MARCH 2018 INVESTOR RELATIONS
FORWARD-LOOKING STATEMENTS During the course of this presentation, we will make certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Although the company believes that its expectations and beliefs are based on reasonable assumptions, actual results may differ materially. For a discussion of factors that may cause actual results to differ, refer to Item 1A Risk Factors in the company s most recent Form 10-K and Form 10-Q. 2
With integrity, create superior shareholder value by expanding upon our expertise to be the supplier of choice in all of our markets while being a safe and great place to work. 3
LEADERSHIP TEAM A. Dave Goodin President & CEO B. Jason Vollmer Vice President, CFO &Treasurer A A B B 4
COMPANY OVERVIEW A strong infrastructure is the heart of the American economy. It is the natural gas and electricity that power business, industry and our daily lives. It is the pipes and wires that connect our homes, factories, offices and stores to bring them to life. It is the transportation network of roads, highways and airports that keeps our economy moving. Infrastructure is our business, and we are Building a Strong America. 5
YEAR IN REVIEW - 2017 Consolidated EPS from continuing operations $1.45, compared to $1.19 in 2016 Includes $39.5 million benefit, or 20 cents per share, resulting from tax reform Total construction materials and services earnings of $176.7 million Absent tax reform impacts, combined construction earnings were $130.5 million Construction services had record revenue of $1.37 billion Combined year-end backlog of $1.2 billion Total regulated energy delivery earnings of $102.1 million Absent tax reform impacts, regulated energy delivery earnings were $108.7 million Electric and natural gas utility sold 2% more electricity, 13% more natural gas than the previous year Pipeline and midstream business produced record transportation volumes, an increase of 9.5% over 2016 volumes 6
millions RESULTS FROM CONTINUING OPERATIONS FOR YEAR ENDED DECEMBER 31 $300 $250 $232.4 EARNINGS $284.2* $1.60 $1.40 $1.20 $1.19 EPS $1.45* $200 $1.00 $150 $0.80 $100 $0.60 $0.40 $50 $0.20 $0 $0.00 2016 2017 *Shaded area reflects $39.5 million benefit, or 20 cents per share, resulting from tax reform 2016 2017 7
REGULATED ENERGY DELIVERY FOR YEAR ENDED DECEMBER 31, 2017 RATE BASE EARNINGS* Pipeline 15% Pipeline 19% Natural Gas 40% Electric 45% Natural Gas 34% Electric 47% *Absent tax reform impacts 8
CONSTRUCTION MATERIALS & SERVICES FOR YEAR ENDED DECEMBER 31, 2017 REVENUES EARNINGS* Materials 57% Services 43% Materials 62% Services 38% *Absent tax reform impacts 9
EARNINGS CONTRIBUTIONS EARNINGS* Construction 55% Regulated Energy 45% EBITDA 1 Construction 47% Regulated Energy 53% *Absent tax reform impacts 1 - See Appendix for reconciliation of NON-GAAP financial measures 10
LOOKING AHEAD 2018 Utility is projecting 6% rate base growth compounded annually 2018-22 Customer growth expected to average 1-2% annually Pipeline expected to complete in 2018 the 38-mile Valley Expansion project and 13-mile Line Section 27 Expansion project Upon project completion, total transportation capacity will increase to 1.8 billion cubic feet per day Combined construction materials and services backlog of $1.2 billion $708 million at construction services business Expected revenues in the range of $1.45 billion to $1.60 billion for 2018 $486 million at construction materials business Expected revenues in the range of $1.80 billion to $1.90 billion for 2018 11
millions CAPITAL PROGRAM Electric and natural gas utility 345-kilovolt transmission line Thunder Spirit Wind farm expansion Construction materials and services Equipment and plant replacements and upgrades Pipeline and midstream Valley Expansion project Line Section 27 Expansion project Focused on line-of-sight opportunities at our business units with potential acquisitions being incremental to our capital program $2,500 $2,000 $1,500 $1,000 $500 $0 TOTAL CAPITAL FORECAST OF $2,323* $349 $466 $1,508 2018-2022 Utility Construction Pipeline & Midstream *Excludes Other category as well as assumed net proceeds from the sale or disposition of property 12
INVESTOR RELATIONS MARCH 2018 UTILITY ELECTRIC & NATURAL GAS
ELECTRIC AND NATURAL GAS 1,081,800 electric and natural gas customers in 448 communities Electric Natural Gas 142,900 customers 938,900 customers 756 MW of owned generation 14
STRATEGY Provide safe, reliable and economic service Focus on organic growth through investments needed to provide these services Look to expand into areas where similar operating and growth objectives exist Be one of the top performing utilities in the nation Measured by integrity, safety, employees, customer service and shareholder performance 15
Billions Billions $2.5 RATE BASE GROWTH HISTORICAL PROJECTED 12% CAGR 6% CAGR $2.0 $1.5 $1.0 $0.5 $0.0 2013 2014 2015 2016 2017 16
CUSTOMER GROWTH NATURAL GAS ELECTRIC 1,000,000 950,000 1.8% CAGR 144,000 142,000 1.6% CAGR 900,000 140,000 850,000 800,000 138,000 136,000 134,000 750,000 132,000 700,000 2013 2014 2015 2016 2017 130,000 2013 2014 2015 2016 2017 National Average - 0.7% CAGR National Average - 0.6% CAGR 17
22% 27% 51% ELECTRIC GENERATION Increased renewable generation from 11% of portfolio to 22% since 2010 Thunder Spirit II expansion will increase renewable generation to 27% 2017 Generation Coal Gas Renewables Note: Based on nameplate rating 18
THUNDER SPIRIT WIND EXPANSION Signed purchase agreement February 2018 Approximately $85 million Construction starts spring 2018; online by end of 2018 ND PSC approved advance determination of prudence November 2017 Qualifies for full PTCs as construction started in 2016 Adding 16 turbines; 48 MW; brings project to 155 MW Siting and permitting completed as part of first phase Moves generation portfolio from 22% renewable to 27% 19
BIG STONE SOUTH TO ELLENDALE MISO multivalue 345-kV transmission line; 160 miles from Big Stone City, SD, to Ellendale, ND All necessary easements secured All foundations poured, 539 of 753 structures set (as of 2/19/18) Recovery through MISO tariff Expected completion 2019 20
REGULATORY UPDATE Pending cases ND natural gas: requested $5.9 million; interim rates of $4.6 million decreased to $2.7 million as a result of tax reform; hearing scheduled May 30-June 1 MT natural gas: requested $2.8 million; impact of tax reform to be determined; hearing scheduled April 26-27 WA natural gas: requested $5.9 million; tax reform reduced request to $1.7 million; hearing scheduled May 15-17 2018 potential filings Upon completion of determining the impact of tax reform, as approved by the respective regulatory commissions, the company will look at potential 2018 rate filings 21
ELECTRIC REGULATORY MECHANISMS Fuel Clause Adjustment MT ND SD WY Transmission Rider Environmental/ Renewable Rider Generation Rider Property Tax Tracker Interim Rate Relief * Forecasted Test Period Forward Year Test Period *If rate case isn t completed in 6 months full rate request goes into effect on an interim basis 22
NATURAL GAS REGULATORY MECHANISMS Purchased Gas Adjustment MN MT ND SD WY ID WA OR Full Decoupling Weather Normalization Full Fixed General Service Rate Pipeline Replacement / Integrity Tracker Property Tax Tracker Earnings Sharing Interim Rate Relief * Forecasted Test Period Forward Year Test Period Historical Test Period *If rate case isn t completed in 6 months full rate request goes into effect on an interim basis 23
STRENGTHS Regulated model: Lower risk, franchised service areas Provide essential services limiting economic cyclicality Customer growth rates Historic and future organic growth opportunities Reliable earnings and cash flows Geographic diversity Strong regulatory relationships 24
OUTLOOK Expect customer growth of 1-2% annually Execute on organic capital plans Capital expenditures - $1.5 billion over the next five years Expect to grow rate base 6% compounded annually over next five years Focused on regulatory recovery Providing safe & reliable service is at the core of what we do 25
INVESTOR RELATIONS MARCH 2018 PIPELINE & MIDSTREAM
PIPELINE & MIDSTREAM Regulated operations Approx. 4,000 miles of pipe 1.6 Bcf/d system capacity 193 Bcf working storage Non-regulated operations Gas gathering Cathodic protection Energy management 27
OUR STRENGTHS Low risk, stable returns with regulated business Approx. 75% of revenue backed by firm capacity commitments Integrated pipeline, storage and interconnects in heart of Bakken Experienced, talented team Complete design, engineer, construct, operation capability 28
WBI ENERGY STRATEGY Leverage our strengths to be the pipeline of choice in the Bakken Grow within and adjacent to our system Low-cost provider Competitors use us to construct gas pipelines Build for 5x-7x EBITDA 29
LS 27 Valley Expansion Billings Expansion Growth Projects Project Date MMcf/d Est. Cost Valley 2018 40 $55M-$60M LS 27 2018 250 $27M-$30M Billings 2019 22.5 $12M-$15M 30
2017-18 ORGANIC GROWTH VALLEY EXPANSION PROJECT Project Overview 37.3 mile pipeline, approximately $55 million - 60 million, FERC-regulated project to deliver natural gas supply to eastern ND and far western MN Timeline 2016 open season successful 2017 FERC approval process, design, right-ofway acquisition, procurement FERC certificate received February 15, 2018 Target in-service late 2018 WBI Energy - Existing WBI Energy - Permitting WBI Energy - Proposed Non-WBI Energy 31
2018 ORGANIC GROWTH LINE SECTION 27 EXPANSION Project Overview Approximately 13 miles of new pipeline and associated facilities in the Bakken producing area in northwestern North Dakota Project, as designed, will increase capacity on the section by over 200 million cubic feet per day, bringing section capacity to over 600 MMcf/day Estimated construction costs of $27 million - $30 million Timeline Construction to begin spring 2018 Target in-service late 2018 32
2019 ORGANIC GROWTH BILLINGS EXPANSION Project Overview Successful open season concluded Feb. 14 Negotiating precedent agreements with bidders Replacing 10-inch pipe with larger diameter Additional capacity of 22.5 million cubic feet per day Estimated construction costs of $12 million-$15 million Timeline Targeted in-service date late 2019 33
OUTLOOK Valley Expansion and Line Section 27 Expansion projects The company is evaluating additional growth projects to increase transportation capacity for the Bakken region, which is producing record volumes of natural gas 34
INVESTOR RELATIONS MARCH 2018 CONSTRUCTION SERVICES
CONSTRUCTION SERVICES Outside Power lines Substations Excavation & underground utilities Equipment & tools sales and rentals Inside Electrical Mechanical Fire suppression Refineries Automotive Water treatment Ranked 13 th on ENR s Top 600 Specialty Contractors List 36
STRATEGY Industry-best safety results Organic & M&A growth Earnings growth Strong cash flow Retain and attract top talent Strong customer base, locally and nationally 37
OUTSIDE COMPANIES International Line Builders Loy Clark Pipeline Rocky Mountain Contractors Capital Electric Line Builders Lone Mountain Excavation Wagner-Smith Equipment 38
INSIDE COMPANIES Bell Electrical Contractors Bombard Electric Bombard Mechanical Capital Electric Construction Desert Fire Protection Duro Electric ESI Electrical Contractors Lone Mountain Excavation On Electric Group Wagner Industrial Electric USI Industrial 39
millions REVENUE GROWTH $1,600.0 FOR YEAR ENDED DECEMBER 31 Record 2017 revenues of $1.37 billion $1,400.0 $1,200.0 $1,367.6 2018 revenue guidance $1.45 billion to $1.60 billion 2018 margins expected to be comparable to 2017 $1,000.0 $800.0 $600.0 $400.0 $1,039.8 $1,119.5 $926.4 $1,073.3 $200.0 $0.0 2013 2014 2015 2016 2017 40
millions CUSTOMER SATISFACTION: BACKLOG FOR YEAR ENDED DECEMBER 31 $800 $700 $708 $600 $500 $400 $459 $493 $475 $300 $373 $308 $368 $305 $200 $100 $0 2010 2011 2012 2013 2014 2015 2016 2017 41
OUTLOOK $708 million of backlog, up 49% compared to 2016 High demand for inside specialty contracting work High-tech, mission critical area Gaming and hospitality Medical and education Exploring acquisition opportunities 42
INVESTOR RELATIONS MARCH 2018 CONSTRUCTION MATERIALS
WHO WE ARE One of the top U.S. aggregate producers 5th sand and gravel 1.0 billion tons of reserves Operations in 15 states 5,125 employees in peak season 44
KNIFE RIVER STRATEGY Success through People, Safety, Quality, Environment Take advantage of vertical integration Grow operations through M&A and greenfield 45
KNIFE RIVER STRENGTHS Aggregates Vertical integration Advantage over competition Adds margin Safety, Quality, Environmental leader Recruiting/retention Good reputation Share resources between regions Geographic diversity 46
PRODUCTS Aggregates Asphalt Building materials Cement Liquid asphalt Prestress/Precast Ready-mix concrete 47
SERVICES General contractor Subcontractor Aggregate laydown Asphalt paving Concrete construction Site development Underground utilities Railroad work Bridges Marine construction 48
INFRASTRUCTURE SPENDING $900M increase authorized for 2018 through FAST Act Proposed budget deal would add $20B for infrastructure over two years (2018-19) CA, OR and MT passed fuel-tax increases in 2017, following WA, ID, UT, WY, SD, NE and IA in the four years prior all Knife River states Trump infrastructure plan 49
OUTLOOK $486 million of backlog, down from $538 million in 2016, 3 rd highest year-end backlog 2018 revenue guidance of $1.80 billion to $1.90 billion with comparable margins to 2017 Anticipated new state and local infrastructure spending initiatives are expected to drive demand Actively pursuing growth through strategic M&A 50
JASON VOLLMER FINANCIAL OVERVIEW
millions RESULTS FROM CONTINUING OPERATIONS FOR YEAR ENDED DECEMBER 31 EARNINGS EPS $300 $250 $232.4 $284.2* $1.60 $1.40 $1.20 $1.19 $1.45* $200 $1.00 $150 $0.80 $100 $0.60 $0.40 $50 $0.20 $0 $0.00 2016 2017 *Shaded area reflects $39.5 million benefit, or 20 cents per share, resulting from tax reform 2016 2017 52
millions CONSOLIDATED OPERATIONS* FOR YEAR ENDED DECEMBER 31 EARNINGS EPS $300 $250 $280.4** $1.60 $1.40 $1.43** $1.20 $200 $1.00 $150 $0.80 $100 $63.7 $0.60 $0.40 $0.33 $50 $0.20 $0 $0.00 2016 2017 *Includes both continuing and discontinued operations **Shaded area reflects $39.5 million benefit, or 20 cents per share, resulting from tax reform 2016 2017 53
millions ELECTRIC & NATURAL GAS UTILITY FOR YEAR ENDED DECEMBER 31 Reported earnings of $81.6 million Includes $6.4 million charge resulting from tax reform Approved rate recovery 2% higher electric retail sales volumes 13% higher natural gas retail sales volumes across all customer classes Partially offset by higher O&M and weather normalization in certain jurisdictions $100 $90 $80 $70 $60 $50 $40 $30 $69.3 Earnings $81.6* $20 $10 $0 2016 2017 *Shaded area reflects $6.4 million charge resulting from tax reform 54
millions PIPELINE & MIDSTREAM FOR YEAR ENDED DECEMBER 31 Reported earnings of $20.5 million Includes $200,000 charge resulting from tax reform Record transportation volumes Reflects sale of the Pronghorn assets in January 2017 $25 $20 $15 $23.4 Earnings $20.5* $10 $5 $0 2016 2017 *Shaded area reflects $200,000 charge resulting from tax reform 55
millions CONSTRUCTION SERVICES FOR YEAR ENDED DECEMBER 31 Reported earnings of $53.3 million Includes a $4.3 million income tax benefit from tax reform Higher workloads and margins in inside specialty contracting work Higher workloads and margins in outside specialty contracting work Increase in equipment sales and rentals $60 $50 $40 $30 $33.9 Earnings $53.3* Record revenues of $1.37 billion Backlog of $708 million, 49% higher than 2016 $20 $10 $0 2016 2017 *Shaded area reflects $4.3 million benefit resulting from tax reform 56
millions CONSTRUCTION MATERIALS FOR YEAR ENDED DECEMBER 31 Reported earnings of $123.4 million Includes a $41.9 million income tax benefit from tax reform Decreased workloads from unfavorable weather during the first half of the year and less available work in energyproducing states Lower asphalt product margins Lower construction margins Backlog of $486 million, down from $538 million in 2016 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $102.7 Earnings $123.4* $0 2016 2017 *Shaded area reflects $41.9 million benefit resulting from tax reform 57
millions SOUND FINANCIAL POSITION $6,000 59% Equity / 41% Debt $5,000 $4,000 $3,000 $2,000 $1,000 $0 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 Equity Debt 58
ANNUALIZED DIVIDEND RATE DIVIDEND GROWTH 80 consecutive years of quarterly dividend payments Dividend increased November 2017, making 27 consecutive years of increases 2017 annualized dividend $0.79 per share Member of S&P High-Yield Dividend Aristocrats index $0.80 $0.78 $0.76 $0.74 $0.72 $0.70 $0.68 $0.66 $0.64 $0.62 $0.69 $0.79 2012 2013 2014 2015 2016 2017 59
QUESTIONS
APPENDIX RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES: EBITDA (dollars in millions) Year-ended December 31, 2017 Electric Natural Gas Pipeline Construction Services Construction Materials Earnings $49.4 $32.2 $20.5 $53.3 $123.4 Adjustments: Interest Expense 25.4 31.2 5.0 3.7 14.8 Income Taxes 7.7 22.8 12.3 25.6 5.4 Depreciation, depletion and amortization 47.7 69.4 16.8 15.7 55.9 EBITDA $130.2 $155.6 $54.6 $98.3 $199.5 61