unemployment rates
ð A fully-regulated utility located in states
with relatively stable economies with
opportunity for system investment and
grid expansion
with relatively stable economies with
opportunity for system investment and
grid expansion
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(1) Nebraska is a natural gas only jurisdiction
A multi-state electric & natural gas utility
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The “80 / 20” rules of NorthWestern. We are approximately 80% electric / 20% natural gas
Note: Data above reflects full year 2010 results .
A diverse distribution customer base
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With competitive customer rates
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Typical
Customer
bills
Customer
bills
Outline
Who we are
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
10
8.3% Cash From
Operations
Operations
6.6% Dividend Growth
Compounded Annual
Growth Rate (CAGR)
Growth Rate (CAGR)
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Solid pension funding
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NorthWestern Energy’s Pension Assumptions
ð Target allocation 50% equity and 50% fixed
income
income
ð Expected long-term rate of return of 7.25%
ð Discount rate of 5.00 - 5.25%
ð Long-term targeted total debt to capitalization
of 50-55% with a current capitalization of
54.9%(1)
ð Total liquidity of $210 million as of Oct 21, ’11
ð Refinanced nearly all debt in the last 2 years
– Lowered average coupon on long-term
debt by 1.2% and extended maturities
debt by 1.2% and extended maturities
– Amended and restated revolving credit
facility extending term, increasing size
and lowering costs.
facility extending term, increasing size
and lowering costs.
A security rating is not a recommendation to buy, sell or hold securities. Such rating may be subject to revision or
withdrawal at any time by the credit rating agency and each rating should be evaluated independently of any other rating.
withdrawal at any time by the credit rating agency and each rating should be evaluated independently of any other rating.
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A history of earnings and dividend growth
Reaffirming 2011 earning guidance
Reaffirming 2011 guidance range of $2.30-$2.40, which would result in 7-12% growth over 2010,
based upon, but not limited to, the following major assumptions and expectations:
based upon, but not limited to, the following major assumptions and expectations:
• Gross margin will be positively impacted by approximately $6.0 million in the fourth quarter of 2011,
as compared with the fourth quarter of 2010, due to the inclusion of DGGS in rates;
as compared with the fourth quarter of 2010, due to the inclusion of DGGS in rates;
* CAGR is based on the midpoint of 2011 revised guidance range of $2.30-$2.40 per diluted share
Near-term earnings drivers
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2012 expectations/assumptions:
ð Additional gross margin adding between $.20/share to $.25/share from 2011
– Relates primarily to property tax tracker timing differences, SD rate increase, and
non-weather customer growth
– Also, assumes some increase in wholesale transmission revenues due to demand
recovery and normal hydro conditions in 2012
ð Administrative expenses to decrease from 2011 by $.02/share to $.05/share
– Company focus on cost containment
– Absence of 3Q 2011 former employee dispute in 2012
ð Other income to increase from 2011 by $.05/share to $.10/share:
– AFUDC on capital projects during 2012
ð Interest expense to decrease from 2011 by $.03/share to $.05/share:
– Capitalized as AFUDC on capital projects during 2012
ð Operating expenses are expected to increase about $.10/share to $.15/share from 2011
– Labor to increase about 3%
ð Property tax and other expenses are expected to remain about flat compared with 2011
ð Depreciation expense to increase about $.10/share from 2011
ð Income tax expense to increase about $.05/share to $.10/share from 2011
2013 expectations:
ð If approved, Spion Kop in commercial operation
ð Aberdeen South Dakota peaker in commercial operation
ð AFUDC or rider on South Dakota pollution control projects (Big Stone / Neal)
ð AFUDC on Colstrip 500 kV Upgrade
ð If Battle Creek successfully placed in rate base, likely pursuing additional natural gas reserves
ð Potential rate filings
Well-positioned for future investment
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Continued
investment in our
system to serve our
customers and
communities is
expected to provide
average earnings per
share growth
and dividend growth
of 4-6% annually.
That, coupled with
dividend yield of
investment in our
system to serve our
customers and
communities is
expected to provide
average earnings per
share growth
and dividend growth
of 4-6% annually.
That, coupled with
dividend yield of
4-5%, should provide
great results for
investors over the
foreseeable future.
great results for
investors over the
foreseeable future.
Outline
Who we are
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
18
Investment opportunity outlook
ð Energy Supply
– Big Stone/Neal pollution control
– South Dakota natural gas peaking generation
– Montana Spion Kop Wind facility
– South Dakota Titan Wind facility buyout
– Other vertical integration opportunities in
Montana
Montana
ð Transmission
– Network upgrades and large generation
interconnections
interconnections
– Colstrip 500kV upgrade
– Mountain States Transmission Intertie (MSTI)
– 230kV Renewable Collector System
– South Dakota transmission opportunities
ð Distribution
Montana base load opportunity
Our post PPL supply
opportunity is
approximately
200 GWh / month or
about 280 MWs of
capacity
opportunity is
approximately
200 GWh / month or
about 280 MWs of
capacity
2005-07 valuation affected by pending and
ultimately terminated acquisition
ultimately terminated acquisition
Growing investment in our existing system
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Great investment growth opportunities
Investment project summary
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Several opportunities exist to further increase and diversify earnings as compared to our
approximately $1.8 billion of rate base today. Additional Montana base load opportunities are
currently being evaluated and may be incorporated at the appropriate time.
approximately $1.8 billion of rate base today. Additional Montana base load opportunities are
currently being evaluated and may be incorporated at the appropriate time.
Note: Color / label indicate NorthWestern Energy's current probability of execution and timing of expenditures.
Another way to slice the pie
(at midpoint of range)
Outline
Who we are
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
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NorthWestern, the 2nd happiest place on Earth
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QUESTIONS
Thank You
Outline
Who we are
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
Financial update
Investment opportunity
outlook
Conclusion
Appendix
- Financial statements
- Regulatory update
- Additional investment opportunity detail
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Consolidated statement of income
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Consolidated statement of cash flows
Consolidated balance sheet
Earnings reconciliation
Other miscellaneous earnings items
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Energy supply regulatory update
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Please refer to our recent and forthcoming public filings with the SEC and press releases for additional detail regarding our regulatory activities.
Energy supply regulatory update (cont.)
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Please refer to our recent and forthcoming public filings with the SEC and press releases for additional detail regarding our regulatory activities.
Transmission regulatory update
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Our Commissioners
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South Dakota pollution control equipment
• Big Stone: 23.4% joint owner in an estimated $500 million project to install SOx (scrubbers), NOx (SCR) and particulate matter (bag
house) emission control technology on a jointly owned 454 MW power plant. We have 5 years from the Environmental Protection Agency’s
house) emission control technology on a jointly owned 454 MW power plant. We have 5 years from the Environmental Protection Agency’s
(EPA) approval of the South Dakota Department of Environmental and Natural Resources (DENR) State Implementation Plan (SIP) to
have the Best Available Retrofit Technology (BART) installed. The SIP was filed in January 2011 and revised in September 2011. We are
unable to predict the EPA’s timing or ultimate approval. A de minimis amount of spend has been incurred in 2011 with the bulk of our
$130-150 million share (including AFUDC and overheads) to be spent over the next 5 years. Estimated completion date mid 2016.
• Neal 4: 8.7% joint owner in a $270 million project to install a scrubber, bag house, SNCR and activated carbonated injection system on
our jointly owned 655 MW facility. A negligible portion of the spend has been incurred in 2011 with the remainder of our $20-25 million
share (including AFUDC and overheads) to be spent over the next 3 years. Estimated completion date of late 2014.
our jointly owned 655 MW facility. A negligible portion of the spend has been incurred in 2011 with the remainder of our $20-25 million
share (including AFUDC and overheads) to be spent over the next 3 years. Estimated completion date of late 2014.
• We expect to seek recovery for these two environmental projects above through a specific environmental rider mechanism made
available through South Dakota State Statute in conjunction with a potential electric rate filing.
available through South Dakota State Statute in conjunction with a potential electric rate filing.
South Dakota natural gas peaking generation
• Approximately $65 million investment to build a 60MW natural gas peaking facility in Aberdeen, South Dakota. The peaker will
provide greater reliability and much needed capacity to our South Dakota system. South Dakota hit a new peak of 341MW in the
summer of 2011 as compared to the previous peak of 315MW in 2007. Construction began in 2011 and the unit is expected to be in-
service by December 1, 2012. We anticipate seeking recovery for this investment through a general electric rate filing after completion.
provide greater reliability and much needed capacity to our South Dakota system. South Dakota hit a new peak of 341MW in the
summer of 2011 as compared to the previous peak of 315MW in 2007. Construction began in 2011 and the unit is expected to be in-
service by December 1, 2012. We anticipate seeking recovery for this investment through a general electric rate filing after completion.
Montana Spion Kop Wind facility
• Approximately $86 million investment, pending regulatory pre-approval, to purchase a 40MW wind facility in Judith Basin County,
Montana. A decision on regulatory pre-approval is anticipated by April 1, 2012. If the decision is favorable, construction would begin,
with the facility’s energy and renewable energy credits flowing into our electric supply portfolio by year-end 2012.
Montana. A decision on regulatory pre-approval is anticipated by April 1, 2012. If the decision is favorable, construction would begin,
with the facility’s energy and renewable energy credits flowing into our electric supply portfolio by year-end 2012.
South Dakota Titan Wind facility buy out
• In December 2008, we entered into a 20-year power purchase agreement for 25 MWs of electric supply from the Titan I Wind Project in
Hand County, South Dakota. Under this agreement, at the end of the fourth and fifth contract year we have an option to purchase the
project.
project.
Montana opportunities to vertically integrate other electric and natural gas assets
• With the passing of HB25 in 2007 and HB294 in 2009 allowing NorthWestern to again own rate based electric generation and natural
gas reserves, we continue to look for opportunities beyond Battle Creek to add reasonably priced base load and other supply resources
that will provide future price stability for our customers.
gas reserves, we continue to look for opportunities beyond Battle Creek to add reasonably priced base load and other supply resources
that will provide future price stability for our customers.
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Colstrip 500kV Upgrade
• A proposed $125 million project to add 500-700 MW’s of
capacity to our existing 500 kV lines running from Colstrip
generation facility to Mid-Columbia area in Oregon by
adding series compensation and a new substation near
Townsend, Montana. It is currently estimated that our
portion of the upgrade project will be $40-75 million
dependent upon participation by Bonneville Power
Administration and the four other Pacific Northwestern
Utilities that are partners in the line. The upgrade
could be completed as early as the end of 2013.
Mountain States Transmission Intertie (MSTI)
• A proposed 500 kV, 1,500 megawatt transmission line
to deliver electricity from Montana to customers in the
Western United States. The intent of the roughly $1 billion,
400+ mile project is to address the need for new electric
transmission service from states like Montana with vast
renewable generating potential to other Western states
in need of the renewable energy credits. They system
would also bolster the western power grid in general. Uncertainty surrounding Federal renewable standards and the general economic
environment has slowed, but not stopped, spending and work on the project until we have more clarity. We continue to evaluate
options for a strategic partner in this project. Assuming all permits / regulatory approvals are received and sufficient demand, current
estimates suggest a late 2016 in-service date.
environment has slowed, but not stopped, spending and work on the project until we have more clarity. We continue to evaluate
options for a strategic partner in this project. Assuming all permits / regulatory approvals are received and sufficient demand, current
estimates suggest a late 2016 in-service date.
230kV Renewable Collector System
• A proposed 230kV collector system project remains in the planning stage. Based on the current interconnection and transmission
service queues, we believe that demand exists for the development of five generator lead lines that would ultimately deliver power to
our MSTI line discussed above. The project would seek to use existing transmission right-of-ways where economical. The first of the lines
is estimated to require $200-250 million investment with in-service timing dependent upon MSTI progress and demand.
service queues, we believe that demand exists for the development of five generator lead lines that would ultimately deliver power to
our MSTI line discussed above. The project would seek to use existing transmission right-of-ways where economical. The first of the lines
is estimated to require $200-250 million investment with in-service timing dependent upon MSTI progress and demand.
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Network Upgrades and Large Generation Interconnections
the cost of joining MISO as compared to the opportunities and
other benefits that membership may provide. Investment
opportunities are currently estimated to be between
$300-500 million. The map below is from a
September 2011 MVP Business Case Workshop
and expanded to show the overlay of
our South Dakota transmission
system relative to these
MVP projects.
Distribution System Integrity Program (DSIP)
Distribution System Integrity Program (DSIP)
The Project will address the emerging issue of our aging infrastructure and prepare
our natural gas and electric distribution systems for the next generation of
technology.
our natural gas and electric distribution systems for the next generation of
technology.
The Project will address the emerging issue of our aging infrastructure and prepare
our natural gas and electric distribution systems for the next generation of
technology.
our natural gas and electric distribution systems for the next generation of
technology.
For the electric distribution system, the Program’s goals are:
For the electric distribution system, the Program’s goals are:
• Arrest and reverse the trend of aging infrastructure;
• Arrest and reverse the trend of aging infrastructure;
• Build appropriate margin (capacity) back into the system;
• Maintain reliability over the long-term, and improve it for our rural customers; and,
• Position NWE to adopt Smart Grid, by accomplishing those tasks that are necessary,
whether or not Smart Grid is eventually deployed on a wide scale, and regardless of
what form of Smart Grid is eventually deployed.
whether or not Smart Grid is eventually deployed on a wide scale, and regardless of
what form of Smart Grid is eventually deployed.
For the natural gas distribution system, the Program's goals are:
• Embrace the industry's new performance-driven model Natural Gas Distribution
Integrity Management Program (DIMP);
Integrity Management Program (DIMP);
• Employ state-of-the-art analytical capabilities to proactively manage safety; and,
• Improve leak rate performance.
NorthWestern, Delivering
quality at a great value —
yesterday, today and
tomorrow…
quality at a great value —
yesterday, today and
tomorrow…
As a NorthWestern Energy
customer, you expect and deserve
top quality at a reasonable cost - in
other words, great value. We agree.
NorthWestern Energy has one of
the safest and most reliable electric
and natural gas distribution systems
in the country, and we want to keep
it that way. That’s why we created a
multi-year project to aggressively
replace aging infrastructure and to
prepare our network to support the
next generation of new technology.
customer, you expect and deserve
top quality at a reasonable cost - in
other words, great value. We agree.
NorthWestern Energy has one of
the safest and most reliable electric
and natural gas distribution systems
in the country, and we want to keep
it that way. That’s why we created a
multi-year project to aggressively
replace aging infrastructure and to
prepare our network to support the
next generation of new technology.