8-K March 22, 2017
Williams Capital Group West Coast Conference
March 22-23, 2017
Georgetown Lake near Anaconda, MT
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 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 most recent Form 10-K and 10-Q along with
other public filings with the SEC.
Company Information
NorthWestern Corporation
dba: NorthWestern Energy
www.northwesternenergy.com
Corporate Support Office
3010 West 69th Street
Sioux Falls, SD 57106
(605) 978-2900
Montana Operational Support Office
11 East Park
Butte, MT 59701
(406) 497-1000
SD/NE Operational Support Office
600 Market Street West
Huron, SD 57350
(605) 353-7478
Director of Investor Relations
Travis Meyer
605-978-2945
travis.meyer@northwestern.com
NWE - An Investment for the Long Term
3
• 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
• A diverse electric supply portfolio that is approximately 54% hydro and wind (combined MT & SD)
• Solid & improving JP Power Overall Customer Satisfaction scores
• Residential electric and natural gas rates below the national average
• Solid system reliability (EEI 2nd quartile)
• Low leaks per 100 miles of pipe (AGA 1st quartile)
• Named a “Utility Customer Champion” by Cogent Reports (top trusted utility brand in the West region)
• Consistent track record of earnings and dividend growth
• Strong cash flows aided by net operating loss carry-forwards
• Strong balance sheet and solid investment grade credit ratings
• Recent hydro & wind transactions increase rate base & provide energy supply stability
• Disciplined maintenance capital investment program
• Further opportunity to reintegrate energy supply portfolio to meet capacity shortfalls
• Significant future investment in a comprehensive transmission, distribution, and substation
infrastructure project to address asset lives, safety, capacity and grid modernization
Pure Electric
& Gas Utility
Solid Utility
Foundation
Strong
Earnings &
Cash Flows
Attractive
Future Growth
Prospects
(NYSE Ethics)
Best Practices
Corporate
Governance
About NorthWestern
4
Montana Operations
Electric
363,800 customers
24,450 miles – transmission & distribution lines
809 MW nameplate owned power generation
Natural Gas
194,100 customers
7,250 miles of transmission and distribution pipeline
18 Bcf of gas storage capacity
Own 61 Bcf of proven natural gas reserves Nebraska Operations
Natural Gas
42,300 customers
787 miles of distribution pipeline
South Dakota Operations
Electric
63,200 customers
3,550 miles – transmission & distribution lines
440 MW nameplate owned power generation
Natural Gas
46,200 customers
1,673 miles of transmission and distribution pipeline
A Diversified Electric and Gas Utility
5
Gross Margin in 2016:
Electric: $679M
Natural Gas: $177M
Gross Margin in 2016:
Montana: $718M
South Dakota: $128M
Nebraska: $ 10M
Average Customers in 2016:
Residential: 586k
Commercial: 112k
Industrial: 7k
NorthWestern‟s „80/20‟ rules:
Approximately 80% Electric, 80% Residential and
80% Montana jurisdictional
Above data reflects full year 2016 results.
NorthWestern Energy Profile
6
Financial and Company Statistics
7
Based upon 2016 MWH‟s of owned and long-term
contracted resources. Approximately 54% of our total
company owned and contracted supply is carbon-free.
Highly Carbon-Free Supply Portfolio
Strong Utility Foundation
8
Electric source: Edison Electric Institute Typical Bills and Average Rates Report, 1/1/16
Natural gas source: US EIA - Monthly residential supply and delivery rates as of 1/29/16
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
System Average Interruption Duration Index (SAIDI)
NWE versus EEI System Reliability Quartiles
Solid Economic Indicators
9
• Unemployment rates in all three of our
states are meaningfully below National
Average.
• Customer growth rates historically exceed
National Averages.
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")
2017 Earnings Guidance
10
NorthWestern reaffirms 2017 earnings guidance range of $3.30 - $3.50 per diluted share is based upon, but
not limited to, the following major assumptions and expectations:
• Normal weather in our electric and natural gas service territories;
• A consolidated income tax rate of approximately 7% to 11% of pre-tax income; and
• Diluted average shares outstanding of approximately 48.5 million.
Continued investment in our system to serve our customers and communities is
expected to provide a targeted 7-10% total return to our investors through a
combination of earnings growth and dividend yield. However in light of recent regulatory
headwinds and reduced & delayed generation spending, we anticipate in the near-term to
be at the lower end of the 7-10% range.
See “Non-GAAP Financial Measures” slide in appendix for “Non-GAAP “Adjusted EPS”.
$2.60 - $2.75
$3.10 - $3.30 $3. 0-$3.40
$3.30-$3.50
Investment for Our Customers‟ Benefit
11
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 to customers‟ bills and
lower than the US average bills,
while delivering solid earnings
growth for our investors.
2008-2016 CAGRs
Estimated Rate Base: 14.8%
GAAP Diluted EPS: 8.4%
NWE typical electric bill: 2.2%
NWE typical natural gas bill: (7.5%)
US average electric bill: * 2.0%
US avg. natural gas bill ** (4.1%)
Note: US avg. natural gas bill CAGR is from
2008-2015
Track Record of Delivering Results
12
Notes: - ROE in 2011, 2012 , 2013, 2014, 2015 & 2016 on a Non-GAAP Adjusted basis, would be 10.5%, 9.8%, 9.6% ,9.4%, 9.9% and 9.8% respectively.
- 2017 ROAE and 2017 Dividend payout ratio estimate based on midpoint of our guidance range of $3.30-$3.50.
- Details regarding Non-GAAP Adjusted EPS can be found in the “Adjusted EPS Schedule” page of the appendix
Return on Equity within
9.5% - 11.0% band over
the last 6 years.
Annual dividend increases
since emergence in 2004.
6 Year (2011-2016) Avg.
Return on Equity: 10.4%
5 Year (2011-2016) CAGR
Dividend Growth: 6.8%
Current Dividend Yield
Approximately 3.7%
(based on $2.10 annual dividend)
Total Shareholder Return
13 • 13 member peer group: ALE (ALLETE), AVA (Avista), BKH (Black Hills Corp), EE (El Paso Electric), GXP (Great Plains Energy), IDA (IDACORP), MGEE (MGE Energy), OGE (OGE Energy), OTTR (Otter Tail Power), PNM (PNM Resources), POR (Portland General Electric), VVC (Vectren) and WR (Westar)
While maintenance capex and total
dividend payments have continued to
grow since 2011 (12.9% and 13.0%
CAGR respectively), Cash Flow from
Operations (CFO) has continued to
outpace maintenance capex and
averaged approximately $29 million of
positive Free Cash Flow per year.
2016 CFO is less than 2015 largely
due to $30.8M refund to customers
related to FERC/DGGS ruling and
$7.2M refund to customers for
difference in SD Electric interim & final
rates.
With the addition of production tax
credits from the Beethoven Wind
project and continued flow-through tax
benefits, we anticipate our effective tax
rate rising into the low-twenties by
2020. Additionally, we expect NOLs to
be available into 2021 to reduce cash
taxes.
Strong Cash Flows
14
See “Non-GAAP Financial Measure” slide in appendix for Free Cash Flows reconciliation.
This 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 the control of the Company and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results
will vary and those variations may be material. For discussion of some of the important factors that could cause these variations, please consult the “Risk Factors” section of the
preliminary prospectus. Nothing in this presentation should be regarded as a representation by any person that these objectives will be achieved and the Company undertakes no
duty to update its objectives.
Net Opera ing Loss (NOL) Carryforward Balance
(2)
(1)
(2)
(1)
Components of Free Cash Flow
Balance Sheet Strength and Liquidity
15
Credit Ratings
16
Moody’s: A2
Fitch: A
S&P: A-
Moody‟s downgraded our senior secured and unsecured credit rating on
March 10, 2017 and has us on a Negative Outlook. However, even after
the downgrade, Moody‟s rating is in line with Fitch and above S&P on a
secured basis (and between them on an unsecured basis).
Significant Achievements in 2016
17
Strong year for safety at NorthWestern
• Fewest OSHA recordable events of any year.
• Best year for lost time incidents.
Record best customer satisfaction scores
• Received our best Overall Customer Satisfaction
scores in the JD Power residential utility survey in
2016.
Corporate Governance Finalist
• NorthWestern‟s 2016 proxy statement was
recognized as a finalist in 2016 by Corporate
Secretary magazine for Best Proxy Statement (Small
to Mid Cap). We won the award in 2014.
Echo Lake Nordic Trail
Recognized for Strong Dividend
• In March 2016, NorthWestern Corporation was added to the NASDAQ US Broad Dividend
AchieversTM Index, which aims to represent the country‟s leading stocks by dividend yield in
addition to Dow Jones US Dividend Select TM Index in 2015.
New Board Member
• Added Tony Clark, former FERC commissioner and ND Public Service
Commissioner, to our board of directors in December 2016.
What we are working on in 2017
18
Natural Gas Rate Case in Montana
• Intervenor testimony received and rebuttal testimony due April 7th.
• Hearing commences May 9th and final decision expected in mid 2017
Cost control efforts
• Continue to monitor costs, especially labor and benefits
• Monitor property tax valuations in Montana
Continue to invest in our existing transmission and
distribution infrastructure.
• Transition from DSIP/TSIP to overall infrastructure capital plan
• Natural gas pipeline investment (Integrity Verification Process
and PHMSA Requirements)
• Advanced Metering Infrastructure (AMI) investment
Refining our Supply Plan in Montana
• Capacity generation additions
• Continue to work with MPSC and other stakeholder groups to
refine energy supply plans
Continue to search for natural gas reserve acquisition opportunities
• Acquisitions at a price that benefits both customers and shareholders
2016 to 2017 EPS & Dividend Bridge
2016 Non-GAAP EPS to 2017 Midpoint
$3.30 → $3.40 = 3.0% increase
2016 to 2017 Dividend Growth
$2.00 → $2.10 = 5.0% increase
Slower near-term EPS growth along with
slightly lower capital investment
projections than previously provided, led
us to a 5% (or 10 cents annualized)
dividend increase rather than the 4% (or
8 cents annualized) targeted dividend
increase we had last indicated in
December 2016.
NWE’s 2017 earnings guidance range of $3.30-$3.50
per diluted share is based upon, but not limited to, the
following major assumptions and expectations:
• Normal weather in our electric and natural gas
service territories
• A consolidated income tax rate of approximately
7% to 11% of pre-tax income; and
• Diluted average shares outstanding of
approximately $48.5 million.
19
* 2017 earnings drivers shown above are calculated using a 38.5% effective tax rate. The anticipated
"Incremental tax detriment" shown above is primarily due to lower anticipated tax-repairs eligible capital
spending in 2017.
20
Regulatory Update
Regulatory Item Current / Anticipated Action
FERC / DGGS: April 2014 order
regarding cost allocation at DGGS
between retail and wholesale customers.
• FERC denied our request for rehearing and required us to make refunds in June 2016.
• We filed a petition for review with the US Circuit Court of Appeals for the District of
Columbia Circuit in June 2016.
• We do not expect a decision until the second half of 2017, at the earliest.
Colstrip: In May 2016, the MPSC
issued a final order disallowing recovery
of replacement power and portfolio
modeling costs included in the electric
supply tracker related to a 2013 outage
at Colstrip Unit 4.
• Appeals have been filed in two Montana district courts regarding disallowance: June „16
regarding portfolio modeling costs in the 2015 Tracker (Lewis & Clark County) and
September „16 regarding replacement power and modeling costs in the Consolidated
Docket (Yellowstone County).
• We believe we are likely to receive orders from the courts in these matters by the
end of 2017 or in early 2018.
Hydro Compliance Filing: In December
2016, the MPSC issued a final order
reducing the annual amount we are
allowed to recover in hydro generation
rates by approximately $1.2 million.
• The order requires us to indicate by April 30, 2017, whether we intend to file a
Montana electric rate case based on a 2016 test year
• If we do not intend to file a rate case in 2017, the order gives the MPSC the authority to
require us to make an additional filing that would facilitate an assessment of whether
additional action would be required to fulfill their obligation to authorize just and
reasonable rates.
Natural Gas Rate Filing: MPSC
October 2015 natural gas tracker order
revising interim rates our last two gas
production asset acquisitions and
requiring a filing prior to October 2016 to
place them into rate base.
• We submitted a natural gas distribution, transmission and storage rate filing based on a
2015 test year in September 2016 requesting approximately $10.9 million annual
increase to revenue based upon a 7.33% rate of return and $432.1 million of rate base.
• On February 2, 2017, two intervenors (MT Consumer Council (MCC) & Large Customer
Group) submitted testimony in the case recommending ROE of 9.0% and 9.35%,
respectively, with the capital structure as filed and other recommended adjustments. The
MCC‟s adjustments would result in a $3.7M annual revenue increase (as compared to
the $10.9M requested). On March 14th, we withdrew our request for interim rates due to
the cost of implementation outweighing the revenue benefits during low volume usage
months.
• A final decision is expected mid-2017.
Montana Natural Gas Rate Filing
21
Montana PSC Docket D2016.9.68
In September 2016, we filed a request
with MPSC for an annual revenue
increase of $10.9 million.
This increase is primarily due to
investments made to our gas
infrastructure and natural gas
reserves since 2012.
On February 2, 2017, two intervenors
(MT Consumer Council (MCC) & Large Customer
Group) submitted testimony in the
case recommending ROE of 9.0%
and 9.35%, respectively, with the
capital structure as filed and other
recommended adjustments. The
MCC’s adjustments would result in
a $3.7M annual revenue increase (as
compared to the $10.9M requested).
NWE 100 Therm bill with proposed
rates:
Decision expected mid 2017
Capital Spending Forecast
22
The updated current estimated cumulative capital spending for 2017 through 2021 is $1.58 billion.
Capital spending has been reduced, from the prior $1.66 billion plan, primarily as a result of reduced
and delayed spending on necessary generation assets in both Montana and South Dakota.
We anticipate managing capital expenditures to provide a more levelized annual spend (including
spending on generation assets) and anticipate funding the expenditures with a combination of cash
flows, aided by NOLs now anticipated to be available into 2021, and long-term debt.
If other opportunities arise that are not in the above projections (natural gas reserves,
acquisitions, etc.), new equity funding may be necessary.
*
Montana 2015 Electric Supply Resource Plan
23
The resource initiatives and
actions developed in 2015
Electricity Supply Resource
Procurement Plan identify the
critical future needs of our
portfolio, including solutions to
resolve our current negative
planning reserve margin.
The plan identifies how to co-
optimize hydro, wind and thermal
resources to best meet the
anticipated large capacity needs
with the least-cost, lowest-risk
resources.
On February 2, 2017 the Montana
Public Service Commission
issued a press release
acknowledging the need for
additional capacity but identified
specific concerns with the plan. A
constructive workshop, to clarify
the technical underpinnings of the
plan, was held on February 27
with the MPSC and staff.
Spending on the generation assets will be
subject to the development of a plan for
clear regulatory recovery.
Source: Company’s IRP or other publications
Montana 2015 Electric Supply Resource Plan
24
On February 13, 2017 we issued a
Request for Proposal (RFP) to
partially address NorthWestern‟s
negative reserve margin.
Pacific Northwest planning bodies
(PNUCC & NWPPC*) have
reaffirmed the expected growing
capacity need.
NorthWestern is addressing this risk
through a deliberate and
incremental approach that will
include subsequent RFP‟s to lessen
the risk of a large reliance on
markets that are vulnerable to price
spikes during capacity shortages.
* Pacific Northwest Utilities Conference
Committee & Northwest Power and
Conservation Council
Current Capacity Economically Optimal Portfolio
(Current capacity plus identified generation additions)
Owned
Owned
Target
Total Annual Need
Natural Gas Reserves Opportunity
25
Current gas prices are very
attractive for buyers but it is
difficult to find sellers willing to
transact at these low rates.
First ~6 Bcf annual
production acquired
for ~$100M
Remaining 6-7 Bcf
annual production
needed to meet target.
Estimated cost of $50M to $100M
We continue to pursue opportunities to secure
low cost gas reserves for our customers.
• Three acquisitions totaling approximately $100 million since
September 2010:
• 84.6 Bcf of natural gas reserves and associated gathering
systems along with 82 miles of transmission.
• Provides approximately 5.3 Bcf of annual production.
• Target to own 50% of our 25 Bcf total annual need
• Retail customers (20 Bcf)
• DGGS & Basin Creek generation facilities (5 Bcf)
• As we continue to add to our natural gas reserves portfolio,
we anticipate a reduction in supply cost volatility for our
customers.
Conclusion
26
Pure Electric
and Gas
Utility
Solid Utility
Foundation
Strong
Earnings and
Cash Flows
Attractive
Future
Growth
Prospects
Best
Practices
Corporate
Governance
27
Summary Financial Results (Full Year)
28
29
Gross Margin (Full Year)
(dollars in millions) Twelve Months Ended December 31,
2016 2015 Variance
Electric $ 678.8 $ 663.1 $ 15.7 2.4%
Natural Gas 177.5 178.3 (0.8) (0.4%)
Gross Margin $ 856.3 $ 841.4 $ 14.9 1.8%
Increase in gross margin due to the following factors:
$ 33.5 South Dakota electric rate increase
7.7 Lost revenue adjustment mechanism
6.1 Electric QF adjustment
0.2 Natural gas retail volumes
(9.5) MPSC Disallowance
(3.6) Electric transmission
(2.0) Electric retail volumes
(1.5) Hydro generation rates
(1.2) Natural gas production rates
(1.5) Other
$ 28.2 Change in Gross Margin Impacting Net Income
$ (16.5) Hydro operations (Kerr conveyance)
(8.2) Production tax credits recovered in trackers
(1.1) Natural gas gathering fees
12.5 Property taxes recovered in trackers
$ (13.3) Change in Gross Margin Offset Within Net Income
$ 14.9 Increase in Consolidated Gross Margin
Weather (Full Year)
30
2016 has been one of the warmest years, on
record, for our service territory and
significantly reduced our retail natural gas
sales compared to normal.
Montana (3rd warmest)
South Dakota (4th warmest)
Nebraska (3rd warmest).
Weather- 2016 versus Normal (Full Year)
31
Heating Degree Day Months Cooling Degree Day Months
During our heating periods, with the exception of December in
Montana, our heating season was typically warmer than normal –
negatively affecting our loads.
During our cooling season we
experienced near normal
temperatures in our service
territories.
Mean Temperature Departures from Average
Operating Expenses (Full Year)
32
Increase in operating expenses due mainly to the following factors:
$5.4 million increase in OG&A
$ 20.8 Insurance recovery, net
2.7 Employee benefit and compensation costs
2.2 Plant operator costs
1.5 Non-employee directors deferred compensation
0.9 Insurance reserves
(15.2) Hydro operations – Kerr conveyance
(4.0) Distribution System Infrastructure Project (DSIP) expenses
(1.1) Natural gas production gathering expense
(1.0) Bad debt expense
(1.4) Other
$14.7 million increase in property and other taxes due primarily to plant additions and higher
estimated property valuations in Montana, offset in part by a $1.3 million decrease from the
conveyance of the hydro Kerr project to the CSKT in September 2015.
$14.6 million increase in depreciation and depletion expense primarily due to plant additions,
including approximately $4.3 million of incremental depreciation associated with the Beethoven wind
project acquisition.
(dollars in millions) Twelve Months Ended December 31,
2016 2015 Variance
Operating, general & admin. $ 302.9 $ 297.5 $ 5.4 1.8%
Property and other taxes 148.1 133.4 14.7 11.0%
Depreciation and depletion 159.3 144.7 14.6 10.1%
Operating Expenses $ 610.3 $ 575.6 $ 34.7 6.0%
Operating to Net Income (Full Year)
33
$2.8 million increase in interest expense was primarily due to $2.9 million of interest
associated with the MPSC disallowance, lower capitalization of debt allowance for funds
used during construction (AFUDC), and increased debt outstanding, partly offset by debt
refinancing transactions.
$2.1 million decrease in other income due primarily to lower capitalization of equity
AFUDC, partly offset by a $1.5 million increase in the value of deferred shares held in trust
for non-employee directors deferred compensation (which had a corresponding increase to
operating, general and administrative expenses).
$37.7 million decrease in income tax expense due primarily to a tax accounting change
related to costs to repair generation property, lower pre-tax income , higher
production tax credits associated with Beethoven wind project and adoption
of a new accounting standard related to share-based payments, during
the fourth quarter of 2016.
(dollars in millions) Twelve Months Ended December 31,
2016 2015 Variance
Operating Income $ 246.0 $ 265.8 $ (19.8) (7.4%)
Interest Expense (95.5) (92.2) (2.8) (3.0%)
Other Income 5.5 7.6 (2.1) (27.6%)
Income Before Taxes 156.5 181.2 (24.7) (13.6%)
Income Tax Benefit / (Expense) 7.7 (30.0) 37.7 125.6%
Net Income $ 164.2 $ 151.2 $ 13.0 8.6%
Balance Sheet
34
Cash Flow
35
Changes in
working capital is
largely attributed
to the $30.8
million* refund to
customers
associated with
the DGGS/FERC
ruling and $7.2
million refund to
SD electric
customers for the
difference
between interim
and final rates of
our SD rate case.
* $27.3 million of deferred
revenues plus accrued
interest of $3.5 million.
Income Tax Reconciliation (Full Year)
36
Adjusted Earnings (Full Year „16 vs ‟15)
37
The 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 determined or calculated in accordance with GAAP.
Adjusted Earnings (Fourth Quarter „16 vs ‟15)
38
The 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 determined or calculated in accordance with GAAP.
2016 System Statistics
39
Note: Statistics above are as of 12/31/2016
(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
(1)
(2)
Experienced & Engaged Board of Directors
40
Dr. E. Linn Draper Jr.
• Chairman of the Board
• Independent
• Director since
November 1, 2004
Stephan P. Adik
• Committees: Audit
(chair), Human
Resources
• Independent
• Director since
November 1, 2004
Dorothy M. Bradley
• Committees: Human
Resources, Governance
and Innovation
• Independent
• Director since
April 22, 2009
Julia L. Johnson
• Committees:
Governance and
Innovation, Human
Resources
• Independent
• Director since
November 1, 2004
Robert C. Rowe
• Committees: None
• CEO and President
• Director since
August 13, 2008
Tony Clark
• Committees:
Governance and
Innovation
• Independent
• Director since
December 6, 2016
Dana J. Dykhouse
• Committees: Human
Resources (chair),
Audit
• Independent
• Director since
January 30, 2009
Jan R. Horsfall
• Committees: Audit,
Governance and
Innovation
• Independent
• Director since
April 23, 2015
Strong Executive Team
41
Robert C. Rowe
• President and
Chief Executive Officer
• Current position since
2008
Brian B. Bird
• Vice President and
Chief Financial Officer
• Current position since
2003
Michael R. Cashell
• Vice President -
Transmission
• Current Position since
2011
Patrick R. Corcoran
• Vice President –
Government and
Regulatory Affairs
• Current position since
2001
Heather H. Grahame
• Vice President and
General Counsel
• Current position since
2010
John D. Hines
• Vice President - Supply
• Current Position since
2011
Crystal D. Lail
• Vice President and
Controller
• Current position since
2015
Curtis T. Pohl
• Vice President -
Distribution
• Current position since
2003
Bobbi L. Schroeppel
• Vice President –
Customer Care,
Communications and
Human Resources
• Current Position since
2002
Our Commissioners
42
The Hydro Facilities
43
Overview of Hydro Facilities
Black Eagle
Hydro Asset Integration
• Montana Asset Optimization Study: As part of reintegrating the
hydro facilities into our generation portfolio, we initiated an
asset optimization study to maximize the value of our diverse
generation portfolio. The study was recently completed and
we are in the process of implementing new operating
procedures that we anticipate will reduce both operating cost
and market risk.
Kerr Dam Conveyance / Hydro Compliance Filing
• In accordance with the 1985 FERC relicensing, the facility was
conveyed to the Confederated Salish and Kootenai Tribes
(CSKT) on September 5, 2015.
• As required by the MPSC order approving the hydro
transaction, we filed a compliance filing in December 2015 to
remove the Kerr project from the hydros cost of service and to
adjust for actual revenue credits and property taxes. In
January „16, the MPSC approved an interim adjustment and
opened a separate contested docket requesting additional
detail. A hearing was held in September 2016. The only
contested issue at the hearing was the level of administrative
& general expenses that should be deducted due to the
transfer of the Kerr Project. We expect a final order during the
fourth quarter of 2016.
(1) As of June 2013.
Despite the 2015 drought conditions in western Montana, the hydro
assets generated at targeted capacity (5 year historical average).
Talen Energy‟s recently announced sale of 292 MW of hydro
generation for $860 million (or $2,945 per KW) to Brookfield
Renewables is significantly higher cost (49%) than the 439 MW of
hydro generation we purchased for $870 million (or $1,982 per KW).
44
Colstrip Unit 4 / Sierra Club Litigation
Background
• On March 6, 2013, the Sierra Club and the Montana Environmental Information Center (MEIC)
(both are plaintiffs) filed suit in the United States District Court for the District of Montana (court)
against the six individual Owners of the Colstrip Generating Station (Colstrip)
• Colstrip consists of four coal fired generating units – units 1 & 2 are older than units 3 & 4.
• NWE has a 30% joint interest in unit 4 and a risk sharing agreement with Talen Montana
regarding the operation of units 3 & 4, which each party receives 15% of the combined output and
respective operating and construction costs.
• Original suit was for alleged violations of the Clean Air Act and the Montana State Implementation
Plan.
Current Results
• On July 12, 2016 the parties lodged a consent decree with the Court.
• The Court entered the consent decree on September 6, 2016.
• Decree provides the following
• Dismisses all of the claims against all Colstrip units
• Provides no shut down date for Units 3 & 4
• Provides that Units 1 & 2 must be shut down by July 1, 2022 (NWE has no ownership or
role in Units 1 & 2 shut down)
• Permits parties to petition the Court for costs and attorneys‟ fees
• The consent decree gave the Plaintiffs and Defendants the right to seek recovery of attorneys‟ fees and costs from the
other party by filing a motion with the Court by October 6, 2016. Each party filed such a motion on a timely basis. On
January 30, 2017 the United States Magistrate Judge (Magistrate) issued his Findings and Recommendation on the
competing fee applications. The Magistrate recommended the Defendants‟ fee request be denied and the Plaintiffs‟ fee
request should be granted, but only to the extent of fifty percent of their request. The 50% reduction was due to the
Plaintiffs‟ limited success in the case, citing failure of Plaintiffs to obtain civil penalties and failure to achieve any relief as to
Units 3 and 4. As a result, while the Plaintiffs had requested approximately $3.1 million in fees and costs, the Magistrate
recommended that they recover approximately $1.6 million. Our share of this amount would be approximately $0.2 million.
The parties had 14 days following issuance of the Magistrate‟s Findings and Recommendation in which to object. Neither
Plaintiffs or Defendants filed an objection. On February 15, 2017, the District Court adopted the
Magistrate‟s Findings and Recommendation, and dismissed the case.
DGGS Update – Denied Rehearing Request
45 Note: Please see Regulatory Matters footnote and Risk Factors section of our recent Form 10-K and Form 10-Q for additional disclosures.
Non-GAAP Financial Measures
46
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 maintenance capex and dividends) and Net Debt
(Total debt less capital leases), that are considered “Non-GAAP
financial measures.” Generally, a Non-GAAP financial measure
is a numerical measure of a company‟s financial performance,
financial position or cash flows that exclude (or include) amounts
that are included in (or excluded from) the most directly
comparable measure calculated and presented in accordance
with GAAP. The presentation of Gross Margin, Free Cash Flows
and Net Debt is intended to supplement investors‟ understanding
of our operating performance. Gross Margin is used by us to
determine whether we are collecting the appropriate amount of
energy costs from customers to allow recovery of operating costs.
Net Debt is used by our company to determine whether we are
properly levered to our Total Capitalization (Net Debt plus
Equity). Our Gross Margin, Free Cash Flows and Net Debt
measures may not be comparable to other companies‟ similarly
labeled measures. Furthermore, these measures are not
intended to replace measures as determined in accordance with
GAAP as an indicator of operating performance.
47
