NorthWestern Energy Group, Inc. (NorthWestern Corporation) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The reported financial results are for NorthWestern Corporation, the operating company and predecessor public parent. On October 2, 2023, NorthWestern Energy Group became its holding-company parent and successor issuer; the quarter’s results are not a separate operating-company reporting period for the new parent.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $321.1m | $335.1m | $1,066.1m | $1,052.6m |
| Operating income | $55.6m | $48.3m | $197.3m | $179.9m |
| Net income | $29.3m | $27.4m | $111.0m | $116.3m |
| Diluted EPS | $0.48 | $0.47 | $1.85 | $2.09 |
| Utility margin (non-GAAP) | $232.2m | $226.2m | $744.1m | $713.5m |
| Cash from operations | — | — | $426.9m | $309.3m |
| Capital expenditures | — | — | $407.2m | $386.3m |
Q3 revenue fell 4.2%, while operating income rose 15.2% and net income rose 7.2%. Nine-month revenue increased 1.3%, but net income declined 4.5%. Nine-month diluted EPS also fell, with average diluted shares higher than in the prior year.
Financial position and liquidity
- At September 30, total assets were $7.43bn and shareholders’ equity was $2.74bn. Long-term debt was $2.54bn, with $99.9m of current maturities; finance lease liabilities totaled $9.6m.
- Cash and cash equivalents were $5.1m, plus $16.5m restricted cash. The company reported $378.1m of net liquidity, including $373.0m available under revolving credit facilities, with no letters of credit outstanding.
- Nine-month operating cash flow increased by $117.7m year over year, primarily from improved collections of energy supply costs and Montana interim-rate revenues. Investing cash outflow was $411.0m; financing cash outflow was $16.8m.
- The company paid $115.0m in common dividends during the first nine months. Management targets a 50–55% debt-to-total-capital ratio, excluding finance leases, and a long-term dividend payout ratio of 60–70% of EPS; these are targets, not guarantees.
Material changes and management commentary
- Q3 utility margin increased 2.7%, primarily reflecting Montana interim rates, lower non-recoverable electric supply costs, and higher property-tax tracker collections. These benefits were partly offset by lower electric retail volumes and transmission revenue.
- Nine-month utility margin increased 4.3%, but higher depreciation, operating and maintenance costs, administrative expense, interest expense, and income taxes more than offset some operating improvement. Nine-month income-tax expense included a one-time $3.2m charge related to a reduction in previously claimed alternative minimum tax credits.
- Interest expense rose to $28.7m in Q3 and $85.1m for the nine-month period, reflecting higher borrowing and interest rates, partly offset by greater capitalization of construction interest.
- Operating cash flow benefited from a $101.6m year-over-year improvement in cash flows associated with energy-supply-cost collections. The company cautions that higher market prices or extreme weather could increase deferred costs and pressure cash flow.
Rates, outlook, and significant projects
- On October 25, 2023, after the quarter-end, Montana regulators approved a settlement. The company expected final rates to take effect November 1, 2023. The agreement provides stated total revenue increases of $151.6m for electric and $18.3m for natural gas, including flow-through items. It updates the electric supply-cost recovery base and provides for quarterly rather than annual recovery of deferred balances. The company did not expect a refund or true-up of interim rates for the period through October 31, 2023, based on the draft order.
- A South Dakota electric rate case filed in June 2023 seeks an annual increase of approximately $30.9m; the filing does not report an outcome.
- The 175 MW Yellowstone County Generating Station is expected to be operational by the end of Q3 2024. Approximately $217.5m had been spent, with expected total cost of about $275m. Permit litigation and related challenges could delay completion or raise costs.
- Management identifies a western-region capacity shortfall and exposure to volatile market purchases during peak demand. The plant and the planned acquisition of Avista’s interests in Colstrip Units 3 and 4 are expected to reduce exposure. The company states no specific earnings guidance in the supplied filing text.
- The second phase of the holding-company reorganization was planned for early 2024, separating the South Dakota and Nebraska utility businesses into a direct subsidiary of NorthWestern Energy Group. The company also intended to establish separate revolving credit facilities for the parent and that subsidiary.
Risks, contingencies, and unusual items
- Proposed federal greenhouse-gas and hazardous-air-pollutant rules could require costly upgrades or make Colstrip Units 3 and 4 uneconomic. The company also faces coal-dust litigation related to Colstrip; it says outcomes and reasonably possible losses cannot currently be estimated.
- In the Montana riverbed-rent case, a federal court found most disputed river segments non-navigable but found the Black Eagle segment navigable. The State sought an interlocutory appeal; damages remain unresolved. The company does not expect potential Black Eagle rent to be material, while noting regulatory recovery is not assured.
- The company is evaluating BNSF’s demand for contribution toward remediation at the Anaconda Superfund site and cannot estimate a reasonably possible loss. Its environmental reserve was $25.2m, within an estimated range of $20.4m–$31.5m; recovery through rates or insurance is possible but not guaranteed.
- Unrecognized tax benefits were approximately $29.1m at quarter-end, including $27.8m that would affect the effective tax rate if recognized. The company was evaluating an IRS safe-harbor method and expected potential tax-benefit recognition, subject to adoption and other conditions.
- Other principal risks include regulatory decisions, weather and natural disasters, wildfire, cybersecurity, supply-chain and inflation pressures, fuel availability and prices, generation outages, interest rates, and counterparty credit. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Implementation and financial impact of the Montana rate settlement, including the updated supply-cost recovery mechanism and whether actual collections match expectations.
- Status, final cost, permitting, and schedule for the Yellowstone County Generating Station.
- Outcome of the South Dakota rate case and progress and terms of the planned 2024 holding-company restructuring.
- Debt refinancing needs, borrowing costs, available credit, capital spending, and ability to maintain dividend and leverage targets.
- Developments in Colstrip-related regulation and litigation, the riverbed-rent appeal, environmental claims, and uncertain tax positions.