0000073088false00000730882023-07-242023-07-24
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 24, 2023
NorthWestern Corporation
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
| Delaware | 1-10499 | 46-0172280 |
(State or other jurisdiction of
incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
| 3010 W. 69th Street | Sioux Falls | South Dakota | | 57108 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: 605-978-2900
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common stock | NWE | Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Item 2.02 Results of Operations and Financial Condition
On July 24, 2023, NorthWestern Corporation d/b/a NorthWestern Energy (Nasdaq: NWE) (the “Company”) issued a press release (the “Press Release”) discussing financial results for the quarter ended June 30, 2023. The Press Release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.
The information in this Current Report on Form 8-K provided under Item 2.02 shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information provided under Item 2.02 in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 7.01 Regulation FD Disclosure.
As previously announced and as stated in the Press Release, the Company will host an investor conference call and webcast on July 26, 2023, at 11:00 a.m. Eastern time to review its financial results. During the conference call, Brian B. Bird, president and chief executive officer, and Crystal D. Lail, vice president and chief financial officer of the Company, will make a slide presentation (the "Investor Call Presentation") concerning the Company's financial results.
A live webcast of the investor conference call can be accessed from the Company’s website at www.northwesternenergy.com/earnings-registration. To listen and view the slideshow presentation, please go to the site at least 15 minutes in advance of the call to register. An archived webcast will be available shortly after the call and will be available for one year.
A copy of the Investor Call Presentation is being furnished pursuant to Regulation FD as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference. The information in the presentation shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Furthermore, the presentation shall not be deemed to be incorporated by reference into the Company's filings under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except as set forth with respect thereto in any such filing.
Item 9.01 Financial Statements and Exhibits. | | | | | | | | |
| Exhibit No. | | Description of Document |
| | Press Release, dated July 24, 2023 |
| | Investor Call Presentation, dated July 26, 2023 |
| | |
| * filed herewith |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | | | | | | | | | | |
| | NorthWestern Corporation | |
| | | |
| By: | /s/ Timothy P. Olson | |
| | Timothy P. Olson | |
| | Corporate Secretary | |
Date: July 25, 2023
| | | | | |
| NorthWestern Corporation d/b/a NorthWestern Energy 3010 W. 69th Street Sioux Falls, SD 57108 www.northwesternenergy.com |
FOR IMMEDIATE RELEASE
NorthWestern Reports Second Quarter 2023 Financial Results
Company reports GAAP diluted earnings per share of $0.32 for the quarter,
affirms $510 million capital plan for 2023 and announces a
$0.64 per share quarterly dividend payable September 29, 2023
BUTTE, MT / SIOUX FALLS, SD - July 24, 2023 - NorthWestern Corporation d/b/a NorthWestern Energy (Nasdaq: NWE) reported financial results for the three months ended June 30, 2023. Net income for the period was $19.1 million, or $0.32 per diluted share, as compared with net income of $29.8 million, or $0.54 per diluted share, for the same period in 2022. This decrease was primarily due to unfavorable weather driving lower electric and natural gas retail volumes and transmission revenues, higher operating, administrative and general costs, higher depreciation and depletion expense, higher interest expense, and higher income tax expense, partly offset by higher Montana interim rates, and lower non-recoverable Montana electric supply costs. In addition to lower net income, diluted earnings per share decreased due to equity issuances during 2022 that increased average shares outstanding in 2023.
Non-GAAP Adjusted diluted earnings per share for the quarter ended June 30, 2023 was $0.35 as compared to $0.54 for the same period in 2022. See “Adjusted Non-GAAP Earnings” and “Non-GAAP Financial Measures” sections below for more information on these measures.
"Second quarter earnings were impacted by unfavorable weather. Absent the weather impact, the quarter was in line with our expectations," said Brian Bird, President and Chief Executive Officer. “We are executing on our regulatory priorities, including the settlement agreement pending approval from the Montana Public Service. In addition, in mid-June we filed our first electric rate review in South Dakota since 2015 seeking recovery of nearly thirty percent of rate base that is not included in customer rates today. We look forward to working with the South Dakota staff and commission in that filing as well. Rate relief from these two filings will provide a path for meaningful earnings growth which is critically important to attracting the right long-term investors and fairly priced capital, putting the Company in a strong financial position to successfully serve our customers. Completing both of these incredibly comprehensive filings within the last twelve months was a significant undertaking by many of our dedicated and talented employees. We are grateful for their efforts." Bird concludes, "We remain on track to complete our $510 million capital plan for the year, including the 175 megawatt Yellowstone County Generating Station in Montana. After receiving significant legislative and judicial support on the project, construction has resumed and the station is expected to be available to serve our customers by the end of third quarter 2024."
Additional information regarding this release can be found in the earnings presentation found at
https://www.northwesternenergy.com/about-us/investors/financials/earnings
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 2
CONSOLIDATED STATEMENT OF INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Reconciliation of gross margin to utility margin: | | 2023 | | 2022 | | 2023 | | 2022 |
| | |
Operating Revenues (1) | | $ | 290.5 | | | $ | 323.0 | | | $ | 745.1 | | | $ | 717.4 | |
| Less: Fuel, purchased supply and direct transmission expense (exclusive of depreciation and depletion shown separately below) | | 67.6 | | | 95.0 | | | 233.1 | | | 230.1 | |
| Less: Operating and maintenance | | 54.9 | | | 53.3 | | | 110.7 | | | 106.1 | |
| Less: Property and other taxes | | 40.1 | | | 46.9 | | | 89.3 | | | 93.8 | |
| Less: Depreciation and depletion | | 52.4 | | | 48.2 | | | 105.6 | | | 97.1 | |
| Gross Margin | | $ | 75.5 | | | $ | 79.6 | | | $ | 206.4 | | | $ | 190.3 | |
| | | | | | | | |
| Operating and maintenance | | 54.9 | | | 53.3 | | | 110.7 | | | 106.1 | |
| Property and other taxes | | 40.1 | | | 46.9 | | | 89.3 | | | 93.8 | |
| Depreciation and depletion | | 52.4 | | | 48.2 | | | 105.6 | | | 97.1 | |
Utility Margin(1) | | $ | 222.9 | | | $ | 228.0 | | | $ | 512.0 | | | $ | 487.3 | |
(1) Decrease in revenues is primarily related to pass-through supply costs and non-cash regulatory amortizations.
(2) Utility Margin is a Non-GAAP financial measure. See “Non-GAAP Financial Measures” section below. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| (in millions, except per share amounts) | | 2023 | | 2022 | | 2023 | | 2022 |
Revenues (1) | | $ | 290.5 | | | $ | 323.0 | | | $ | 745.0 | | | $ | 717.5 | |
Fuel, purchased supply and direct transmission expense(2) | | 67.6 | | | 95.0 | | | $ | 233.1 | | | $ | 230.1 | |
Utility Margin (3) | | 222.9 | | | 228.0 | | | $ | 511.9 | | | $ | 487.4 | |
| | | | | | | | |
| Operating and maintenance | | 54.8 | | | 53.3 | | | $ | 110.7 | | | $ | 106.1 | |
| Administrative and general | | 30.0 | | | 27.2 | | | $ | 64.7 | | | $ | 58.9 | |
| Property and other taxes | | 40.1 | | | 46.9 | | | $ | 89.3 | | | $ | 93.7 | |
| Depreciation and depletion | | 52.4 | | | 48.2 | | | $ | 105.6 | | | $ | 97.1 | |
Total Operating Expenses (4) | | 177.3 | | | 175.6 | | | $ | 370.3 | | | $ | 355.8 | |
| Operating income | | 45.6 | | | 52.3 | | | $ | 141.6 | | | $ | 131.6 | |
| Interest expense, net | | (28.4) | | | (24.0) | | | $ | (56.4) | | | $ | (47.7) | |
| Other income, net | | 4.1 | | | 2.9 | | | $ | 8.8 | | | $ | 7.6 | |
| Income before income taxes | | 21.3 | | | 31.2 | | | $ | 94.0 | | | $ | 91.4 | |
| Income tax expense | | (2.1) | | | (1.4) | | | $ | (12.4) | | | $ | (2.5) | |
| Net Income | | 19.1 | | | 29.8 | | | $ | 81.7 | | | $ | 88.9 | |
| Basic Shares Outstanding | | 59.8 | | | 54.3 | | | 59.8 | | | 54.2 | |
| Earnings per Share - Basic | | $ | 0.32 | | | $ | 0.55 | | | $ | 1.37 | | | $ | 1.64 | |
| Diluted Shares Outstanding | | 59.8 | | | 55.1 | | | 59.8 | | | 55.0 | |
| Earnings per Share - Diluted | | $ | 0.32 | | | $ | 0.54 | | | $ | 1.37 | | | $ | 1.62 | |
| | | | | | | | |
| Dividends Declared per Common Share | | $ | 0.64 | | | $ | 0.63 | | | $ | 1.28 | | | $ | 1.26 | |
(1) Decrease in revenues is primarily related to pass-through supply costs and non-cash regulatory amortizations.
(2) Exclusive of depreciation and depletion expense.
(3) Utility Margin is a Non-GAAP financial measure.
See "Reconciliation of gross margin to utility margin" above and “Non-GAAP Financial Measures” below.
(4) Excluding fuel, purchased supply and direct transmission expense. |
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 3
RECONCILIATION OF PRIMARY CHANGES DURING THE QUARTER
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, 2023 vs. 2022 |
| | Pre-tax
Income | | Income Tax (Expense) Benefit (3) | | Net
Income | | Diluted
Earnings
Per Share |
| | (in millions, except EPS) | | |
| Second Quarter, 2022 | | $ | 31.2 | | | $ | (1.4) | | | $ | 29.8 | | | $ | 0.54 | |
| Variance in revenue and fuel, purchased supply, and direct transmission expense(1) items impacting net income: | | | | | | | | |
| Lower natural gas retail volumes | | (5.3) | | | 1.3 | | | (4.0) | | | (0.07) | |
| Lower electric retail volumes | | (3.5) | | | 0.9 | | | (2.6) | | | (0.05) | |
| Lower electric transmission revenue | | (1.7) | | | 0.4 | | | (1.3) | | | (0.02) | |
| Montana interim rates (subject to refund) | | 7.1 | | | (1.8) | | | 5.3 | | | 0.10 | |
| Montana property tax tracker collections | | 3.3 | | | (0.8) | | | 2.5 | | | 0.04 | |
| Lower non-recoverable Montana electric supply costs due to higher electric supply revenues and lower electric supply costs | | 3.0 | | | (0.8) | | | 2.2 | | | 0.04 | |
| Natural gas transportation | | 0.4 | | | (0.1) | | | 0.3 | | | 0.01 | |
| Other | | (0.4) | | | 0.1 | | | (0.3) | | | (0.01) | |
| | | | | | | | |
Variance in expense items(2) impacting net income: | | | | | | | | |
| Higher operating, maintenance, and administrative expenses | | (7.2) | | | 1.8 | | | (5.4) | | | (0.10) | |
| Higher interest expense | | (4.4) | | | 1.1 | | | (3.3) | | | (0.06) | |
| Higher depreciation expense | | (4.2) | | | 1.1 | | | (3.1) | | | (0.05) | |
| Higher other state and local tax expense | | (0.9) | | | 0.2 | | | (0.7) | | | (0.01) | |
| Prior year Montana Community Renewable Energy Projects (CREP) Penalty | | 2.5 | | | — | | | 2.5 | | | 0.05 | |
| Other | | $ | 1.4 | | | $ | (4.2) | | | $ | (2.8) | | | (0.06) | |
| Dilution from higher share count | | | | | | | | $ | (0.03) | |
| Second Quarter, 2023 | | $ | 21.3 | | | $ | (2.2) | | | $ | 19.1 | | | $ | 0.32 | |
| Change | | | | | | $ | (10.7) | | | $ | (0.22) | |
(1) Exclusive of depreciation and depletion shown separately below
(2) Excluding fuel, purchased supply, and direct transmission expense
(3) Income Tax (Expense) Benefit calculation on reconciling items assumes blended federal plus state effective tax rate of 25.3%.
SIGNIFICANT TRENDS AND REGULATION
Regulatory Update
Rate reviews are necessary to recover the cost of providing safe, reliable service, while contributing to earnings growth and achieving our financial objectives. We regularly review the need for electric and natural gas rate relief in each state in which we provide service.
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 4
Montana Rate Review Filing – On August 8, 2022, we filed a Montana electric and natural gas rate review with the Montana Public Service Commission (MPSC) requesting an annual increase to electric and natural gas utility rates. On September 28, 2022, the MPSC approved interim rates effective October 1, 2022, subject to refund. Subsequently, we modified our request through rebuttal testimony. On April 3, 2023, we filed a settlement agreement with certain parties, which is subject to approval by the MPSC. The details of our rebuttal request, interim rates granted, and the settlement agreement are set forth below:
| | | | | | | | |
| Montana Rate Review ($ in millions) |
| Electric | Natural Gas |
| Current return on equity (ROE) | 9.65% | 9.55% |
| Current Equity Ratio | 49.38% | 46.79% |
| Proposed Settlement ROE | 9.65% | 9.55% |
| Proposed Settlement Equity Ratio | 48.02% | 48.02% |
| Rebuttal Filing Forecasted 2022 Rate Base | $2,842 | $582 |
| | |
| Requested Revenue Increase Through Rebuttal Testimony (in millions) |
| Electric | Natural Gas |
| Base Rates | $90.6 | $22.4 |
Power Cost & Credit Mechanism (PCCAM)(1) | $69.7 | n/a |
Property Tax (tracker base adjustment)(1) | $14.5 | $4.2 |
| Total Revenue Increase Requested through Rebuttal Testimony | $174.8 | $26.6 |
| | |
| Interim Revenue Increase Granted (in millions) |
| Electric | Natural Gas |
| Base Rates | $29.4 | $1.7 |
PCCAM(1) | $61.1 | n/a |
Property Tax (tracker base adjustment)(1)(2) | $10.8 | $2.9 |
| Total Interim Revenue Granted | $101.3 | $4.6 |
| | |
| Requested Revenue Increase Through Settlement Agreement (in millions) |
| Electric | Natural Gas |
| Base Rates | $67.4 | $14.1 |
PCCAM(1) | $69.7 | n/a |
Property Tax (tracker base adjustment)(1) | $14.5 | $4.2 |
| Total Revenue Requested per Settlement Agreement | $151.6 | $18.3 |
(1) These items are flow-through costs. PCCAM reflects our fuel and purchased power costs.
(2) Our requested interim property tax base increases went into effect on January 1, 2023, as part of our 2023 property tax tracker filing.
The settlement includes, among other things, agreement on electric and natural gas base revenue increases, allocated cost of service, rate design, updates to the base amount of revenues associated with property taxes and electric supply costs, and regulatory policy issues related to requested changes in regulatory mechanisms.
The settlement agreement provides for an update to the PCCAM by adjusting the base costs from $138.7 million to $208.4 million and providing for more timely quarterly recovery of deferred balances instead of
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 5
annual recovery. It also addresses the potential for future recovery of certain operating costs associated with the Yellowstone County Generating Station and provides for the deferral of incremental operating costs related to our Enhanced Wildfire Mitigation Plan. The settling parties agreed to terminate the pilot decoupling program (Fixed Cost Recovery Mechanism) and that the proposed business technology rider will not be implemented.
A hearing on the settlement agreement was held in April 2023, post-hearing briefing concluded in June 2023, and we expect a decision from the MPSC during the third quarter of 2023. Interim rates remain in effect on a refundable basis until the MPSC issues a final order.
South Dakota Electric Rate Review Filing – On June 15, 2023, we filed a South Dakota electric rate review filing (2022 test year) under Docket EL23-016 for an annual increase to electric rates totaling approximately $30.9 million. Our request was based on a ROE of 10.7%, a capital structure including 50.5 percent equity, and rate base of $787.3 million.
Holding Company Filings – We filed a Restructuring Plan with the state commissions in Montana, South Dakota and Nebraska and the Federal Energy Regulatory Commission (FERC). Currently, our utility businesses are held in the same legal entity. Under the proposed Restructuring Plan, we proposed to legally separate our Montana public utility business from our South Dakota and Nebraska public utility business and establish a holding company to hold the ownership interests of all of the subsidiaries. The purpose of the reorganization is to segregate our organizational structure to be more transparent and in line with the public utility industry. The Restructuring Plan does not include substantive changes in how the state public utility commissions regulate those services. We have received all necessary regulatory approvals and we expect to effectuate the Restructuring Plan by early 2024.
Power Costs and Credits Adjustment Mechanism - The MPSC's September 2022 decision approving interim rates, which are subject to refund, included an increase to the PCCAM Base of $61.1 million, effective October 1, 2022. As of June 30, 2023, we have under-collected our total Montana electric supply costs for the July 2022 through June 2023 PCCAM year by approximately $18.5 million. Absent the interim rate PCCAM Base increase, as of June 30, 2023, our under-collected position would have been approximately $58.7 million. In the current PCCAM design, under-collections are not recovered from customers until the subsequent power cost adjustment year with a change in customer rates effective annually on October 1, which has adversely affected our cash flows and liquidity.
Under the PCCAM, net costs higher or lower than the PCCAM Base (excluding qualifying facility costs) are allocated 90% to Montana customers and 10% to shareholders. For the three and six months ended June 30, 2023, we over collected supply costs for the 2022 - 2023 PCCAM year, of $18.9 million and $23.4 million, respectively, resulting in a reduction to our under collection of costs, and recorded an increase in pre-tax earnings of $2.1 million and $2.6 million, respectively (10% of the PCCAM Base cost variance). For the three and six months ended June 30, 2022, we under collected costs of $7.5 million and $14.6 million, respectively, resulting in an increase to the under collection of costs, and recorded a reduction in pre-tax earnings of $0.8 million and $1.6 million, respectively.
Our electric supply from owned and long-term contracted resources is not adequate to meet our peak-demand needs. Because of this, the volatility of market prices for energy on peak-demand days, even if only for a few days in duration, exposes us to potentially significant market purchases that could negatively impact our results of operations and cash flows. See the Electric Resource Planning - Montana section below for how we are working to address this market exposure.
Electric Resource Planning - Montana
Yellowstone County 175 MW plant - As previously reported, in October 2021, the Montana Environmental Information Center and the Sierra Club filed a lawsuit in Montana State Court, against the Montana Department of Environmental Quality (MDEQ) and us, alleging that the environmental analysis conducted prior to issuance of the Yellowstone County Generating Station's air quality permit was inadequate. On April 4, 2023, the Montana District Court issued an order finding the MDEQ's environmental analysis was
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 6
deficient in not addressing exterior lighting and greenhouse gases and remanded it back to MDEQ to address the deficiencies and vacated the air quality permit pending that remand. As a result of the vacatur of the permit, we paused construction. On June 8, 2023, the Montana District Court granted our motion to stay the order vacating the air quality permit pending the outcome of our notice of appeal with the Montana Supreme Court. We recommenced construction in June 2023 and expect the plant to be operational by the end of the third quarter 2024.
On May 10, 2023, Montana House Bill 971 was signed into law, preventing the MDEQ from considering climate impacts in its analysis of large projects such as coal mines and power plants, and on June 1, 2023, the MDEQ issued its supplemental air quality permit that contained the updated exterior lighting analysis, and the MDEQ indicated that no other analysis was necessary. The comment period concerning the MDEQ’s supplemental air quality permit ended on July 3, 2023. The current lawsuit, as well as additional potential legal challenges related to the Yellowstone County Generating Station, could delay the project timing and increase costs. Total costs of approximately $203.6 million have been incurred, with expected total costs of approximately $275.0 million.
Future Integrated Resource Planning - Resource adequacy in the Western third of the U.S. has been declining with the retirement of thermal power plants. Our owned and long-term contracted resources are inadequate to supply the necessary capacity we require to meet our peak-demand loads, which exposes us to large quantities of market purchases at typically high and volatile energy prices. To comply with regulatory resource planning requirements, we submitted an integrated resource plan to the MPSC on April 28, 2023.
We remain concerned regarding an overall lack of capacity in the West and our owned and long-term contracted capacity deficit to meet peak-demand loads. The construction of the Yellowstone County Generating Station and acquisition of Avista's Colstrip Units 3 and 4 interests are expected to reduce our exposure to market purchases.
Proposed EPA Rules
In May 2023, the U.S. Environmental Protection Agency (EPA) proposed new green house gas (GHG) emissions standards for coal and natural gas-fired plants. In particular, the proposed rules would (i) strengthen the current New Source Performance Standards for newly built fossil fuel-fired stationary combustion turbines (generally natural gas-fired); (ii) establish emission guidelines for states to follow in limiting carbon pollution from existing fossil fuel-fired steam generating electric generating units (including coal, oil and natural gas-fired units); and (iii) establish emission guidelines for large, frequently used existing fossil fuel-fired stationary combustion turbines (generally natural gas-fired). In addition, in April 2023, EPA proposed to amend the Mercury Air Toxics Standard (MATS). Among other things, MATS currently sets stringent emission limits for acid gases, mercury, and other hazardous air pollutants from new and existing electric generating units. We are in compliance with existing MATS requirements. The proposed amendment of the MATS would strengthen the MATS requirements, and if adopted as written, both the GHG and MATS proposed rules could have a material negative impact on our coal-fired plants, including requiring potentially expensive upgrades or the early retirement of Colstrip Unit's 3 and 4 due to the rules making the facility uneconomic.
Previous efforts by the EPA were met with extensive litigation and we anticipate a similar response if the proposed rules are adopted. As MATS and GHG regulations are implemented, it could result in additional material compliance costs. We will continue working with federal and state regulatory authorities, other utilities, and stakeholders to seek relief from any MATS or GHG regulations that, in our view, disproportionately impact customers in our region.
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 7
EXPLANATION OF CONSOLIDATED RESULTS
Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022
Consolidated gross margin for the three months ended June 30, 2023 was $75.5 million as compared with $79.6 million in 2022, an decrease of $4.1 million, or 5.2 percent. This decrease was primarily due to lower electric and natural gas retail volumes and lower transmission revenues, higher operating and maintenance expense, and higher depreciation and depletion expense, partly offset by higher Montana interim rates associated with our ongoing rate review, which are subject to refund, higher Montana property tax tracker collections, and lower non-recoverable Montana electric supply costs.
| | | | | | | | | | | | | | |
| | Three Months Ended
June 30, |
| (in millions) | | 2023 | | 2022 |
| |
| Reconciliation of gross margin to utility margin: | | | | |
Operating Revenues (1) | | $ | 290.5 | | | $ | 323.0 | |
| Less: Fuel, purchased supply and direct transmission expense (exclusive of depreciation and depletion shown separately below) | | 67.6 | | | 95.0 | |
| Less: Operating and maintenance | | 54.9 | | | 53.3 | |
| Less: Property and other taxes | | 40.1 | | | 46.9 | |
| Less: Depreciation and depletion | | 52.4 | | | 48.2 | |
| Gross Margin | | 75.5 | | | 79.6 | |
| | | | |
| Operating and maintenance | | 54.9 | | | 53.3 | |
| Property and other taxes | | 40.1 | | | 46.9 | |
| Depreciation and depletion | | 52.4 | | | 48.2 | |
Utility Margin (2) | | $ | 222.9 | | | $ | 228.0 | |
(1) Decrease in revenues is primarily related to pass-through supply costs and non-cash regulatory amortizations.
(2) Non-GAAP financial measure. See “Non-GAAP Financial Measures” below. |
Consolidated utility margin for the three months ended June 30, 2023 was $222.9 million as compared with $228.0 million for the same period in 2022, an decrease of $5.1 million, or 2.2 percent.
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 8
Primary components of the change in utility margin include the following (in millions):
| | | | | |
| Utility Margin
2023 vs. 2022 |
| Utility Margin Items Impacting Net Income | |
| Montana interim rates (subject to refund) | $ | 7.1 | |
| Montana property tax tracker collections | 3.3 | |
| Lower non-recoverable Montana electric supply costs due to higher electric supply revenues and lower electric supply costs | 3.0 | |
| Higher Montana natural gas transportation | 0.4 | |
| Lower natural gas retail volumes | (5.3) | |
| Lower electric retail volumes | (3.5) | |
| Lower transmission revenue due to market conditions and lower rates | (1.7) | |
| Other | (0.4) | |
| Change in Utility Margin Items Impacting Net Income | $ | 2.9 | |
| Utility Margin Items Offset Within Net Income | |
| Lower property taxes recovered in revenue, offset in property and other taxes | (7.2) | |
| Lower operating expenses recovered in revenue, offset in operating and maintenance expense | (1.4) | |
| Lower natural gas production taxes recovered in revenue, offset in property and other taxes | (0.4) | |
| Higher revenue from lower production tax credits, offset in income tax expense | 1.0 | |
| Change in Utility Margin Items Offset Within Net Income | (8.0) | |
Decrease in Consolidated Utility Margin(1) | $ | (5.1) | |
| (1) Non-GAAP financial measure. See “Non-GAAP Financial Measures” below. | |
Lower electric retail volumes were driven by unfavorable weather in Montana impacting residential demand and lower commercial demand, partly offset by customer growth and favorable weather in South Dakota. Lower natural gas retail volumes were driven by unfavorable weather in Montana, partly offset by customer growth. Interim rates in our Montana rate review were effective October 1, 2022, and are subject to refund, pending an outcome in the proceeding.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2023 | | 2022 | | Change | | % Change |
| ($ in millions) | |
| Operating Expenses (excluding fuel, purchased supply and direct transmission expense) | | | | | | | |
| Operating and maintenance | $ | 54.8 | | | $ | 53.3 | | | $ | 1.5 | | | 2.8 | % |
| Administrative and general | 30.0 | | | 27.2 | | | 2.8 | | | 10.3 | |
| Property and other taxes | 40.1 | | | 46.9 | | | (6.8) | | | (14.5) | |
| Depreciation and depletion | 52.4 | | | 48.2 | | | 4.2 | | | 8.7 | |
| Total Operating Expenses (excluding fuel, purchased supply and direct transmission expense) | $ | 177.3 | | | $ | 175.6 | | | $ | 1.7 | | | 1.0 | % |
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 9
Consolidated operating expenses, excluding fuel, purchased supply and direct transmission expense, were $177.3 million for the three months ended June 30, 2023, as compared with $175.6 million for the three months ended June 30, 2022. Primary components of the change include the following (in millions):
| | | | | |
| | Operating Expenses |
| 2023 vs. 2022 |
| Operating Expenses (excluding fuel, purchased supply and direct transmission expense) Impacting Net Income | |
Higher labor and benefits(1) | $ | 4.4 | |
| Higher depreciation expense due to plant additions | 4.2 | |
| Higher other state and local tax expense | 0.9 | |
| Increase in uncollectible accounts | 0.8 | |
| Higher insurance expense | 0.4 | |
| Lower expenses at our electric generation facilities | (0.2) | |
| Other | 1.8 | |
| Change in Items Impacting Net Income | 12.3 | |
| |
| Operating Expenses Offset Within Net Income | |
| Lower property taxes recovered in trackers, offset in revenue | (7.2) | |
Lower pension and other postretirement benefits, offset in other income(1) | (1.7) | |
| Lower operating and maintenance expenses recovered in trackers, offset in revenue | (1.4) | |
| Lower natural gas production taxes recovered in trackers, offset in revenue | (0.4) | |
| Higher non-employee directors deferred compensation recorded within administrative and general expense, offset in other income | 0.1 | |
| Change in Items Offset Within Net Income | (10.6) | |
| Increase in Operating Expenses (excluding fuel, purchased supply and direct transmission expense) | $ | 1.7 | |
| (1) In order to present the total change in labor and benefits, we have included the change in the non-service cost component of our pension and other postretirement benefits, which is recorded within other income on our Condensed Consolidated Statements of Income. This change is offset within this table as it does not affect our operating expenses |
We estimate property taxes throughout each year, and update those estimates based on valuation reports received from the Montana Department of Revenue. Under Montana law, we are allowed to track the increases and decreases in the actual level of state and local taxes and fees and adjust our rates to recover the increase or decrease between rate cases less the amount allocated to FERC-jurisdictional customers and net of the associated income tax benefit.
Consolidated operating income for the three months ended June 30, 2023 was $45.6 million as compared with $52.3 million in the same period of 2022. This decrease was primarily driven by lower electric and natural gas retail volumes, lower transmission revenues, higher operating and maintenance expense, higher administrative and general expense, and higher depreciation and depletion expense, partly offset by higher Montana interim rates associated with our ongoing rate review, which are subject to refund, higher Montana property tax tracker collections, and lower non-recoverable Montana electric supply costs.
Consolidated interest expense was $28.4 million for the three months ended June 30, 2023 as compared with $24.0 million for the same period of 2022. This increase was due to higher borrowings and interest rates, partly offset by higher capitalization of Allowance for Funds Used During Construction.
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 10
Consolidated other income was $4.1 million for the three months ended June 30, 2023 as compared with $2.9 million for the same period of 2022. This increase was primarily due to the prior year CREP penalty, partly offset by an increase in the non-service component of pension expense.
Consolidated income tax expense was $2.1 million for the three months ended June 30, 2023 as compared to $1.4 million for the same period of 2022. Our effective tax rate for the three months ended June 30, 2023 was 10.1% as compared with 4.6% for the same period in 2022.
The following table summarizes the differences between our effective tax rate and the federal statutory rate ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| 2023 | | 2022 |
| Income Before Income Taxes | $ | 21.3 | | | | | $ | 31.2 | | | |
| | | | | | | |
| Income tax calculated at federal statutory rate | 4.5 | | | 21.0 | % | | 6.6 | | | 21.0 | % |
| | | | | | | |
| Permanent or flow-through adjustments: | | | | | | | |
| State income tax, net of federal provisions | 0.3 | | | 1.3 | | | 0.4 | | | 1.4 | |
| Flow-through repairs deductions | (1.7) | | | (8.0) | | | (3.3) | | | (10.6) | |
| Production tax credits | (1.1) | | | (5.4) | | | (2.6) | | | (8.2) | |
| Amortization of excess deferred income tax | (0.2) | | | (1.1) | | | (0.2) | | | (0.5) | |
| Plant and depreciation flow-through items | 0.2 | | | 0.9 | | | 0.4 | | | 1.3 | |
| Other, net | 0.1 | | | 1.4 | | | 0.1 | | | 0.2 | |
| (2.4) | | | (10.9) | | | (5.2) | | | (16.4) | |
| | | | | | | |
| Income tax expense | $ | 2.1 | | | 10.1 | % | | $ | 1.4 | | | 4.6 | % |
We compute income tax expense for each quarter based on the estimated annual effective tax rate for the year, adjusted for certain discrete items. Our effective tax rate typically differs from the federal statutory tax rate primarily due to the regulatory impact of flowing through federal and state tax benefits of repairs deductions, state tax benefit of accelerated tax depreciation deductions (including bonus depreciation when applicable) and production tax credits.
Consolidated net income for the three months ended June 30, 2023 was $19.1 million as compared with $29.8 million for the same period in 2022. This decrease was primarily due to lower electric and natural gas retail volumes, lower transmission revenues, higher operating and maintenance expense, higher administrative and general expense, higher depreciation and depletion expense, higher interest expense, and higher income tax expense, partly offset by higher Montana interim rates associated with our ongoing rate review, which are subject to refund, higher Montana property tax tracker collections, and lower non-recoverable Montana electric supply costs.
LIQUIDITY, NOTICES AND OTHER CONSIDERATIONS
Liquidity and Capital Resources
As of June 30, 2023, our total net liquidity was approximately $366.8 million, including $7.8 million of cash and $359.0 million of revolving credit facility availability with no letters of credit outstanding. This compares to total net liquidity one year ago at June 30, 2022 of $106.1 million.
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 11
Long-term Debt and Equity
We generally issue long-term debt to refinance other long-term debt maturities and borrowings under our revolving credit facilities, as well as to fund long-term capital investments and strategic opportunities. We have $100 million of debt maturing in March 2024, which we intend to refinance.
On March 30, 2023, we issued and sold $239.0 million aggregate principal amount of Montana First Mortgage Bonds at a fixed interest rate of 5.57 percent maturing on March 30, 2033. On this same day, we issued and sold $31.0 million aggregate principal amount of South Dakota First Mortgage Bonds at a fixed interest rate of 5.57 percent maturing on March 30, 2033. On May 1, 2023, we issued and sold an additional $30.0 million aggregate principal amount of South Dakota First Mortgage Bonds at a fixed interest rate of 5.42 percent maturing on May 1, 2033. These bonds were issued in transactions exempt from the registration requirements of the Securities Act of 1933. Proceeds were used to repay a portion of our outstanding borrowings under our revolving credit facilities and for other general corporate purposes. The bonds are secured by our electric and natural gas assets in Montana and South Dakota.
In June 2023, we amended our Equity Distribution Agreement to replace one of the sales agents. Pursuant to the Equity Distribution Agreement we may offer and sell shares of our common stock from time to time, having an aggregate gross sales price of up to $200.0 million, through an At-the-Market (ATM) offering program, including an equity forward sales component. This is a three-year agreement, expiring on February 11, 2024. During the three months ended June 30, 2023, we issued 188,682 shares of common stock under the ATM program at an average price of $57.83 per share, for net proceeds of $10.8 million which is net of sales commissions and other fees paid of approximately $0.1 million.
On June 29, 2023, the City of Forsyth, Rosebud County, Montana issued $144.7 million principal amount of Pollution Control Revenue Refunding Bonds (2023 Pollution Control Bonds) on our behalf. The 2023 Pollution Control Bonds were issued at a fixed interest rate of 3.88 percent maturing on July 1, 2028. The proceeds of the issuance were loaned to us pursuant to a Loan Agreement and were deposited directly with U.S. Bank Trust Company, National Association, as trustee, for the redemption of the 2.00 percent, $144.7 million City of Forsyth Pollution Control Revenue Refunding Bonds due on August 1, 2023 that had previously been issued on our behalf. Pursuant to the Loan Agreement, we are obligated to make payments in such amounts and at such times as will be sufficient to pay, when due, the principal and interest on the 2023 Pollution Control Bonds. Our obligations under the Loan Agreement are secured by delivery of a like amount of our Montana First Mortgage Bonds, which are secured by our Montana electric and natural gas assets. So long as we are making payments under the Loan Agreement, no payments under these mortgage bonds will be due. The 2023 Pollution Control Bonds were issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended.
We generally issue equity securities to fund long-term investment in our business. We evaluate our equity issuance needs to support our plan to maintain a 50 - 55 percent debt to total capital ratio excluding finance leases. We anticipate issuing $63.6 million of common stock through our ATM program through the remainder of 2023.
Dividend Declared
NorthWestern's Board of Directors declared a quarterly common stock dividend of $0.64 per share payable September 29, 2023 to common shareholders of record as of September 15, 2023.
2023 Earnings Guidance and Capital Expenditures Forecast
NorthWestern expects to issue 2023 earnings guidance following an outcome in the currently pending Montana general rate review. Our estimated capital expenditures for 2023 are $510 million. Over the next
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 12
five years (2023 to 2027) we estimate investment of $2.4 billion in our electric and natural gas transmission and distribution and electric generation infrastructure.
Earnings Per Share
Basic earnings per share are computed by dividing earnings applicable to common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of common stock equivalent shares that could occur if unvested shares were to vest. Common stock equivalent shares are calculated using the treasury stock method, as applicable. The dilutive effect is computed by dividing earnings applicable to common stock by the weighted average number of common shares outstanding plus the effect of the outstanding unvested restricted stock and performance share awards and forward equity sale. Average shares used in computing the basic and diluted earnings per share are as follows:
| | | | | | | | | | | |
| Three Months Ended |
| June 30, 2023 | | June 30, 2022 |
| Basic computation | 59,804,283 | | | 54,271,862 | |
| Dilutive effect of: | | | |
Performance share awards(1) | 45,391 | | | 34,900 | |
Forward equity sale(2) | — | | | 834,126 | |
| Diluted computation | 59,849,674 | | | 55,140,888 | |
| | | | | | | | | | | |
| Six Months Ended |
| June 30, 2023 | | June 30, 2022 |
| Basic computation | 59,790,316 | | | 54,184,798 | |
| Dilutive effect of: | | | |
Performance share awards(1) | 29,200 | | | 23,072 | |
Forward equity sale(2) | — | | | 772,755 | |
| Diluted computation | 59,819,516 | | | 54,980,625 | |
| | | |
(1) Performance share awards are included in diluted weighted average number of shares outstanding based upon what would be issued if the end of the most recent reporting period was the end of the term of the award.
(2) Forward equity shares are included in diluted weighted average number of shares outstanding based upon what would be issued if the end of the most recent reporting period was the end of the term of the forward sale agreement.
|
| | | |
As of June 30, 2023, there were 21,890 shares from performance and restricted share awards which were antidilutive and excluded from the earnings per share calculations, compared to 36,296 shares as of June 30, 2022.
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 13
Adjusted Non-GAAP Earnings
We reported GAAP earnings of $0.32 per diluted share for the three months-ended June 30, 2023 and $0.54 per diluted share for the same period in 2022. Adjusted Non-GAAP earnings per diluted share for the same periods are $0.35 and $0.54, respectively. A reconciliation of items not factored into our Adjusted Non-GAAP diluted earnings are summarized below. The amount below represents a non-GAAP measure that may provide users of this data with additional meaningful information regarding the impact of certain items on our expected earnings. More information on this measure can be found in the "Non-GAAP Financial Measures" section below.
| | | | | | | | | | | |
| (in millions, except EPS) | |
| | | |
| Three Months Ended June 30, 2023 |
| Pre-tax
Income | Net(1)
Income | Diluted
EPS |
| 2023 Reported GAAP | $21.3 | $19.1 | $0.32 |
| | | |
| Non-GAAP Adjustments: |
Remove impact of unfavorable weather as compared to normal | 1.8 | | 1.3 | | 0.03 | |
| | | |
| 2023 Adj. Non-GAAP | $23.1 | $20.4 | $0.35 |
| | | |
| | | |
| Three Months Ended June 30, 2022 |
| Pre-tax
Income | Net(1)
Income | Diluted
EPS |
| 2022 Reported GAAP | $31.2 | $29.8 | $ | 0.54 | |
| | | |
| Non-GAAP Adjustments: |
Remove impact of favorable weather as compared to normal | (2.9) | | (2.2) | | (0.04) | |
Remove impact of CREP Penalty
(not tax deductible) | 2.5 | | 2.5 | | 0.04 | |
| | | |
| 2022 Adj. Non-GAAP | $30.8 | $30.1 | $0.54 |
| | | |
| (1) Income Tax Benefit (Expense) calculation on reconciling items assumes blended federal plus state effective tax rate of 25.3%. |
Company Hosting Earnings Webcast
NorthWestern will also host an investor earnings webcast on Wednesday, July 26, 2023, at 11:00 a.m. Eastern time to review its financial results for the quarter ending June 30, 2023. To register for the webcast, please visit www.northwesternenergy.com/earnings-registration. Please go to the site at least 15 minutes in advance of the webinar to register. An archived webcast will be available shortly after the event and remain active for one year.
NorthWestern Energy - Delivering a Bright Future
NorthWestern Corporation, doing business as NorthWestern Energy, provides essential energy infrastructure and valuable services that enrich lives and empower communities while serving as long-term partners to our customers and communities. We work to deliver safe, reliable, and innovative energy solutions that create value for customers, communities, employees, and investors. We do this by providing low-cost and reliable service performed by highly-adaptable and skilled employees. We provide electricity and / or natural gas to approximately 764,200 customers in Montana, South Dakota, Nebraska,
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 14
and Yellowstone National Park. We have provided service in South Dakota and Nebraska since 1923 and in Montana since 2002.
Non-GAAP Financial Measures
This press release includes financial information prepared in accordance with GAAP, as well as other financial measures, such as Utility Margin, Adjusted Non-GAAP pretax income, Adjusted Non-GAAP net income and Adjusted Non-GAAP Diluted EPS 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 excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP.
We define Utility Margin as Operating Revenues less fuel, purchased supply and direct transmission expense (exclusive of depreciation and depletion) as presented in our Consolidated Statements of Income. This measure differs from the GAAP definition of Gross Margin due to the exclusion of Operating and maintenance, Property and other taxes, and Depreciation and depletion expenses, which are presented separately in our Consolidated Statements of Income. A reconciliation of Utility Margin to Gross Margin, the most directly comparable GAAP measure, is included in the press release above.
Management believes that Utility Margin provides a useful measure for investors and other financial statement users to analyze our financial performance in that it excludes the effect on total revenues caused by volatility in energy costs and associated regulatory mechanisms. This information is intended to enhance an investor's overall understanding of results. Under our various state regulatory mechanisms, as detailed below, our supply costs are generally collected from customers. In addition, Utility Margin is used by us to determine whether we are collecting the appropriate amount of energy costs from customers to allow for recovery of operating costs, as well as to analyze how changes in loads (due to weather, economic or other conditions), rates and other factors impact our results of operations. Our Utility Margin measure may not be comparable to that of other companies' presentations or more useful than the GAAP information provided elsewhere in this report.
Management also believes the presentation of Adjusted Non-GAAP pre-tax income, Adjusted Non- GAAP net income and Adjusted Non-GAAP Diluted EPS is more representative of normal earnings than GAAP pre-tax income, net income and EPS due to the exclusion (or inclusion) of certain impacts that are not reflective of ongoing earnings. The presentation of these non-GAAP measures is intended to supplement investors' understanding of our financial performance and not to replace other GAAP measures as an indicator of actual operating performance. Our measures may not be comparable to other companies' similarly titled measures.
Special Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including, without limitation, the information under "Adjusted Non-GAAP Earnings." Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and believe such statements are based on reasonable assumptions, including without limitation, management's examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that we will achieve our projections. Factors that may cause such differences include, but are not limited to:
•adverse determinations by regulators, as well as potential adverse federal, state, or local legislation or regulation, including costs of compliance with existing and future environmental requirements, could have a material effect on our liquidity, results of operations and financial condition;
•the impact of extraordinary external events and natural disasters, such as a wide-spread or global pandemic, geopolitical events, earthquake, flood, drought, lightning, weather, wind, and fire, could have a material effect on our liquidity, results of operations and financial condition;
NorthWestern Reports Second Quarter 2023 Financial Results
July 24, 2023
Page 15
•acts of terrorism, cybersecurity attacks, data security breaches, or other malicious acts that cause damage to our generation, transmission, or distribution facilities, information technology systems, or result in the release of confidential customer, employee, or Company information;
•supply chain constraints, recent high levels of inflation for product, services and labor costs, and their impact on capital expenditures, operating activities, and/or our ability to safely and reliably serve our customers;
•changes in availability of trade credit, creditworthiness of counterparties, usage, commodity prices, fuel supply costs or availability due to higher demand, shortages, weather conditions, transportation problems or other developments, may reduce revenues or may increase operating costs, each of which could adversely affect our liquidity and results of operations;
•unscheduled generation outages or forced reductions in output, maintenance or repairs, which may reduce revenues and increase operating costs or may require additional capital expenditures or other increased operating costs; and
•adverse changes in general economic and competitive conditions in the U.S. financial markets and in our service territories.
Our 2022 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, reports on Form 8-K and other Securities and Exchange Commission filings discuss some of the important risk factors that may affect our business, results of operations and financial condition. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Investor Relations Contact: Media Contact:
Travis Meyer (605) 978-2967 Jo Dee Black (866) 622-8081
travis.meyer@northwestern.com jodee.black@northwestern.com
2023 Second Quarter Earnings Webcast July 26, 2023 Beethoven Wind, South Dakota 8-K July 24, 2023
Presenting Today 2 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 of this document 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 10-K and 10-Q along with other public filings with the SEC. Crystal Lail Vice President & CFO Brian Bird President & CEO
Regulatory execution • Filed South Dakota electric rate review • Reached constructive multi-party settlement in Montana rate review (currently pending commission approval) Yellowstone County Generating Station • Legislative and judicial support for construction. After initial pause in construction, we resumed construction in June 2023 and expect the facility to be serving customers during the third quarter 2024. • Invested approx. $203.6 million of the estimated $275 million project total Strong and growing service territories. • Overall 1.4% customer growth (vs second quarter 2022) • Lowest unemployment rates in the nation SD #1 (1.9%), NE #1 (1.9%) and MT #6 (2.2%) (US Bureau of Labor Statistics, July 19, 2023) Second Quarter 3 NorthWestern recognized as one of America’s Greatest Workplaces 2023 by Newsweek.
Second Quarter 2023 Financial Results 4 *See slide 10 and “Non-GAAP Financial Measures” slide in the appendix for additional detail on this measure. Second Quarter Net Income vs Prior Period •GAAP: ↓ $10.7 Million (or 35.9%) •Non-GAAP*: ↓ $9.7 Million (or 32.2%) •Non-GAAP Pro Forma: ↓ $0.8 Million (or 2.7%) (Impact if MT Rate Review Settlement approved as filed) Second Quarter EPS vs Prior Period •GAAP: ↓ $0.22 (or 40.7%) •Non-GAAP*: ↓ $0.19 (or 35.2%) •Non-GAAP Pro Forma: ↓ $0.04 (or 7.4%) (Impact if MT Rate Review Settlement approved as filed)
*See slide 45 and “Non-GAAP Financial Measures” slide in the appendix for additional detail on this measure. Year-to-Date 2023 Financial Results 5 Year-to-Date Net Income vs Prior Period •GAAP: ↓ $7.3 Million (or 8.2%) •Non-GAAP*: ↓ $6.3 Million (or 7.0%) •Non-GAAP Pro Forma: ↑ $14.3 Million (or 15.9%) (Impact if MT Rate Review Settlement approved as filed) Year-to-Date EPS vs Prior Period •GAAP: ↓ $0.25 (or 15.4%) •Non-GAAP*: ↓ $0.23 (or 14.1%) •Non-GAAP Pro Forma: ↑ $0.12 (or 7.4%) (Impact if MT Rate Review Settlement approved as filed)
Second Quarter Financial Results 6 (1) (1) Decrease in revenues is primarily related to pass-through supply costs and non-cash regulatory amortizations. (2) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. (2)
Second Quarter EPS Bridge 7 Improvement in Utility Margin offset by higher expenses and share count dilution. After-tax Earnings Per Share See slide 10 and “Non-GAAP Financial Measures” slide in the appendix for additional detail on this measure. Change in Items impacting Net Income
Second Quarter Utility Margin Bridge 8 $2.9 Million or 1.3% increase in Utility Margin due to items that impact Net Income. NOTE: Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. Pre-tax Millions
Second Quarter OA&G Bridge 9 $7.2 Million or 8.9% increase in OA&G Expense due to items that impact Net Income. NOTE: Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. Pre-tax Millions
Second Quarter Non-GAAP Earnings 10 The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that are non- recurring or a variance from normal weather, however they should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP. (1) As a result of the adoption of Accounting Standard Update 2017-07 in March 2018, pension and other employee benefit expense is now disaggregated on the GAAP income statement with portions now recorded in both OG&A expense and Other (Expense) Income lines. To facilitate better understanding of trends in year-over-year comparisons, the non-GAAP adjustment above re-aggregates the expense in OG&A - as it was historically presented prior to the ASU 2017-07 (with no impact to net income or earnings per share). (2) Utility Margin is a non-GAAP Measure See the slide titled “Explaining Utility Margin” for additional disclosure. (in millions) Three Months Ended June 30, 2023 U nf av or ab le W ea th er M ov e Pe ns io n Ex pe ns e to O G & A (d is ag gr eg at ed w ith A SU 2 01 7- 07 ) N on -e m pl oy ee D ef er re d C om pe ns at io n Three Months Ended June 30, 2023 Three Months Ended June 30, 2022 C om m un ity R en ew ab le E ne rg y Pr oj ec t Pe na lty (n ot ta x de du ct ib le ) N on -e m pl oy ee D ef er re d C om pe ns at io n M ov e Pe ns io n Ex pe ns e to O G & A (d is ag gr eg at ed w ith A SU 2 01 7- 07 ) Fa vo ra bl e W ea th er Three Months Ended June 30, 2022 Revenues $290.5 1.8 $292.3 ($27.8) -8.7% $320.1 (2.9) $323.0 Fuel, supply & dir. tx 67.6 67.6 (27.4) -28.8% 95.0 95.0 Utility Margin 222.9 1.8 - - 224.7 (0.4) -0.2% 225.1 - - - (2.9) 228.0 Op. Expenses OG&A Expense 84.8 - - 84.8 5.9 7.5% 78.9 0.1 (1.7) 80.5 Prop. & other taxes 40.1 40.1 (6.8) -14.5% 46.9 46.9 Depreciation 52.4 52.4 4.2 8.7% 48.2 48.2 Total Op. Exp. 177.3 - - - 177.3 3.3 1.9% 174.0 - 0.1 (1.7) - 175.6 Op. Income 45.6 1.8 - - 47.4 (3.7) -7.2% 51.1 - (0.1) 1.7 (2.9) 52.4 Interest expense (28.4) (28.4) (4.4) -18.3% (24.0) (24.0) Other (Exp.) Inc., net 4.1 - - 4.1 0.3 8.0% 3.8 2.5 0.1 (1.7) 2.9 Pretax Income 21.3 1.8 - - 23.1 (7.7) -25.0% 30.8 2.5 - - (2.9) 31.2 Income tax (2.2) (0.5) - - (2.7) (2.0) -285.7% (0.7) - - - 0.7 (1.4) Net Income $19.1 1.3 - - $20.4 ($9.7) -32.2% $30.1 2.5 - - (2.2) $29.8 ETR 10.1% 25.3% - - 11.7% 2.3% 0.0% - - 25.3% 4.6% Diluted Shares 59.8 59.8 4.7 8.5% 55.1 55.1 Diluted EPS $0.32 0.03 - - $0.35 ($0.19) -35.2% $0.54 0.04 - - (0.04) $0.54 Variance $ % Three Months Ended June 30, GAAP Non GAAP Non-GAAP Variance Non GAAP GAAP (1)(1) (2) Non-GAAP AdjustmentsNon-GAAP Adjustments
Cash Flow 11 Cash from Operating Activities increased by $61 million driven by a $62.1 million increase in collection of energy supply costs from customers. Funds from Operations decreased by $10.3 million over prior period. Net Under-Collected Supply Costs (in millions) Beginning (Jan. 1) Ending (March. 31) Inflow 2022 $99.1 $75.8 $23.3 2023 $115.4 $30.0 $85.4 2023 Improvement (less outflow) $62.1 We issued $10.8 million of equity under an At-the-Market equity program and anticipate issuing the remaining availability of approx. $64 million under the program during 2023. Debt financing during the quarter • Received remaining $50 million of the $270 million, 5.57% coupon, 30 year Montana FMBs priced in Q1 • Issued and received $30 million, 5.42% coupon, 10 year, South Dakota FMBs • Refinanced $144.7 million, 3.88% coupon, 5 year Pollution Control Revenue Refunding Bonds Financing plans (targeting a FFO to Debt ratio > 14%) are expected maintain our current credit ratings and are subject to change.
2023 earnings guidance is expected to be provided following an outcome in our pending Montana rate review Anticipate constructive and collaborative process with commission and staff in the South Dakota review $510 million capital plan for 2023 (inclusive of $80 million of investment specific to Yellowstone County Generating Station) Long-term growth targets remain; 3-6% EPS and 4-5% rate base 2023 annualized dividend of $2.56 is expected to be above targeted 60-70% payout ratio. Over the longer- term, we expect to maintain a dividend payout ratio within a targeted 60-70% range Financing plans are intended to maintain current credit ratings (targeting FFO to debt ratio greater than 14%) Financial Outlook 12 Rowe Dam at Mystic Lake, Montana
Montana Rate Review 13 The MPSC approved the recommendations of the staff for interim rates, subject to refund, effective October 1, 2022. Interim Rates Anticipated Next Steps • Post-hearing briefing concluded in June 2023. • We anticipate a decision from the MPSC on the Settlement Agreement during the third quarter 2023. Settlement Reached On April 3rd, NWE and the primary intervenors reached a Settlement Agreement for electric and natural gas rates and several key provisions including 9.65% and 9.55% ROE for electric and natural gas respectively (with 48% equity capitalization). The settlement was filed with the MPSC for their review. Final rates, once approved, will be retroactive back to interim effective date of October 1, 2022. Requested base rate increase supports over a billion dollars invested in Montana critical infrastructure - since our last rate reviews - while keeping operating costs below the rate of inflation. (Test years: 2015 nat. gas and 2017 electric)
South Dakota Rate Review 14 • First rate review since 2015. Seeking recovery of nearly 30 percent of rate base that is not included in South Dakota electric rates today. • Requested base rate increase driven by more than $267 million invested in South Dakota critical electric infrastructure, while keeping operating costs below the rate of inflation, since our last electric rate review. • Roughly 99% of the requested increase is driven by infrastructure investment, which includes cost of debt and equity capital and depreciation. • Increases in the typical customer bill since the last rate review are in line with inflation. Request to update our rates to reflect the current cost to provide safe and reliable service to our customers See Appendix for additional filing details.
Capital Investment 15 $2.4 billion of forecasted low-risk capital investment opportunity… • Capital investment addresses generation and transmission capacity constraints, grid modernization and renewable energy integration. This does not include any incremental opportunities related to additional supply investment. • This sustainable level of capex is expected to drive an annualized rate base growth of approximately 4%-5%. • We expect to finance this capital with a combination of cash flows from operations, first mortgage bonds and equity issuances. Over $2.1 Billion investment* over last 5 years * Historical Capital Investment includes property, plant and equipment additions, acquisitions and capital expenditures included in accounts payable. 5 Year History of Capital Investment 5 Year Forecast of Capital Investment ($millions, unless stated otherwise) Yellowstone County Generating Station
Conclusion 16 Pure Electric & Gas Utility Solid Utility Foundation Best Practices Corporate Governance Attractive Future Growth Prospects Strong Earnings & Cash Flows
17 Appendix
Regulated Utility Five-Year Capital Forecast 18 Appendix $2.4 billion of highly-executable and low-risk capital investment Electric Supply Resource Plans - Our energy resource plans identify portfolio resource requirements including potential investments. Included within our projections is approximately $120.0 million (in 2023 and 2024) of capital to complete construction of the 175 MW Yellowstone County Generating Station to be on line in 2024. Distribution and Transmission Modernization and Maintenance - The primary goals of our infrastructure investments are to reverse the trend in aging infrastructure, maintain reliability, proactively manage safety, build capacity into the system, and prepare our network for the adoption of new technologies. We are taking a proactive and pragmatic approach to replacing these assets while also evaluating the implementation of additional technologies to prepare the overall system for smart grid applications. Beginning in 2021, and continuing through 2025, we are installing automated metering infrastructure in Montana at a total cost of approximately $112.0 million, of which, $66.1 million remains and is reflected in the five year capital forecast.
Rate Base & Authorized Return Summary 19 Appendix (1) The revenue requirement associated with the FERC regulated portion of Montana electric transmission and ancillary services are included as revenue credits to our MPSC jurisdictional customers. Therefore, we do not separately reflect FERC authorized rate base or authorized returns. (2) The Montana gas revenue requirement includes a step down which approximates annual depletion of our natural gas production assets included in rate base. (3) For those items marked as "n/a," the respective settlement and/or order was not specific as to these terms. (4) On August 8, 2022, we filed a Montana electric and natural gas rate review filing (2021 test year) requesting an increase to our authorized rate base, return on equity, and equity level in our capital structure. We expect a final order regarding this rate review in 2023. Coal Generation Rate Base as a percentage of Total Rate Base Revenue from coal generation is not easily identifiable due to the use of bundled rates in South Dakota and other rate design and accounting considerations. However, NorthWestern is a fully regulated utility company for which rate base is the primary driver for earnings. The data to the left illustrates that NorthWestern only derives approximately 9 -14% of earnings from its jointly owned coal generation rate base.
20 Appendix South Dakota & Montana Rate Review
South Dakota Rate Review 21 Infrastructure investment drives nearly 99%* of the requested base rate adjustment * $19.0 million Cost of Capital plus $17.2 million Infrastructure Investment as a percent of $36.6 million Total Change in Cost of Service. Appendix
South Dakota Rate Review 22 Electric $19.14 Per month Increase for an average residential electric customer that uses 750 kWh if our requested rate increase is approved. Appendix
South Dakota Rate Review 23 Appendix Since our last rate adjustment, NorthWestern’s typical residential electric customer bills have maintained a pace well below inflation. This request, if granted in full, would still result in customer bills in line with inflation.
Montana Rate Review 24 Appendix Approximately 42% of the requested total electric and natural gas revenue increase is driven by flow-through costs including market power purchases and property taxes. 49% is driven by capital investment to ensure the safety and reliability of the energy system.
25 Appendix Colstrip Transfer
NorthWestern Energy executed an agreement with Avista Corporation (Exit Agreement) for the transfer of Avista’s ownership interests in Colstrip Units 3 and 4. • Effective date of transfer: December 31, 2025 • Generating capacity: 222 MW (bringing our total ownership to 444 MW) • Transfer price: $0.00 Colstrip Transaction Overview 26 • NorthWestern will be responsible for operational and capital costs beginning January 1, 2026. • The agreement does not require approval by the Montana Public Service Commission (MPSC). We expect to work with the MPSC in a future docket for cost recovery in 2026. • NorthWestern will have the right to exercise Avista’s vote with respect to capital expenditures1 between now and 2025 with Avista responsible for its pro rata share2. • Avista will retain its existing environmental and decommissioning obligations through life of plant. • Under the Colstrip Ownership & Operating Agreement, each of the owners will have a 90-day period in which to evaluate the transaction between NorthWestern and Avista to determine whether to exercise their respective right of first refusal. • We filed our Montana Integrated Resource Plan on April 28, 2023. This transaction is expected to satisfy our capacity needs in Montana for at least the next 5 years. 1. Avista retains the vote related to remediation activities. 2. Avista bears its current project share (15%) costs through 2025, other than “Enhancement Work Costs” for which it bears a time-based pro-rata share. Enhancement Work Costs are costs that are not performed on a least-costs basis or are intended to extend the life of the facility beyond 2025. See the Exit Agreement for additional detail. Appendix
Facility Ownership Overview 27 NorthWestern is actively working with the other owners to resolve outstanding issues, including the associated pending legal proceedings. Additionally, the owners intend to pursue a mutually beneficial reallocation (swap) of megawatts between the two units that would ideally provide NorthWestern with a controlling (> 370 megawatts) share of Unit 4. Appendix
Why Colstrip? 28 Reliable • Existing resource, ready to serve our Montana customers. Avoids lengthy planning, permitting and construction of a new facility that would stretch in-service beyond 2026. • Reduces reliance on imported power and volatile markets, providing increased energy independence. • In-state and on-system asset mitigating the transmission constraints we experience importing capacity. • Adds critical long-duration, 24/7 on-demand generation necessary for balancing our existing portfolio. Affordable • 222 MW of capacity with no upfront capital costs and stable operating costs going forward. o Equivalent new build would cost in excess of $500 million. o Incremental operating costs are known and reasonable. Resulting variable generation costs represent a 90%+ discount to market prices incurred during December’s polar vortex. • In addition to no upfront capital, low and stably priced mine-mouth coal supply costs. Sustainable • We remain committed to our net zero goal by 2050. This additional capacity, with a remaining life of up to 20 years, helps bridge the interim gap and will likely lead to less carbon post 2040. • Yellowstone County Generating Station is potentially our last natural gas resource addition in Montana. • Partners are committed to evaluate non-carbon long-duration alternative resources for the site. • Keeps the existing plant open and retains its highly skilled jobs vital to the Colstrip community. • Protects existing ownership interests with an ultimate goal of majority ownership of Unit 4. NorthWestern Energy executed an agreement with Avista Corporation for the transfer of Avista’s ownership interests in Colstrip Units 3 & 4. • Effective date of transfer: 12/31/2025 • Generating capacity: 222 MW • Transfer price: $0.00 Appendix
Reduces Risk • We are in a supply capacity crisis due to lack of resource adequacy, with approx. 40% of our customers’ peak needs on the market. This transaction will reduce our need to import expensive capacity during critical times. • Establishes clarity regarding operations past 2025 Washington state legislation deadline. • Reduces PCCAM risk sharing for customers and shareholders. Bill Headroom • Stable pricing reduces impact of market volatility and high energy prices on customers. Aligned with ‘All of the Above’ energy transition in Montana • Supports our generating portfolio that is nearly 60% carbon-free today. • Provides future opportunity at the site while supporting economic development in Montana. • Agreement considers the appropriate balance of reliability, affordability and sustainability. 29 Why Colstrip?Appendix
December 2022 Polar Vortex 30 The chart illustrates the actual resource specific contribution of energy, the capacity deficit we faced, and the market price of power during the late December 2022 multi-day cold weather event in Montana. As a result of our capacity deficit, we were reliant upon the high and volatile power market a majority of the time to meet customer demand. Appendix
Our Net-Zero Vision 31 Over the past 100 years, NorthWestern Energy has maintained our commitment to provide customers with reliable and affordable electric and natural gas service while also being good stewards of the environment. We have responded to climate change, its implications and risks, by increasing our environmental sustainability efforts and our access to clean energy resources. But more must be done. We are committed to achieving net zero emissions by 2050. • Committed to achieving net-zero by 2050 for Scope 1 and 2 emissions • Must balance Affordability, Reliability and Sustainability in this transition • No new carbon emitting generation additions after 2035 • Pipeline modernization, enhanced leak detection and development of alternative fuels for natural gas business • Electrify fleet and add charging infrastructure • Carbon offsets likely needed to ultimately achieve net-zero • Please visit www.NorthWesternEnergy.com/NetZero to learn more about our Net Zero Vision. Appendix
32 Appendix Second Quarter and Year-to-Date Financial Information
Decrease in utility margin due to the following factors: $ 7.1 Montana interim rates 3.3 Montana property tax tracker collections 3.0 Lower non-recoverable Montana electric supply costs 0.4 Higher Montana natural gas transportations (5.3) Lower natural gas retail volumes (3.5) Lower electric retail volumes (1.7) Lower transmission revenue (market conditions & lower transmission rates) (0.4) Other $ 2.9 Change in Utility Margin Impacting Net Income 33 Utility Margin (2nd Quarter) (dollars in millions) Three Months Ended June 30, 2023 2022 Variance Electric $ 186.9 $ 185.7 $ 1.2 0.6% Natural Gas 36.0 42.3 (6.3) (14.9)% Total Utility Margin $ 222.9 $ 228.0 $ (5.1) (2.2)% $ (7.2) Lower property taxes recovered in revenue, offset in property & other tax expense (1.4) Lower operating expenses recovered in revenue, offset in O&M expense (0.4) Lower natural gas production taxes recovered in revenue, offset in property & other taxes 1.0 Higher revenue from lower production tax credits, offset in income tax expense $ (8.0) Change in Utility Margin Offset Within Net Income $ (5.1) Decrease in Utility Margin (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. (1) Appendix
Increase in operating expenses due to the following factors: $ 4.4 Higher labor and benefits (1) 4.2 Higher depreciation due to plant additions 0.9 Higher other state and local tax expenses 0.8 Increase in uncollectible accounts 0.4 Higher insurance expense (0.2) Lower expenses at our electric generation facilities 1.8 Other miscellaneous $ 12.3 Change in Operating Expense Items Impacting Net Income Operating Expenses 34 (2nd Quarter) (dollars in millions) Three Months Ended June 30, 2023 2022 Variance Operating & maintenance $ 54.8 $ 53.3 $ 1.5 2.8% Administrative & general 30.0 27.2 2.8 10.3% Property and other taxes 40.1 46.9 (6.8) (14.5)% Depreciation and depletion 52.4 48.2 4.2 8.7% Operating Expenses $ 177.3 $ 175.6 $ 1.7 1.0% $ (7.2) Lower property taxes recovered in trackers, offset in revenue (1.7) Lower pension and other postretirement benefits, offset in other income (1.4) Lower operating and maintenance expenses recovered in trackers, offset in revenue (0.4) Lower natural gas production taxes recovered in trackers, offset in revenue 0.1 Lower non-employee directors deferred compensation, offset in other income $ (10.6) Change in Operating Expense Items Offset Within Net Income $ 1.7 Increase in Operating Expenses $4.3 Appendix (1) In order to present the total change in labor and benefits, we have included the change in the non- service cost component of our pension and other postretirement benefits, which is recorded within other income on our Condensed Consolidated Statements of Income. This change is offset within this table as it does not affect our operating expenses.
Operating to Net Income 35 (dollars in millions) Three Months Ended June 30, 2023 2022 Variance Operating Income $ 45.6 $ 52.4 $ (6.8) (13.0)% Interest expense (28.4) (24.0) (4.4) (18.3)% Other income, net 4.1 2.9 1.2 41.4% Income Before Taxes 21.3 31.2 (9.9) (31.7)% Income tax expense (2.2) (1.4) (0.8) (57.1)% Net Income $ 19.1 $ 29.8 $ (10.7) (35.9)% (2nd Quarter) $4.4 million increase in interest expenses was primarily due to higher borrowings and interest rates, partly offset by higher capitalization of AFUDC. $1.2 million increase in other income, net was primarily due to the prior year CREP penalty, partly offset by an increase in the non-service component of pension expense $0.8 million increase in income tax expense was primarily due to lower flow-through repairs deductions and lower production tax credits partly offset by lower pre-tax income. Appendix
Tax Reconciliation 36 Appendix (2nd Quarter)
37 Segment ResultsAppendix (1) (1) (2nd Quarter) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Weather / Hydro Conditions 38 Snow water equivalents generally in line with the 30-year medians. (Missouri, Madison & Clark Fork Rivers and West Rosebud Creek basins) We estimated a $1.8 million pre-tax detriment as compared to normal and a $4.7 million detriment as compared to Q2 2022. Appendix (2nd Quarter) Real-Time Streamflows versus 30-Year Normal
39 Electric SegmentAppendix (1) (2nd Quarter) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
40 Natural Gas SegmentAppendix (1) (2nd Quarter) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Increase in utility margin due to the following factors: $ 15.6 Montana interim rates (subject to refund) 6.3 Higher electric retail volumes 4.3 Lower non-recoverable Montana electric supply costs 3.5 Montana property tax tracker collections 1.5 Montana natural gas transportation (1.6) Lower natural gas retail volumes (0.5) Lower transmission revenue (market conditions & lower transmission rates) (0.3) Other $ 28.8 Change in Utility Margin Impacting Net Income 41 Utility Margin (YTD thru 2nd Quarter) (dollars in millions) Six Months Ended June 30, 2023 2022 Variance Electric $ 404.1 $ 379.8 $ 24.3 6.4% Natural Gas 107.9 107.5 0.4 0.4% Total Utility Margin $ 512.0 $ 487.3 $ 24.7 5.1% $ (4.6) Lower property taxes recovered in revenue, offset in property & other tax expense (1.7) Lower operating expenses recovered in revenue, offset in O&M expense (0.5) Lower natural gas production taxes recovered in revenue, offset in property & other taxes 2.7 Higher revenue from lower production tax credits, offset in income tax expense $ (4.1) Change in Utility Margin Offset Within Net Income $ 24.7 Increase in Utility Margin (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure. (1) Appendix
Increase in operating expenses due to the following factors: $ 8.5 Higher depreciation due to plant additions 7.5 Higher labor and benefits (1) 3.2 Higher expenses at our electric generation facilities 1.1 Increase in uncollectible accounts 1.0 Higher insurance expense 0.7 Higher other state and local tax expense (0.4) Lower technology implementation and maintenance expenses 1.4 Other miscellaneous $ 23.0 Change in Operating Expense Items Impacting Net Income Operating Expenses 42 (YTD thru 2nd Quarter) (dollars in millions) Six Months Ended June 30, 2023 2022 Variance Operating & maintenance $ 110.7 $ 106.1 $ 4.6 4.3% Administrative & general 64.7 58.9 5.8 9.8% Property and other taxes 89.3 93.7 (4.4) (4.7)% Depreciation and depletion 105.6 97.1 8.5 8.8% Operating Expenses $ 370.3 $ 355.8 $ 14.5 4.1% $ (4.6) Lower property taxes recovered in trackers, offset in revenue (1.7) Lower operating and maintenance expenses recovered in trackers, offset in revenue (1.5) Lower pension and other postretirement benefits, offset in other income (0.5) Lower natural gas production taxes recovered in trackers, offset in revenue (0.2) Lower non-employee directors deferred compensation, offset in other income $ (8.5) Change in Operating Expense Items Offset Within Net Income $ 14.5 Increase in Operating Expenses $10.4 Appendix (1) In order to present the total change in labor and benefits, we have included the change in the non- service cost component of our pension and other postretirement benefits, which is recorded within other income on our Condensed Consolidated Statements of Income. This change is offset within this table as it does not affect our operating expenses.
Operating to Net Income 43 (dollars in millions) Six Months Ended June 30, 2023 2022 Variance Operating Income $ 141.6 $ 131.5 $ 10.1 7.7% Interest expense (56.4) (47.7) (8.7) (18.2)% Other income, net 8.8 7.6 1.2 15.8% Income Before Taxes 94.0 91.4 2.6 2.8% Income tax expense (12.4) (2.5) (9.9) (396.0)% Net Income $ 81.6 $ 88.9 $ (7.3) (8.2)% (YTD thru 2nd Quarter) $8.7 million increase in interest expenses was primarily due to higher borrowings and interest rates, partly offset by higher capitalization of AFUDC. $1.2 million increase in other income, net was primarily due to the prior year CREP penalty, partly offset by an increase in the non-service component of pension expense $9.9 million increase in income tax expense was primarily due to lower flow-through items (repairs deductions and lower production tax credits) and higher pre-tax income. Appendix
Tax Reconciliation 44 Appendix (YTD thru 2nd Quarter)
Year-to-Date Non-GAAP Earnings 45 The adjusted non-GAAP measures presented in the table are being shown to reflect significant items that are non- recurring or a variance from normal weather, however they should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP. (1) As a result of the adoption of Accounting Standard Update 2017-07 in March 2018, pension and other employee benefit expense is now disaggregated on the GAAP income statement with portions now recorded in both OG&A expense and Other (Expense) Income lines. To facilitate better understanding of trends in year-over-year comparisons, the non-GAAP adjustment above re-aggregates the expense in OG&A - as it was historically presented prior to the ASU 2017-07 (with no impact to net income or earnings per share). (2) Utility Margin is a non-GAAP Measure See the slide titled “Explaining Utility Margin” for additional disclosure. Appendix (YTD thru 2nd Quarter)
46 Electric SegmentAppendix (1) (YTD thru 2nd Quarter) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
47 Natural Gas SegmentAppendix (1) (YTD thru 2nd Quarter) (1) Utility Margin is a non-GAAP Measure See appendix slide titled “Explaining Utility Margin” for additional disclosure.
Quarterly PCCAM Impacts 48 Appendix In 2017, the Montana legislature revised the statute regarding our recovery of electric supply costs. In response, the MPSC approved a new design for our electric tracker in 2018, effective July 1, 2017. The revised electric tracker, or PCCAM established a baseline of power supply costs and tracks the differences between the actual costs and revenues. Variances in supply costs above or below the baseline are allocated 90% to customers and 10% to shareholders, with an annual adjustment. From July 2017 to May 2019, the PCCAM also included a "deadband" which required us to absorb the variances within +/- $4.1 million from the base, with 90% of the variance above or below the deadband collected from or refunded to customers. In 2019, the Montana legislature revised the statute effective May 7, 2019, prohibiting a deadband, allowing 100% recovery of QF purchases, and maintaining the 90% / 10% sharing ratio for other purchases. Pre-tax Millions Q1 Q2 Q3 Q4 Full Year '17/'18 Tracker $3.3 $3.3 '18/'19 Tracker ($5.1) $0.3 (4.8) 2018 (Expense) Benefit $0.0 $0.0 ($1.8) $0.3 ($1.5) Full Year '18/'19 Tracker ($1.6) $4.6 $3.0 '19/'20 Tracker $0.1 ($0.7) (0.6) 2019 (Expense) Benefit ($1.6) $4.6 $0.1 ($0.7) $2.4 Full Year ($9.4) ($9.4) '19/'20 Tracker ($0.1) $0.2 $0.1 Recovery of modeling costs $0.7 $0.7 '20/'21 Tracker ($0.6) ($0.3) ($0.9) 2020 (Expense) Benefit $0.6 $0.2 ($0.6) ($0.3) ($0.1) Full Year '20/'21 Tracker ($0.8) ($0.5) ($1.3) '21/'22 Tracker ($2.7) ($1.4) ($4.1) 2021 (Expense) Benefit ($0.8) ($0.5) ($2.7) ($1.4) ($5.4) Q1 Q2 Q3 Q4 Full Year '21/'22 Tracker ($0.8) ($0.8) ($1.6) '22/'23 Tracker ($4.0) ($1.6) ($5.6) 2022 (Expense) Benefit ($0.8) ($0.8) ($4.0) ($1.6) ($7.2) Q1 Q2 Q3 Q4 Year-to-Date '22/'23 Tracker $0.5 $2.2 $2.7 '23/'24 Tracker $0.0 2023 (Expense) Benefit $0.5 $2.2 $0.0 $0.0 $2.7 Year-over-Year Variance $1.3 $3.0 $4.3 CU4 Disallowance ('18/'19 Tracker) First full year recorded in Q3
Qualified Facility Earnings Adjustment 49 Appendix Our electric QF liability consists of unrecoverable costs associated with contracts covered under PURPA that are part of a 2002 stipulation with the MPSC and other parties. Risks / losses associated with these contracts are born by shareholders, not customers. Therefore, any mitigation of prior losses and / or benefits of liability reduction also accrue to shareholders.
Balance Sheet 50 Debt to Total Capitalization slightly below our targeted 50% - 55% range. Appendix
Management believes that Utility Margin provides a useful measure for investors and other financial statement users to analyze our financial performance in that it excludes the effect on total revenues caused by volatility in energy costs and associated regulatory mechanisms. This information is intended to enhance an investor's overall understanding of results. Under our various state regulatory mechanisms, as detailed below, our supply costs are generally collected from customers. In addition, Utility 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, as well as to analyze how changes in loads (due to weather, economic or other conditions), rates and other factors impact our results of operations. Our Utility Margin measure may not be comparable to that of other companies' presentations or more useful than the GAAP information provided elsewhere in this report. Explaining Utility Margin 51 (1) Utility Margin is a non-GAAP Measure. Appendix
Non-GAAP Financial Measures 52 Appendix
Non-GAAP Financial Measures 53 Appendix This presentation includes financial information prepared in accordance with GAAP, as well as other financial measures, such as Utility Margin, Adjusted Non-GAAP pretax income, Adjusted Non-GAAP net income and Adjusted Non-GAAP Diluted EPS 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 excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. We define Utility Margin as Operating Revenues less fuel, purchased supply and direct transmission expense (exclusive of depreciation and depletion) as presented in our Consolidated Statements of Income. This measure differs from the GAAP definition of Gross Margin due to the exclusion of Operating and maintenance, Property and other taxes, and Depreciation and depletion expenses, which are presented separately in our Consolidated Statements of Income. A reconciliation of Utility Margin to Gross Margin, the most directly comparable GAAP measure, is included in this presentation. Management believes that Utility Margin provides a useful measure for investors and other financial statement users to analyze our financial performance in that it excludes the effect on total revenues caused by volatility in energy costs and associated regulatory mechanisms. This information is intended to enhance an investor's overall understanding of results. Under our various state regulatory mechanisms, as detailed below, our supply costs are generally collected from customers. In addition, Utility 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, as well as to analyze how changes in loads (due to weather, economic or other conditions), rates and other factors impact our results of operations. Our Utility Margin measure may not be comparable to that of other companies' presentations or more useful than the GAAP information provided elsewhere in this report. Management also believes the presentation of Adjusted Non-GAAP pre-tax income, Adjusted Non-GAAP net income and Adjusted Non-GAAP Diluted EPS is more representative of normal earnings than GAAP pre-tax income, net income and EPS due to the exclusion (or inclusion) of certain impacts that are not reflective of ongoing earnings. The presentation of these non-GAAP measures is intended to supplement investors' understanding of our financial performance and not to replace other GAAP measures as an indicator of actual operating performance. Our measures may not be comparable to other companies' similarly titled measures.
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- DefinitionFor the EDGAR submission types of Form 8-K: the date of the report, the date of the earliest event reported; for the EDGAR submission types of Form N-1A: the filing date; for all other submission types: the end of the reporting or transition period. The format of the date is YYYY-MM-DD.
| Name: |
dei_DocumentPeriodEndDate |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:dateItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionThe type of document being provided (such as 10-K, 10-Q, 485BPOS, etc). The document type is limited to the same value as the supporting SEC submission type, or the word 'Other'.
| Name: |
dei_DocumentType |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:submissionTypeItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionAddress Line 1 such as Attn, Building Name, Street Name
| Name: |
dei_EntityAddressAddressLine1 |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- Definition
+ References
+ Details
| Name: |
dei_EntityAddressCityOrTown |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionCode for the postal or zip code
| Name: |
dei_EntityAddressPostalZipCode |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionName of the state or province.
| Name: |
dei_EntityAddressStateOrProvince |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:stateOrProvinceItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionA unique 10-digit SEC-issued value to identify entities that have filed disclosures with the SEC. It is commonly abbreviated as CIK. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityCentralIndexKey |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:centralIndexKeyItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionIndicate if registrant meets the emerging growth company criteria. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityEmergingGrowthCompany |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionCommission file number. The field allows up to 17 characters. The prefix may contain 1-3 digits, the sequence number may contain 1-8 digits, the optional suffix may contain 1-4 characters, and the fields are separated with a hyphen.
| Name: |
dei_EntityFileNumber |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:fileNumberItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionTwo-character EDGAR code representing the state or country of incorporation.
| Name: |
dei_EntityIncorporationStateCountryCode |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:edgarStateCountryItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionThe exact name of the entity filing the report as specified in its charter, which is required by forms filed with the SEC. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityRegistrantName |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionThe Tax Identification Number (TIN), also known as an Employer Identification Number (EIN), is a unique 9-digit value assigned by the IRS. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b-2
| Name: |
dei_EntityTaxIdentificationNumber |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:employerIdItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionLocal phone number for entity.
| Name: |
dei_LocalPhoneNumber |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:normalizedStringItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 13e
-Subsection 4c
| Name: |
dei_PreCommencementIssuerTenderOffer |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 14d
-Subsection 2b
| Name: |
dei_PreCommencementTenderOffer |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionTitle of a 12(b) registered security. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection b
| Name: |
dei_Security12bTitle |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:securityTitleItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionName of the Exchange on which a security is registered. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Number 240
-Section 12
-Subsection d1-1
| Name: |
dei_SecurityExchangeName |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:edgarExchangeCodeItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as soliciting material pursuant to Rule 14a-12 under the Exchange Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Exchange Act
-Section 14a
-Number 240
-Subsection 12
| Name: |
dei_SolicitingMaterial |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionTrading symbol of an instrument as listed on an exchange.
| Name: |
dei_TradingSymbol |
| Namespace Prefix: |
dei_ |
| Data Type: |
dei:tradingSymbolItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
| X |
- DefinitionBoolean flag that is true when the Form 8-K filing is intended to satisfy the filing obligation of the registrant as written communications pursuant to Rule 425 under the Securities Act. Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Securities Act
-Number 230
-Section 425
| Name: |
dei_WrittenCommunications |
| Namespace Prefix: |
dei_ |
| Data Type: |
xbrli:booleanItemType |
| Balance Type: |
na |
| Period Type: |
duration |
|
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