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2017 ANNUAL REPORT SERVICE TERRITORY NORTH GREAT DAKOTA FALLS MONTANA Electric SOUTH Natural Gas DAKOTA Wind Farm Hydro Facilities WYOMING Thermal Generating Plants Natural Gas Reserves NEBRASKA Peaking Plants AT A GLANCE NorthWestern Energy provides electricity and natural gas in the upper Midwest and Northwest, serving approximately 718,300 customers in Montana, South Dakota and Nebraska. Our business consists of federal- and state-regulated operations, including electric and natural gas distribution and transmission, electric generation and natural gas production. YEAR-END BASIC EARNINGS NET PROPERTY, PLANT DIVIDENDS PER SHARE SHARE PRICE PER SHARE & EQUIPMENT (IN BILLIONS) $43.32 $2.46 $1.52 $2.69 2013 2013 2013 2013 $56.58 $3.01 $1.60 $3.76 2014 2014 2014 2014 $54.25 $3.20 $1.92 $4.06 2015 2015 2015 2015 $56.87 $3.40 $2.00 $4.21 2016 2016 2016 2016 $59.70 $3.35 $2.10 $4.36 2017 2017 2017 2017 MT ELECTRIC SD ELECTRIC MT NATURAL GAS SD NATURAL GAS 369,100 customers in customers in customers in customers in 208 communities 63,600 118 communities 196,700 105 communities 46,500 60 communities miles of transmission miles of pipelines miles of transmission lines miles of distribution pipelines 1,626 6,700 3,560 & distribution lines 5,187 miles of intrastate miles of intrastate 55 transmission pipelines nameplate owned 2,100 transmission pipelines 17,795 miles of distribution lines 440 MW power generation 18 Bcf gas storage nameplate owned NE NATURAL GAS 854 MW power generation owned proven 56 Bcf natural gas reserves customers in 42,400 4 communities 790 miles of pipelines On the cover, Ryan Dam, one in our system of hydroelectric dams is a crucial element of our Montana electric system and reflects our clean, sustainable generation portfolio, which is more than 60 percent renewable. FELLOW SHAREHOLDERS One of my co-workers described NorthWestern Energy as “an incredible machine” of dams, wind farms, generating plants, poles, substations, wires, gas wells, storage, pipelines, support and control systems, all operated by our employees who work diligently to keep the machine running smoothly night and day, 365 days a year. This machine can be complex and confusing. What keeps the gears turning smoothly and efficiently? Commitment. At NorthWestern Energy, we are committed to our fellow shareholders, our fellow customers, the communities in which we live and work, our wonderful natural environment and to the “incredible machine” itself, the critical infrastructure we all depend on to lead productive lives. William “Dusty” Rhoades, visiting with CEO Bob Rowe, worked for NorthWestern for more than 40 years before retiring in 2017. Dedicated NorthWestern Energy | 2017 Annual Report | 3 employees are crucial part of our success. of the service we provide. That electricity and natural COMMUNITY gas goes to hundreds of thousands of homes, providing light, heat and security for families in four states. At NorthWestern Energy, we provide electric and natural That electricity and natural gas goes to thousands of gas service to about 718,300 electric or natural gas businesses and commercial customers, which promotes meters across our service territory in Montana, South jobs, financial security and economic development. Dakota, Nebraska, and Yellowstone Park in Wyoming. Behind every meter is a family, a business, a church, Providing this essential service safely, efficiently and government or non-profit agency. responsibly to communities is central to what we do at NorthWestern Energy. We are the electric provider in 318 Even that customer number doesn’t paint a full picture 4 | NorthWestern Energy | 2017 Annual Report Our event sponsorships contribute to the vitality of the communities we serve, including Butte, Montana. communities in Montana and South Dakota and the gas live and work. About 80 percent of NorthWestern Energy provider in 180 communities in Montana, South Dakota employees perform volunteer work on a regular basis, a and Nebraska. remarkable statistic. These cities and towns are more than spots on a In support of our employees and communities, each map. They are home to our nearly 1,600 employees, year, NorthWestern Energy invests more than $2 million employees who play big roles in the vitality of their in economic development, sponsorships, scholarships communities. They lead, they serve and they volunteer. and activities that support volunteerism. It’s a practice we Whether it’s planting trees, coaching a youth sports team intend to continue. We know that when our communities or raising money for the local food bank, our employees do well, we do well. are often the backbone of the communities where they NorthWestern Energy | 2017 Annual Report | 5 add generation at existing hydro facilities, as additional ENVIRONMENT projects come online, and as we explore new generation from a variety of possible sources. We are privileged to be an energy company over a wide swath of Montana, eastern South Dakota and in select Missoula, Montana is home to NorthWestern’s first communities in Nebraska. It’s spacious country with electric vehicle charging stations. Developed with the city broad skies, wide open spaces and abundant clean of Missoula and located in a public parking garage, the air and water. We are committed to preserving these stations are allowing us to gauge the interest in electric attributes and providing energy in an environmentally vehicles in our Montana service territory. responsible, sustainable manner. The single largest renewable component of We operate a diversified, balanced energy portfolio that NorthWestern’s generation portfolio is the Montana combines the stability, reliability and cost-effectiveness hydroelectric system. We acquired the system in 2014 of traditional generation with a substantial component and dedicated it to serving our Montana customers at of renewable resources. Across our three-state service prices based on cost. It now helps us keep the grid territory, our generation portfolio is more than 50 percent stable in ways that were not factored into the purchase carbon-free, thanks to contributions from hydro, wind price, and presents cost-effective opportunities to add and most recently, a small slice of solar generation. generation for our customers at existing hydro sites. It The renewable portion of our portfolio will grow as we 6 | NorthWestern Energy | 2017 Annual Report The Meridan Bridge near Yankon links South Dakota and Nebraska. Our service territory includes some of the most rural regions served by an investor-owned utility. is the foundation of our Montana electric supply system, the Madison-Missouri river system, which, with its nine and plays an essential role in providing clean, affordable dams, is the core of our Montana hydro system. This and reliable energy to our Montana customers. investment, which involves a number of partners and stakeholders, pays dividends in the form of recreational The overall renewable characteristics of the trails, boat ramps, shelters and fishing access NorthWestern portfolio were recently credited in helping improvements. Bozeman, a fast-growing Montana community, make progress towards its sustainability goals. There’s more One sparkling example of the value of this work can to come: NorthWestern has recently brought six small found along O’Dell Creek near Ennis, Montana. Working independently owned solar projects into the portfolio. with private and public stakeholders, NorthWestern has When additional contracted wind projects begin service played an integral role in the rehabilitation of 12 miles in the next few years, the renewable portion of the of this stream, which is a key tributary in the nearby Montana portfolio will approach 70 percent on a delivered Madison River, one of the nation’s most heralded trout basis. fisheries. The restoration work, which has improved trout habitat and reproduction, has also made the O’Dell Creek The hydroelectric system is also the impetus for more wetlands a prime location for the reintroduction of rare than $2 million in spending each year on a variety of trumpeter swans. fisheries, wildlife, habitat and recreational projects along NorthWestern Energy | 2017 Annual Report | 7 trimming, communication systems, updated natural INFRASTRUCTURE gas lines and other elements designed to harden our distribution system. That has resulted in fewer We are committed to building and maintaining essential and shorter power outages and reduced the cost of infrastructure that is critical to our ability to provide responding to outages and other issues while operating reliable, affordable electricity and natural gas to our tens of thousands of miles of critical infrastructure for our customers. customers. While the DSIP program has concluded, our In 2017, we wrapped up our five-year Distribution investment in infrastructure and technology will continue System Infrastructure Project (DSIP) in which we invested as we build and maintain an energy system for the 21st more than $350 million in new poles, substations, tree century – with planned investment in excess of $1.5 8 | NorthWestern Energy | 2017 Annual Report Investing in new infrastructure and technology is a big part our commitment to reliable, affordable service. billion over the next 5 years. We have finalized a detailed plan for Advanced Metering Infrastructure in Montana, which is included our In 2018, we will take a big technological step when we forecasted capital numbers. undertake a broad advanced metering initiative in South Dakota and Nebraska. Essentially, all of our electric and We monitor technology improvements and cost trends natural gas customers will get a new or modified meter to ensure our deployments occur at optimal points for that will allow for two-way communication between our customers. In 2018 we will be deploying increased homes and businesses and NorthWestern. We will be distribution automation across our entire service territory. able to better manage overall energy needs, quickly Similarly, as LED functionality has improved and costs detect power outages and provide stronger overall have gone down, we are also developing a program to service with this nearly $30 million initiative.