NorthWestern Energy Group, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing also provides unaudited fourth-quarter results. NorthWestern provides regulated electric and natural gas service to approximately 775,300 customers in Montana, South Dakota, Nebraska, and Yellowstone National Park. A holding-company reorganization began in October 2023 and was completed on January 1, 2024; the 2023 consolidated results cover the predecessor’s same underlying operations.
Financial and operating results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Operating revenue | $1,422.1 million | $1,477.8 million | Down $55.7 million |
| Operating income | $300.5 million | $263.1 million | Up $37.4 million |
| Net income | $194.1 million | $183.0 million | Up $11.1 million |
| Diluted earnings per share | $3.22 | $3.25 | Down $0.03 |
| Gross margin | $416.3 million | $376.9 million | Up $39.4 million |
| Utility margin (non-GAAP) | $1,001.9 million | $985.8 million | Up $16.1 million |
Revenue fell mainly because of lower electric and gas retail volumes and changes in regulatory amortization; fuel and purchased-supply expense also declined. Higher Montana rates, lower non-recoverable Montana electric supply costs, and increased property-tax tracker collections supported earnings. These benefits were partly offset by higher depreciation, interest, operating and administrative expenses, and income-tax expense. Electric utility margin rose 3.1% to $806.1 million; natural-gas utility margin declined 3.9% to $195.8 million.
Fourth-quarter revenue was $356.0 million versus $425.3 million in 2022; operating income was $103.2 million versus $83.2 million, and net income was $83.1 million versus $66.7 million. Fourth-quarter diluted EPS was $1.37 versus $1.16.
Cash provided by operations was $489.2 million, up from $307.2 million, largely reflecting improved cash collection of Montana supply costs and rate-review amounts. Capital expenditures were $566.9 million, up from $515.1 million; operating cash flow less property additions was approximately negative $77.7 million. Cash, cash equivalents, and restricted cash totaled $25.2 million at year-end.
Long-term debt was $2.785 billion, including $318 million drawn on revolving credit facilities; finance leases were $8.8 million. Net liquidity was approximately $241.2 million at year-end, comprising $9.2 million cash and $232.0 million available revolver capacity. Availability rose to $325 million as of February 9, 2024. The company reported compliance with debt covenants. It targets a 50%–55% debt-to-capital ratio, excluding finance leases, and a 60%–70% long-term dividend payout ratio; these are targets, not assurances.
Outlook, material developments, and risks
- The Montana rate-review settlement took effect November 1, 2023. It increased base rates and raised the PCCAM base to $208.4 million, with more timely quarterly recovery of deferred balances. A South Dakota electric rate settlement approved in January 2024 provides an annual base-rate increase of approximately $21.5 million, below the $30.9 million requested, effective January 10, 2024.
- Management forecasts capital expenditures of $500 million in 2024, $506 million in 2025, and $463 million in 2026. It expects the 175-MW Yellowstone County Generating Station (YCGS) to be operational by the end of the third quarter of 2024. Approximately $240 million had been spent by year-end 2023; estimated total project cost is $310 million–$320 million. Permit litigation and related construction challenges have caused delays and increased costs.
- Management expects the YCGS and a planned 2026 acquisition of Avista’s 15% interests in Colstrip Units 3 and 4 to reduce reliance on market purchases. The Colstrip transfer is for no purchase price but remains conditional, including regulatory approval and a new coal-supply agreement by December 31, 2024. NorthWestern’s current depreciable life for its Unit 4 investment extends through 2042.
- Management estimates a 2024 effective tax rate of 12%–14% and expects minimal cash income-tax payments through 2028, citing a significant NOL generated in 2023. The 2023 effective tax rate was 3.7%, including a one-time $3.2 million expense for reducing previously claimed alternative minimum tax credits and a $3.2 million benefit from reducing unrecognized tax benefits.
- Major risks include regulatory decisions that may delay or limit cost recovery; volatile power prices and reliance on market purchases amid regional capacity constraints; severe weather, drought, wildfire exposure, and potential uninsured losses; supply-chain inflation and construction delays; cyber or physical attacks; and changing environmental requirements. Proposed EPA greenhouse-gas and MATS rules could require costly upgrades or contribute to early retirement of Colstrip units. Management reported no cybersecurity incident with a material impact in 2023.
- Environmental remediation reserves were approximately $25.3 million, within an estimated range of $21.0 million–$31.4 million. The YCGS permit appeal, Colstrip owner disputes and coal-dust litigation, and Montana riverbed-rent litigation remain notable proceedings; outcomes and ultimate costs are uncertain. Management did not expect other ordinary-course proceedings to materially affect results.
- The company targets net-zero Scope 1 and Scope 2 emissions by 2050; approximately 55% of 2023 retail supply needs came from carbon-free resources. It notes the transition depends on technology, costs, resource planning, and retirement timing for existing coal generation.
Investor verification priorities
- Track regulatory recovery and cash collection of Montana electric supply costs, including PCCAM balances and the effects of the updated tracker.
- Verify YCGS construction progress, final costs, operating date, and the outcome of permit-related appeals.
- Assess funding for the capital program and the $100 million debt maturity in 2024, alongside borrowing costs, liquidity, and dividend capacity.
- Review the conditions and economics of the proposed Avista Colstrip interest transfer, coal-supply arrangements, and potential environmental-rule impacts.
- Monitor weather, market-power prices, regional capacity and transmission constraints, wildfire exposure, and insurance coverage.
Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements and on internal control over financial reporting as of December 31, 2023.