NorthWestern Energy “Investment in Service”

1. NorthWestern Energy “Investment in Service” Bob Rowe President and CEO

2. outline • Who we are at NorthWestern Energy • Stakeholder Landscape • Where we’re going – investment-in-service • Key Challenges in 2010 • Financial • Operational • Regulatory/Public Policy • Conclusion

3. Who we are

4. who we are • 656,000 customers • 392,000 electric • 264,000 natural gas • Approximately 123,000 square miles of service territory in Montana, Nebraska and South Dakota • Provide electric and/or natural gas services to 349 cities in the western two-thirds of Montana, eastern South Dakota and central Nebraska • Total generation (mostly base load coal) • MT – 222 MW – regulated beginning 1/1/09 • SD – 312 MW – regulated • Total Assets: $2,754 MM (1) • Total Capitalization: $1,666 MM (1)(2) • Total Employees: 1,385 • As of 9/30/09 • Book capitalization calculated as total debt, excluding capital leases, plus shareholders’ equity.

5. improving credit ratings 5

6. strong balance sheet and liquidity Debt / Total capitalization of 53.4% (9/30/09) October 2009 $55 million, 30 year First Mortgage Bonds issued at 5.71% June 2009 Extended unsecured revolver maturity to June 30, 2012 Increased size from $200 million to $250 million March 2009 $250 million, 10 year First Mortgage Bonds issued at 6.34% Total liquidity currently in the $250 million range Nearly all long-term debt matures after 2014 6

7. positive earnings and ROE trend Mill Creek and Colstrip Unit 4 ROE’s of 10.25% & 10.00% respectively. 7

8. 2009 guidance change Earnings guidance range for 2009 revised to $1.95 - $2.05 8

9. strong cash flows Earnings growth, NOLs, and repairs tax deduction provide strong cash flows to fund future growth projects. 9

10. pension funding and expense 2009 return of approximately 20% year-to-date and expect to be greater than 90% funded. 10

11. competitive dividend Goal for dividend payout ratio of 60% - 70%. Current dividend yield about 5.5%. 11

12. longer-term potential earnings drivers • Distribution system enhancements • Exploring incremental rate based investment (early stages) • Energy supply • Mill Creek Generation Station • South Dakota peaking generation • Natural gas reserves (early stages) • Wind projects and other renewable projects (early stages) • Transmission projects • Colstrip 500kV upgrade • 230 kV Renewable Collector System • Mountain States Transmission Intertie (MSTI) • Electric Transmission America (ETA) (early stages) • Green Power Express (ITC) (early stages) Balanced growth opportunities across the business. 12

13. our proposed MT transmission projects 13

14. capex spending – next few years Utility Maintenance Capex is funded 100% by free cash flow. MSTI project is now slated for early 2015 and capex has been modified accordingly. Capital still shown at 100% but still evaluating partners. Additional equity not anticipated until we proceed with MSTI or other major investments. We will move forward with the funding of these projects only when they make economic sense.

15. Stakeholder landscape

16. where we’re going: investment-in-service • Focused on our • Utility operations • Customers • Communities • Employees • Shareholders • And on our future • Engaged with our stakeholders

17. NorthWestern’s main stakeholders Balance of thesestakeholders iscritical toNorthWestern’ssuccess

18. mapping the stakeholder landscape • As an investor-owned, state and federal regulated, public utility, NorthWestern Energy has a lot of stakeholders - and a lot of accountability “One who affects or can be affected by the company’s actions” “One who does well when the company does well”

19. alignment of interests • Need investment to realize potential benefits • Stakeholder Engagement Initiatives • Far-sighted regulation • Prefer: Long-term “alignment of interests” instead of short-term “balancing of interests” • Scott Hempling, Executive Director, National Regulatory Research Institute • Prefer: Ongoing, substantive consultation about alternatives rather than after-the-fact review of company decisions • Investors have options even in this economy • Individual State v. Regional/National Benefits • The environment and the economy don’t stop at the border, but... • Decisions we make here can help shape regional future

20. stakeholder engagement • Structured approach to consulting with stakeholders on key topics • Public Policy/Energy Efficiency • Rate decoupling • Align stakeholder interests – find common ground • Infrastructure • Rural and urban needs and expectations • Reliability, capacity and asset life expectations • Customer expectations • Role of public policy • Role of technology

21. Where we’re going – investment in service

22. Natural Gas Utility Electric Utility planning for the future Capital Requirements Landscape Distribution Energy Efficiency Distributed Generation Pipeline Integrity Infrastructure Energy Efficiency Natural Gas Reserves Transmission - Network Electric Generation Communications Demand Response Renewables Qualifying Facilities System Capacity Cap Ex Maintenance Cap Ex Organic Growth Cap Ex Infrastructure Urban Infrastructure Rural Smart Grid Metering CIS – Customer Information SAP - Enterprise Transmission Supply Delivery / Supply GIS – Geographic Information Enterprise Technology & Support Foundational Systems 22

23. “bottoms up” hierarchy of subjects “Utility of the Future“ , DR, etc. Supply Adequacy, Stability Resource stability and diversity Base supply, regulation, efficiency, renewables Utility Infrastructure Investment Programmatic approach to gas and electric distribution investment Ongoing Operations Regulatory: ACOS, revenue requirement, rate design, customer service, etc.

24. future distribution scenarios “No barriers to future deployment” “No regrets about deployment” “Brave New Grid” Whole Lotta Investment Near-term widespread SmartGrid deployment “Ready for the Future” Significant New Investment Reverse the trend in ageing Optimize maintenance costs Improve reliability Position for SmartGrid “More Aggressive Asset Management” Modest New Investment Arrest the ageing New Generation of Asset Management- Higher Quality of Information More Proactive Less Reactive Investment and Maintenance costs Maintain reliability “Stay the Course” Same Investment Investment now above depreciation Some continued ageing Higher maintenance costs Declining reliability Cost of catch-up grows “Slow Decline” Less Investment Further ageing Cost of catch-up becomes too high Spiral with recovery nearly impossible

25. smart grid • Participating in Pacific Northwest Smart Grid Demonstration Project • $178 million regional project • NWE to receive $2.5m of $5m project • 12 participating utilities and diverse vendor team • Validate new smart grid technologies and business models – paving the way for a more intelligent electric grid • Quantify smart grid costs and benefits – providing information for building the business case for additional investment in the technologies that work • NorthWestern to pilot SG technology in urban and rural applications

26. Key challenges

27. key challenges in 2010 • Financial • Uncertain economic recovery • Investment demands and opportunities • Operational • Infrastructure Asset Plan • Smart Grid demonstration project • Regulatory/Policy • General rate case in MT • Decoupling • New DSM initiatives in SD • Federal/State siting of transmission projects • Status of climate change legislation • Conflicting state policies re: energy development/production

28. Kerry/Boxer bill Amount of allowances to the utility sector was 35% under Waxman-Markey but has decreased to close to 30% under Kerry/Boxer Under the 50/50 formula in both bills, utilities with coal as the predominate base load power are allocated substantially fewer allowances than emissions NorthWestern generally would receive roughly 60% of the allowances to meet the cap and would need to purchase allowances with a value of roughly $54 million and increasing each year thereafter NorthWestern’s customers end up paying twice: once for NorthWestern to purchase the allowances to reach the cap and second for the investments NorthWestern will need to make to reduce the carbon emissions

29. potential customer impacts of cap & trade

30. “cap and invest” • Reducing greenhouse gas emissions with direct investments in a new, clean-energy economy • Goals: • Reduce greenhouse gas emissions • Provide immediate and direct funding for clean energy technology development • Mitigate rate impacts to customers • Approach: • Implement national emission reduction targets • Place a gradually increasing fee $/ton on all emissions regardless of source, to be used to: • Make direct investments in clean energy technology development • Support R&D for CCS, CCGT, other commercialization efforts NexGen or other DOE programs

31. “cap and invest” • Approach con’t: • Provide supporting tax incentives for investments in qualifying emissions reduction projects such as DSM, energy efficiency, scrubbers, fuel conversion, renewables, offsets, required transmission, etc. • Incentives designed to mitigate revenue requirements impacts and therefore customer rate impacts reduction in taxes through incentives reduces revenue requirements thus reduces rates. • Designed to be self funding so no additional federal funding source is needed • Front-loaded incentive with bonus depreciation or PTC’s. ITC’s could be used as well • State PSC’s to “qualify” projects • Provide for banking of credits, and/or a secondary market for trading credits. • Unique role for state-regulated public utilities, and for the state regulators

32. “cap and invest” • Advantages: • No redistribution of wealth issues • Reduced administration over more complex approaches • No opportunity for pure financial speculation • Focused on goal of reducing emissions • Supports national goal with local control • Accountability to regulators most sensitive to customer impacts

33. Capacity reserve • Capacity reserve is a method to help “right sized” transmission be built to develop renewable resources • If the total capacity of the planned transmission line is not subscribed, two approaches would help get the line built • The federal government could purchase and hold the rights to the capacity for a set period of time and then the transmission provider would purchase them back as reservations materialized • The FERC could approve a regional tariff that would compensate for the unsubscribed capacity • Both approaches would ensure the “right sized” transmission line is built and the renewable resources can develop

34. Renewable integration tax credit • Renewable Integration Tax Credit (RTC) has been recently introduced as a measure to lessen the cost of integrating wind and solar resources onto transmission • Lower costs would be passed on to customers • RTC would be based on the annual amount of wind or solar energy produced or purchased • RTC amount would decline as the volume of these intermittent resources increased • RTC would encourage additional renewable resources to be developed and create additional jobs

35. discussion – key financial challenges

36. discussion – key operational challenges

37. discussion – key regulatory challenges

38. discussion – key policy and political challenges

39. conclusion

40. conclusion • Complex issues • Multiple, overlapping externalities • Long lead times • Significant stakeholder impacts • Need thoughtful leaders • Need new/revised technical tools • Need robust new decision-making processes • Need community support • NorthWestern Energy eager to play our part