NWE ISG’s Infrastructure Initiative

Forward Looking Statements

• These materials may contain several 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 “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “seeks,” or “will.”

• The information in these materials is based upon our current methodology and estimates as of the date hereof. Our actual future business methodology 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 these materials for any reason. Although our estimates, expectations and beliefs are based on reasonable assumptions, actual results may differ materially. The factors that may affect our results are provided in these materials and listed in certain of our press releases and disclosed in the Company’s public filings with the SEC.

Information Not Final

• This presentation is a work in progress and provides only estimates of data, costs and program development based upon information available to NorthWestern Energy at this time. It is not to be relied on as a decisional document.

• The final outcome or recommendation, if any, of this initiative is dependent upon input from all stakeholders, including members of our stakeholder groups, as well as financial considerations and regulatory treatment. Accordingly, the data, costs and program development contained herein are subject to change upon the further development of this initiative.

• INFRASTRUCTURE STRATEGIC DRIVERS

ISG’sGuiding

Principles

Customers Responsiveness

ReasonableCosts

ReliableService

Sustainable Future

ISG’s Guiding Principles-Reliable Service Reliable Service We value reliable electric and gas service for individual consumers and businesses.We recognize there may be differences between market sectors depending on the location of the domicile or nature of the business. Therefore, the following are clarifying value statements:

We value a utility company that maintains its infrastructure and incorporates new technology in order to provide reliable electric and gas service to individual consumers and businesses. We believe reliability should never interfere with one’s personal quality of life or impede economic growth/vitality.

We believe there is a balance between maintaining reliable utility service and the expense to maximize the reliability of that service. We believe in maintaining current reliability performance as judged relative to industry peers. We value a utility company that continually reviews and incorporates new technology that is proven to increase the reliability of its services.\

We value a utility company that retains the infrastructure and employee capability to respond to ever-increasing catastrophic weather events in a manner that minimizes the length of outages and avoids system-wide failures.

We believe that businesses engaged in risk-sensitive activities (such as medical facilities), industrial enterprises requiring a higher degree of reliability, as well as users who choose to locate their homes/businesses on the end of a service line, should be obliged to pay the expense associated with that elevated reliability requirement. (Relates to fourth bullet under the Reasonable Guiding Principle).

We recognize the key role of our electric and gas transmission infrastructure beyond NWE’s bundled retail customers, and, in particular, service to Electric Cooperatives and Local Distribution Companies. Generally, we believe that NorthWestern must have the resources to provide transmission service to these wholesale customers that meets industry reliability standards for transmission service, and should be reasonably the same as other NorthWestern major load centers. 9

ISG’s Guiding Principles-Customer Responsiveness • Customer Responsiveness

• We recognize that Montana is a great place to live and offers reasonable energy prices. We recognize that there is a tradeoff between maintaining low energy prices and meeting increasingly diversified customer needs and preferences.

•

• Customer Responsive

• We expect that gas and electric reliability should never be an impediment to economic vitality and quality of life.

• We expect that NWE will maintain current reliability performance judged relative to industry peers, considering that NWE is positioned with existing infrastructure and employee capability to respond to increasing numbers of catastrophic events and avoid system-wide failures.

• We recommend that risk sensitive and industrial customers, as well as those on the end of a line that require high degrees of reliability, pay for needed increased levels of reliability.

• Customer-End User Responsiveness

• We recommend that NWE maintain existing service levels (web, walk-in, software, etc.) as well as engaging and adapting to future services that can be cost-effectively provided.

• We expect that NWE will recognize the diversity of customer groups and needs

• We support incentives and regulatory solutions for customer responsiveness and services as markets and electricity solutions develop. This includes improving and expanding ways for customers to affect their energy usage and bills beyond traditional opportunities.

• We expect that NWE will respond to customer needs and goals in a collaborative, respectful, and ongoing manner.

• We expect that NWE will engage in the following to meet consumer needs:

• Provide more information

• Become more relationship focused

• Offer convenience

• Offer Value Options

• Continue to pursue cost controls

• Offer green and net metering options

10

ISG’s Guiding Principles-Reasonable Costs

• Reasonable Cost • We value reliable and quality electric and gas service at the lowest cost.• We also recognize the potential conflict between “quality service” and “low cost”.• Therefore, here are additional clarifying value statements:•• We value a utility company that maintains its infrastructure and keeps in mind both current and future generations. We value a utility that fairly pays its employees, is

engaged both in presence and financially in our communities, minimizes environmental impacts of providing services, and appropriately invests in future technology. All in the context of ensuring that all reasonably accessible customers, both residential and commercial, have access to quality, affordable service.

•• We embrace the opportunity to maximize utility assets to incent economic growth through widely available and reasonably priced service.• We embrace the opportunity to maximize utility assets to develop new revenue generating business models; for example, exporting energy outside of Montana to create

jobs and lower Montana customer costs. • We believe that customers that use a particular service or have a more demanding level of reliability or quantity of energy usage should generally pay the associated costs

for that service. However, we also recognize the complexity of the system and that is impossible to avoid some cost-sharing between users. We understand that cost allocations are policy decisions made by the Montana Legislature and implemented by the Montana Public Service Commission. We also recognize the historic policy decision that urban customers partially subsidize the costs of rural customers. We ask that policy makers and NWE carefully limit the extent to which one customer class subsidizes another. We believe this is especially important as more private distributed energy generation is developed. We encourage NWE to work closely with policy makers to better understand changes in the market (such as distributed energy generation) and develop updated regulatory structures that incents development (and associated Montana businesses) while still creating a financial incentive to NWE and customers. [See related discussion under Sustainable Future Discussion]

• We understand that some forms of present and future generation may be more costly and encourage regulators and NorthWestern Energy to balance these factors to provide options for more clean energy.

11

ISG’s Guiding Principles-Sustainable Future

• Sustainable Future • We value proactive planning for the future to protect the utility, customers, society and the environment.•• We recognize that it is hard to predict the future, especially with so many changing factors such as natural gas prices, climate change,

distributed generation, the internet of things, smart appliances, electrification of transportation, regulation, and customer demands, THEREFORE:

•• We recommend that NWE be proactive in planning not only for physical infrastructure needs but also for changing technologies and

business structures• We encourage NWE to focus on being solution-oriented even in the face of extreme changes and challenges and to act more as a

partner than a provider• We expect NWE to be adaptable to changes and foster a company-wide culture of adaptability• NWE should remain customer-focused to stay ahead of changing customer needs (e.g. cost, technology, reliability, power quality,

information, distributed and green power preference) • We expect NWE to manage all assets efficiently (e.g. develop additional transmission lines in existing corridors when appropriate)• We expect NWE to embrace opportunities to maximize assets, update business models and economically benefit the state from a

business development and energy export perspective and a customer perspective.• While keeping costs low and managing short term increases are important [See Reasonable Cost], we expect NWE to make decisions

based on lowest long term cost and impact (utility, environment and social)

12

Infrastructure Scenarios

Scenario’s will be developed by focusing on guiding principles in different priorities

13

Scenario One

• Reasonable Cost

• Reliable Service• Sustainable

Future• Customer

Responsiveness

Scenario Two

• Reliable Service• Reasonable

Cost• Sustainable

Future• Customer

Responsiveness

Scenario Three

• Sustainable Future

• Customer Responsiveness

• Reliable Service• Reasonable

Cost

Infrastructure Strategies

14

Modify current five year plan and Infrastructure Categories to meet scenario strategies using technology

Capacity (CP)*

The necessary delivery capabilities of the system necessary to meet operations,

reliability, and growth parameters

Reliability (RE)

Define delivery systems

expectations verses actual performance

Asset Life (AL)

Life of an asset based on a set

level of performance of a delivery system

The adherence to established norms

Technology

Compliance

*Note: Capacity is broken down into Capacity Growth (CP_G) and Capacity Reliability (CP_RE)

(CO)

15 *Delivery systems are comprised of: Electric & Gas Transmission & Distribution and Substations & Gate/Compressor Stations

Defining a Common Language for managing our delivery systems*

Optimizing Investment

Portfolio

Project Strategic

Value Analysis

Meet Delivery System’s

Performance Targets

Align with Corporate

Drivers

Infrastructure Vision and Mission

Capital Budget Five Year Plan- Base Scenario

16

$920M of Capital Investment over 5 years for MT T&D

2017 2018 2019 2020 2021 5-year Total

MT Total $191,034,953 $165,449,437 $169,025,877 $180,568,234 $213,902,499 $919,981,000

MT T Gas $19,396,584 $24,449,774 $26,785,230 $20,253,456 $18,638,666 $109,523,710

MT T Electric $50,366,659 $50,177,503 $50,177,503 $62,587,268 $81,830,956 $295,139,890

MT D Gas $9,809,573 $9,637,534 $9,397,510 $17,632,696 $20,844,253 $67,321,566

MT D Electric $72,962,138 $81,184,625 $82,665,634 $80,094,813 $92,588,624 $409,495,834

DSIP $38,500,000 $0 $0 $0 $0 $38,500,000

2017 MT Capital Budget by Infrastructure Categories

17

38%

3%3%

49%

7%

Risk Driven

Performance Metric and/or Value

Additional Drivers

Blankets and Programs

Outside Infrastructure Parameters

$95.5M

• Risk Driven- all projects with a risk level 3 or less in one or more of the five categories• Performance Metric or Value- projects not identified by risk that add to performance goal (only identified in Electric Distribution)• Additional Drivers- projects not identified as risk or performance that have a high score or SY• Outside Parameters- projects that fall outside of this process that need further review or add value beyond identified targets (ie-

Big Sky projects)

$74.4M

$13.1M

$5.5M$6.2M Blankets/Programs and

Risk account for 87% of the capital budget

Infrastructure Scenario One Strategy

• Maintain capacity margins• Reduce current capital capacity growth budget. Explore other rate recovery methods for high growth

areas driving abnormal investments.• Replace capacity reliability projects with technology

• Maintain reliability by increased technology• Increase technology driven programs (coordination, automation, etc)

• Extend asset replacement cycles• Reduce asset management program funding accepting more risk but managing reliability through

technology

• Decrease risk budget by 50% increasing project schedules and accepting greater short term risk

18

Reasonable Cost Reliable Service Sustainable

FutureCustomer

Responsiveness

*Note: 2017 funding levels do not change

Total Budget Decrease $157M over five years, $60M in technology• Maintain capacity levels

o Reducing capacity growth funding by $25.4M• Improve reliability through advanced technology

o Reduce cap reliability and reliability funding by $37.3M and move $53M to technology• Increase replacement cycle and accept additional risk

o Reduce asset management programs by $33.7M and move $7M to technology• Increase risk appetite (postpones some investment but does not eliminate

o Reduce risk driven projects by $68.4 by increasing project schedules

Scenario One Summary - Reasonable Cost

19

• Technology Investment Opportunities

20

Grid Modernization Initiative Scenario 1Technology Category System Focus Costs ( $ ISG principle Expected benefitsElectricSegmentation Transmission 15$ Reliability 5 SAIDI Minutes

Distribution 30$ Reliability 15 SAIDI MinutesCircuit Coordination Distribution 5.0$ Reliability 1.25 SAIDI Minutes Equipment Monitoring Substations 0.6$ Reliability Deferred assets replacementTotal 50.6$ GasUpdated Hydraulic Modeling Software Transmission 0.1$ Sustainability Capacity planning deferrmentsImproved SCADA System Transmission 2.0$ Reliability Reliability/OperationsSD/MT Gas Scheduling System Transmission 0.8$ Customer OptioImproved Scheduling ProcessSystem Pressure Monitoring Distribution 2$ Reliability Deferred capacity upgradesTotal 4.9$ CommunicationFiber Control network (urban) Distribution 4$ Sustainability DG integrationsTotal 4$ Customer Experience 0

Grand Total 59.45$

Infrastructure Scenario Two Strategy

• Improve reliability by increased technology • Increase technology driven programs (segmentation, coordination, automation, etc)• Replace capacity reliability projects with technology

• Maintain capacity margins• Reduce current capital capacity growth budget. Explore other rate recovery methods for high growth

areas driving abnormal investments.• Maintain capacity reliability budget

• Maintain asset replacement cycles• Fund established asset management programs at historical levels

• Decrease risk budget by 25% increasing project schedules and accepting greater short term risk

21

Reliable Service Reasonable Cost

Sustainable Future

Customer Responsiveness

*Note: 2017 funding levels do not change

Total Budget Increase of $8.8M over five years, $107M in technology• Maintain capacity levels

o Reducing capacity growth funding by $25.4M• Improve reliability through advanced technology

o Move $37.8M reliability capacity to technology.o Add $68.3M to base budget for technology (offsets come from capacity budget reductions)

• Increase risk appetiteo Reduce risk driven projects by $34.2 by increasing project schedules

• Scenario Two Summary – Reliable Service

22

$191,034,953

$165,449,437

$169,025,877

$180,568,234

$213,902,499

$191,034,953

$168,429,210

$169,918,547

$179,035,472

$220,394,125

$0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000

2017

2018

2019

2020

2021

Scenario Two Base Scenario

Technology Investment Opportunities

23

Grid Modernization Initiative Scenario 2Technology Category System Focus Costs ( $ ISG principle Expected benefitsElectricSegmentation Transmission 25$ Reliability 8 SAIDI Minutes

Distribution 30$ Reliability 15 SAIDI MinutesVolt/Var Distribution 5$ Customer Options 5 MW's energy savedCircuit Coordination Distribution 15$ Reliability 4 SAIDI Minutes Bank Metering/Database Substations 1$ Sustainability Capacity planning deferrmentsEquipment Monitoring Substations 5$ Reliability Deferred assets replacementBreaker Monitoring Substations 2$ Reliability 4 SAIDI minutesRegulator Monitoring Substations 3$ Micro Grid controls DG integrationsTotal 86$ GasCompressor Controls Transmission 1.0$ Reliability OperationsMobile Data Transmission 0.5$ Sustainability System AwarenesMore on-line chromatographs Transmission 1.0$ Customer Options Therm Zone Billing/CustomerUpdated Hydraulic Modeling Software Transmission 0.1$ Sustainability Capacity planning deferrmentsImproved SCADA System Transmission 2.0$ Reliability Reliability/OperationsSD/MT Gas Scheduling System Transmission 0.8$ Customer Options Improved Scheduling ProcessSystem Pressure Monitoring Distribution 4$ Reliability Deferred capacity upgradesCentral Equipment (Valve control) Distribution 4$ Sustainability Teir 2 peak shavingTotal 13$ CommunicationFiber Control network (urban) Distribution 6$ Sustainability DG integrationsTotal 6$ Customer ExperienceWeb Portals Distribution 1.0$ Customer Options Billing optionsTotal 1.0$

Grand Total 106.4$

Infrastructure Scenario Three Strategy

• Requires Regulatory Changes• Increase technology for grid

• Enhanced control systems for enabling customer choice (DMS, AMI) • Improved customer experience software • Renewable Energy pilots

• Improve reliability by increased technology • Increase technology driven programs (segmentation, coordination, automation, etc)

• Maintain base budget for capacity and asset life• Stable risk profile by executing current compliance budget

24

Sustainable Future

Customer Responsiveness Reliable Service Reasonable

Cost

*Note: 2017 funding levels do not change

Total Budget Increase $278.6M over five years for Technology• Electric $161M

o Improved reliability and monitoring, AMI Metering

• Gas $44.6Mo Enhanced control, scheduling, and monitoring, AMI Metering

• Communication $30Mo Communication backbone for Electric and Gas Technology

• Customer Experience $43Mo Enriched billing options, Sustainability Focused

Scenario Three Summary – Sustainable Future/Customer Responsiveness

25

$194,857,566.96

$177,894,606.26

$199,979,107.36

$184,147,658.88

$155,049,622.94

$194,857,566.96

$247,544,606.26

$269,629,107.36

$253,797,658.88

$224,699,622.94

$0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000

2017

2018

2019

2020

2021

Scenario Three Base Scenario

Technology Investment Opportunities

26

Grid Modernization Initiative Scenario 3Technology Category System Focus Costs ( $ ISG principle Expected benefitsElectricSegmentation Transmission 30$ Reliability 10SAIDI Minutes

Distribution 30$ Reliability 15 SAIDI MinutesVolt/Var Distribution 15$ Customer Options 15 MW's energy savedAMI Metering Distribution 50$ Customer Options Billing optionsCircuit Coordination Distribution 20$ Reliability 5 SAIDI Minutes Bank Metering/Database Substations 1$ Sustainability Capacity planning deferrmentsEquipment Monitoring Substations 10$ Reliability Deferred assets replacementBreaker Monitoring Substations 2$ Reliability 4 SAIDI minutesRegulator Monitoring Substations 3$ Micro Grid controls DG integrationsTotal 161$ GasCompressor Controls Transmission 1.0$ Reliability OperationsMobile Data Transmission 0.5$ Sustainability System AwarenesMore on-line chromatographs Transmission 1.0$ Customer Options Therm Zone Billing/CustomerBar Coding System for Materials Transmission 1.0$ Sustainability Material Tracking PHMSAUpdated Fuel system/Panels Transmission 1.2$ Sustainability Reliability/EmissionsUpdated Hydraulic Modeling Software Transmission 0.1$ Sustainability Capacity planning deferrmentsImproved SCADA System Transmission 2.0$ Reliability Reliability/OperationsSD/MT Gas Scheduling System Transmission 0.8$ Customer Options Improved Scheduling ProcessEnhanced Physical Security Remote Sites Transmission 2.0$ Sustainability SecuritySystem Pressure Monitoring Distribution 4$ Reliability Deferred capacity upgradesCentral Equipment (Valve control) Distribution 6$ Sustainability Teir 2 peak shavingAMI Metering Distribution 25$ Customer Options Billing optionsTotal 45$ CommunicationFiber Control network (urban) Distribution 30$ Sustainability DG integrationsTotal 30$ Customer ExperienceWeb Portals Distribution 1.0$ Customer Options Billing optionsCustomer Experience Software Distribution 6$ Customer Options Billing optionsDemand Repsonse Distribution 20$ Sustainability 20 MW's savedLED Street lights Conversion Distribution 16$ Sustainability 2.64 MW's/ 10,312 MWhrs/yrsTotal 43.0$

Grand Total 278.6$

Major technology investments AMI metering- Gas and Electric ($75 Mil.)Improve communication network ($30 Mil.)Demand Response ($20 Mil.)LED Lighting initiative ($16 Mil.)Customer Experience ($ 7 Mil.)

• Electric $161Mo Improved reliability and monitoring, AMI Metering

• Gas $44.6Mo Enhanced control, scheduling, and monitoring, AMI Metering

• Communication $30Mo Communication backbone for Electric and Gas Technology

• Customer Experience $43Mo Enriched billing options, Sustainability Focused

Scenario Three Summary

27

$194,857,566.96

$177,894,606.26

$199,979,107.36

$184,147,658.88

$155,049,622.94

$194,857,566.96

$247,544,606.26

$269,629,107.36

$253,797,658.88

$224,699,622.94

$0 $50,000,000 $100,000,000 $150,000,000 $200,000,000 $250,000,000 $300,000,000

2017

2018

2019

2020

2021

Scenario Three Base Scenario

Infrastructure Scenario Strategy Three

Major technology investments

• AMI metering- Gas and Electric ($75 Mil.)- Asset life issues begin in 2025-2030- Improved outage response and system monitoring- Allows new billing options and energy usage information- Improve allocation of service modeling

• Communication network ($30 Mil.)Required- Future system grid modernization

AMI backhaulDistributive Generation Demand Response integrationIntegration of the Internet of things

Infrastructure Scenario Three StrategyMajor technology investments

• LED Lighting initiative ($16 Mil.)-Energy savings and improve lighting performance-Improve asset life performance

• Demand Response ($20 Mil.)Defer peak capacity requirementsImproved existing generation utilization

• Customer Experience ($ 7 Mil.)-Improve customer information and energy usage information-Improve customer experience with more integrated web portal

Deeper Dive into Technology Within Five-Year Plan

What is an ADMS?

ADMS= Software + Model + SCADA + HMI(Enabling Future Applications)

Montana Benefits at Go Live (2019)

Grid Modernization Initiative Scenario Summation

33

Scenario One Scenario Two Scenario ThreeTechnology Category Cost ($ M) Benefits Cost ( $M) Benefits Cost ($ M) Benefits

Elec

tric

Sys

tem

s

Transmission Segmentation $ 15 5 SAIDI Minutes $ 25 8 SAIDI Minutes $ 30 10 SAIDI MinutesDistribution Segmentation $ 30 15 SAIDI Minutes $ 30 15 SAIDI Minutes $ 30 15 SAIDI MinutesVolt/Var $ - $ 5 5 MW's energy saved $ 15 15 MW's savedAMI Metering $ - $ - $ 50 Billing optionsCircuit Coordination $ 5 1.25 SAIDI Minutes $ 15 4 SAIDI Minutes $ 20 5 SAIDI Minutes Bank Metering/Database $ - $ 1 Capacity Deferment $ 1 Capacity Deferment Equipment Monitoring $ 0.6 Deferred replacement $ 5 Deferred replacement $ 10 Deferred replacementBreaker Monitoring $ - $ 2 4 SAIDI minutes $ 2 4 SAIDI minutesRegulator Monitoring $ - $ 3 DG integrations $ 3 DG integrationsTotal $ 50.6 $ 86 $ 161

Gas

Sys

tem

s

Compressor Controls $ - $ 1 Operations $ 1 OperationsMobile Data $ - $ 0.5 System Awareness $ 0.5 System AwarenessMore on-line chromatographs $ - $ 1 Therm Zone Billing $ 1 Therm Zone BillingBar Coding System for Materials $ - $ - $ 1 Material TrackingUpdated Fuel system/Panels $ - $ - $ 1.2 Reliability/EmissionsUpdated Modeling Software $ 0.1 Capacity $ 0.1 Capacity $ 0.1 Capacity Deferment Improved SCADA System $ 2 Rel/Operations $ 2 Rel/Operations $ 2 Rel/OperationsSD/MT Gas Scheduling System $ 0.8 Improved Scheduling $ 0.8 Improved Scheduling $ 0.8 Improved SchedulingEnhanced Physical Security $ - $ - $ 2 SecuritySystem Pressure Monitoring $ 2 Capacity Deferment $ 4 Capacity Deferment $ 4 Capacity Deferment Central Equipment (Valve Con) $ - $ 4 Teir 2 peak shaving $ 6 Teir 2 peak shavingAMI Metering $ - $ - $ 25 Billing optionsTotal $ 4.9 $ 13 $ 45

Comm Fiber Control network (Urban) $ 4 Segmentation $ 6 Segmentation $ 30 Segmentation DGTotal $ 4 $ 6 $ 30

Cus

tom

er

Opt

ions

Web Portals $ - $ 1 Billing options $ 1 Billing optionsCustomer Experience Software $ - $ - $ 6 Billing optionsDemand Repsonse $ - $ - $ 20 20 MW's saved

LED Street lights Conversion $ - $ - $ 16 2.64 MW's/10k MWhrs/yrs

Total $ - $ 1.0 $ 43.0 Grand Total $ 59.45 $ 106.4 $ 278.6

Scenario Comparison

34

CostRate

Impact Reliability ImpactCapacity Impact

Asset LifeImpact

Compliance Impact Technology

Base

$932M

Elec- $0.71 to $8.07Gas- $1.18 to $11.75

Electric: stable, 120 SAIDI• Little automation and

segmentationGas: moderate risk for outages

Increase Electric and Gas reserve Capacity• Add 100 MW a year

(25-30% increase)• Increase historical

funding on gas (30-50%)

• Maintain current replacement schedules

• Fund Substation Infrastructure plan at 100%

Maintain Current Compliance Schedules

• SDNE AMI • DMS

Scen

ario

O

ne

$762M

Elec- $0.71 to $7.04Gas- $1.18 to $8.47

Electric: slight improvement,decrease 3 SAIDI minute/year • Transmission Segmentation• Distribution Automation and

Coordination on 20% of circuits, focus on urban

Gas: slight risk for outages

Maintain Electric and Gas Reserve Capacity• Add 72 MW a year to

electric• Maintain historical

gas budget

• Increase replacement schedules by 33%

• Reduce Substation Infrastructure plan by 50%

Increase compliance schedules by 2x, moderate short term risk

$60M• SDNE AMI, DMS• Reliability improvements

through technology on transmission segments and some urban circuits

• Improved monitoring on assets• Technology for gas peak

shaving

Scen

ario

Tw

o

$928M

Elec- $0.71 to $8.30Gas- $1.18 to $12.17

Electric: great improvement,decrease 14 SAIDI minute/year • Transmission Segmentation• Distribution Automation and

Coordination on all of circuits, urban and rural

Gas: improve current reliability with monitoring

Maintain Electric and Gas Reserve Capacity• Add 72 MW a year to

electric• Maintain historical

gas budget

• Maintain current replacement schedules

• Fund Substation Infrastructure plan at 100%

Increase compliance schedules by 1.5x, slight short term risk

$107M• SDNE AMI, DMS • Enhanced Communication • Reliability improvements

through technology on transmission segments and all distribution circuits

• Improved asset monitoring Tech for gas peak shaving

Scen

ario

Thr

ee

$1.2B

Elec- $0.71 to $10.61Gas- $1.18 to $17.75

Electric: great improvement,decrease 14 SAIDI minute/year Transmission Segmentation• Distribution Automation and

Coordination on all of circuits, urban and rural

Gas: improve current reliability with monitoring

Increase Electric and Gas reserve Capacity• Add 100 MW a year

(25-30% increase)• Increase historical

funding on gas (30-50%)

• Improved data to defer investments

• Maintain current replacement schedules

• Fund Substation Infrastructure plan at 100%

• Improved monitoring

Maintain Current Compliance Schedules

$278M• SDNE and MT AMI, DMS • Enhanced CIS• Enhanced Communication • Renewable Energy Pilots• Reliability improvements on

transmission segments and all distribution circuits

• Improved asset monitoring Tech for gas peak shaving, monitoring and controls

Performance LevelReduced Improved

• The MT rate impacts from the alternative T&D capital spend scenarios was developed based on models determining revenue requirements for each scenario.

• The “revenue required” annually from the capital dollars invested is based on the following:

Revenue Requirement = Return on Capital (10.35% * equity portion of capital spend)+ Return of Capital (depreciation amount of capital spend)+ Property Taxes (3% of the capital spend)+ Interest Expense (4.25% * debt portion of capital spend)+ Income tax adjustment

• The following provides estimated impacts and could differ based on actual capital spend, allowed returns on equity and debt, and other factors

SUMMARY- Rate Impacts

35

• The Base Capital Spend scenario is the current MT T&D electric and gas total capital spend plan. The three other electric and gas scenarios were provided by Asset Mgmt.

•The following assumptions drove the revenue requirement development and rate impacts for the various scenarios:• Cost of Equity = 10.35%• Cost of Debt = 4.25%• Equity % of Capital Structure = 48.0%• Debt % of Capital Structure = 52.0%• Property tax = 3% of capital spend• Depreciable life of T&D Capital = 30 Years• Depreciable life of Technology Capital = 10 Years

Current Typical Monthly Bill:oElectric = $88.61oGas = $71.51

ASSUMPTIONS

36

CAPITAL SPEND SCENARIOS

37

Revenue requirement scenarios

38

• TYPICAL BILL IMPACTS

39

• TYPICAL BILL IMPACTS

40

• TYPICAL BILL IMPACTS

41

• ESTIMATED TYPICAL MONTHLY BILL

42

• ESTIMATED RATE BASE FROM CAPITAL SPEND

43

• Rate Base levels based on the capital spends included in the base and various scenarios.

• Ending Rate Base calculated as the Capital Spend less depreciation less deferred income taxes.

• Average Rate Base levels used to calculate the return on equity, debt, and return on rate base, and drive the revenue required.

Asset Management Strategies and Infrastructure

QUESTIONS?

Five Year Plan by Primary Project Driver

45

$0.00

$20,000,000.00

$40,000,000.00

$60,000,000.00

$80,000,000.00

$100,000,000.00

$120,000,000.00

$140,000,000.00

MT Total

MT Total

MT Total

MT Total

MT Total

RE CP-RE CP-G CO AL

ADMS Benefits

•Automated switching orders from real time loading information•A cost effective platform for Fault Location Isolation & Service Restoration (FLISR)•Near real time awareness of interruptions•Identify momentary interruptions perform early diagnoses

Increase Reliability

•Optimum system configuration based on real time information•Encourage reliable distributed energy resource (DER) integration

Optimize Capacity

•A cost effective platform for conditioned based monitoring (transformers/LTCs)•Awareness of compromised assets before failure

Asset Life

•Safety/Centralized Control

Reduced Risk

•Volt VAR Optimization (VVO)•Distributed Energy Resources (DER) Integration

Additional Business Opportunities

•Response to breaker and recloser outages before a customer calls.•Improve estimated time of restoration through increased situational awareness.

Increase Customer Satisfaction

•Modeling improvements•Automated switching plans•Situational awareness

Operational Benefits

46

Asset Life

• Distribution, Substations, Transmission

47

Infrastructure CAPEX Plan Blueprint

Capacity• Distribution, Substations, Transmission

Capacity• Distribution• Transmission

Electric

Overall Infrastructure

Gas

Reliability• Distribution, Substations, Transmission

Reliability• Distribution• Transmission

Distribution Base – includes Reactive and Normal Maintenance

Transmission Base – includes Reactive and Normal Maintenance

Compliance• Distribution, Substations, Transmission

Asset Life• Distribution, • Transmission

Safety/Compliance• Distribution• Transmission

Automation & Technology

Infrastructure CAPEX Plan Blueprint

• INFRASTRUCTURE CATEGORIES

48

Define delivery systems expectations verses actual performance

Reliability

The necessary delivery capabilities of the system necessary to meet operations, reliability, and growth parameters

Capacity

Life of an asset based on a set level of performance of a delivery system

Asset Life

The adherence to Corporate risk tolerance considering compliance, operational, financial, reputational and strategic risk

Compliance

Fault Location Isolation and Service Restoration

(FLISR)

4246

51

1

Golf Course Sub

Eastside Sub

Southside Sub

Customer Count400

300350

250

300

450300

400

700

300

20

400

900

FLISR Example

4246

51

1

Golf Course Sub

Eastside Sub

Southside Sub

1100 Customers Out of Power

FLISR Example – Auto Accident

4246

51

1

Golf Course Sub

Eastside Sub

Southside Sub

800 Customers Restored300 Customers Still Out

FLISR– Intelligent Auto Restoration

• FLISR• Helena pilot project resulted in 53% reduction in customer

minutes interrupted (CMI) on feeder/recloser outages.

- Billings Estimated Savings:

• The Value of FLISR as Demonstrated in the PNSWG Pilot

Year Outage Counts CMI Saved MT SAIDI Saved2014 23 1,325,940 3.79 2013 24 2,218,719 6.34 2012 18 1,054,303 3.01 2011 14 538,404 1.54

Average 19.75 1,284,341 3.67

Billings Estimated FLISR Savings

Conservation Voltage Reduction /

Volt Var Optimization (CVR/VVO)

• Volt VAR Optimization Overview

Historical Range (118V-124V) –Maintains highest reliability by ensuring adequate voltage under most loading conditions.

Intelligent Volt/VAR Control Range (114.5V – 120V)Increased device sophistication and controls to operate within lower portion of nominal range while continuing to deliver safe, reliable power.

ANSI – C84.1

VVO – Where do the savings come from?

Volt VAR Optimization Operation

126

114

120

Volta

ge

Distance from Substation

• CVR/VVO• 1% reduction in voltage resulted in approximately 0.8%

energy savings.

The Value of CVR/VVO as Demonstrated in the PNSWG Pilot

y = 0.8086x - 0.0004R² = 0.9815

-0.50%

0.50%

1.50%

-0.5000% 0.0000% 0.5000% 1.0000% 1.5000% 2.0000% 2.5000%

% k

Wh

Save

d

% Voltage Reduction

Helena ES kWh Savings Potential Based on % Voltage Reduction

• Sourdough Feeder #1• Customers: 4,730• Modeled avg. customer savings: 1.12%• Avg. customer kWh/yr (before): 16,213• Avg. customer kWh/yr (after): 16,032• Total kWh Savings per Customer 181 kWh/yr

Requires investment into DMS control system and infrastructure upgrades.

It is balance between the cost to the consumer and its potential savings. The goal is to reduce the customers utility bill as a whole.

Bozeman Case Study

Utility Supported Microgrid Overview

• Purpose:• Review the conceptual design of a Microgrid

• Takeaways:• High level understanding of a Microgrid• Talking points for the proposed Microgrid

• Next Steps:• Review operating procedures and commissioning steps with Butte Division Operations

Agenda

What is a Utility Supported Microgrid?

NWE Definitions:• “Microgrid” - Powers a medium voltage line without a utility source.• “Utility Supported Microgrid” - Benefits the utility system when the utility source is available and has the ability to

intentionally island to form a microgrid.

• NorthWestern is investigating:• How to safely integrate Microgrids

• A market based deployment of Microgridso Increased reliabilityo Better load managemento Asset deferral opportunitieso Greater system efficiency

• For Our Customers:• Increased reliability

o 2-4 hours of additional power during outages.

Why a Microgrid?

Location, if approved

Microgrid Site Beck’s Hill Road

• Location, if approved

Utility Source

Microgrid Site

Beck’s Hill Road

Customers within Microgrid Area

• Location, if approved

How Does it Work?

Microgrid:Battery Storage& Solar PV

17 Residential Customers

Recloser

Utility Source

Fused Disconnect

Closed

• How Does it Work – Grid Connected

17 Residential Customers

Utility Source

PV charges batteries and excess energy supports the grid.

Batteries can be discharged to support grid, as needed.

Recloser

Microgrid:Battery Storage& Solar PV

Closed

Fused Disconnect

• How Does it Work – Microgrid

Utility Source

1. Loss of Source Power

3. Safety Checks:- Microgrid Recloser did not lock out- Microgrid Recloser is not in hot line hold- Microgrid is not disabled

4. Microgrid Recloser Opens5. Microgrid is energized

Recloser

Microgrid:Battery Storage& Solar PV

ClosedOpen

17 Residential Customers

Fused Disconnect 2. IEEE 1547 trips A/C coupled inverters

• How Does it Work – Reconnect to Utility

Utility Source

1. Source power is available2. Safety Checks:

- Microgrid Recloser is not in hot line hold- Microgrid is not disabled- Microgrid is energized

3. Microgrid is then de-energized4. Microgrid Recloser is closed in to restore utility power

Recloser

Microgrid:Battery Storage& Solar PV

ClosedOpen

17 Residential Customers

Fused Disconnect

QUESTIONS?