NorthWestern Energy Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. NorthWestern Energy provides regulated electric and natural gas service to approximately 775,300 customers in Montana, South Dakota, Nebraska and Yellowstone National Park. The company completed the final phase of its holding-company reorganization on January 1, 2024.
Financial performance and position
- Revenue: $475.3 million, up 4.6% from $454.5 million. Electric revenue rose to $343.2 million from $295.3 million; gas revenue declined to $132.2 million from $159.2 million, reflecting lower retail volumes and changes in regulatory amortization.
- Profit: Net income was $65.1 million versus $62.5 million, up 4.1%. Diluted EPS was $1.06 versus $1.05. Operating income increased to $102.1 million from $96.0 million.
- Margins: GAAP gross margin was $142.5 million, up $11.8 million (9.0%). Utility margin, a non-GAAP measure, was $300.6 million, up $11.6 million (4.0%). New base rates, transmission revenue and Montana property-tax tracker collections were principal contributors; lower retail volumes and higher non-recoverable Montana supply costs partly offset growth.
- Cash flow: Operating cash flow was $161.7 million, down from $213.7 million. The decline primarily reflected a $32.6 million net cash outflow from uncollected energy supply costs, versus a $48.9 million inflow in Q1 2023. Capital additions were $108.8 million; cash dividends were $39.6 million.
- Liquidity: Cash and cash equivalents were $4.2 million and restricted cash was $16.2 million at quarter-end. Reported net liquidity was approximately $418.2 million, including $414.0 million of revolving-credit availability. Current assets of $396.8 million were below current liabilities of $444.7 million.
- Debt and capital: Long-term debt was $2.77 billion at March 31, with no current portion shown on the balance sheet. During the quarter, subsidiaries issued $215 million of bonds and repaid $100 million of maturing bonds. The company targets a 50–55% debt-to-total-capital ratio, excluding finance leases. A $100 million variable-rate term loan was entered into on April 12, after quarter-end, to repay part of revolving-facility borrowings and for general corporate purposes.
- Other: The declared dividend was $0.65 per share, compared with $0.64 a year earlier. The effective tax rate was 13.7%, versus 14.1%.
Material changes and unusual items
- New Montana and South Dakota base rates and higher transmission revenue supported earnings; warmer-than-comparable weather and lower electric and gas retail demand reduced volumes.
- Interest expense increased to $31.0 million from $28.0 million, mainly due to higher long-term debt interest. Operating expenses excluding supply costs rose $5.5 million, including higher depreciation, litigation-related expense and an impairment.
- The company recorded a $4.7 million non-cash impairment of an alternative energy storage investment, including a $2.2 million amount identified in management’s expense analysis. Other income also benefited from a $2.3 million reversal of a previously expensed Community Renewable Energy Project penalty following a favorable legal ruling.
- Montana electric supply costs were under-collected by approximately $24.0 million for the July 2023–June 2024 PCCAM year at March 31. The January cold-weather event contributed to the under-collection; the company recorded a $3.0 million pre-tax earnings reduction under the mechanism’s shareholder allocation.
Outlook, risks and contingencies
- The 175 MW Yellowstone County Generating Station was expected to be operational by the end of Q3 2024. Costs incurred through March 31 were approximately $267.5 million; estimated total cost was $310–$320 million. Construction delays and legal challenges have increased costs. The company anticipated filing a Montana electric and gas rate review in Q3 2024, including a prudence review of the project.
- The company said estimated capital expenditures had not materially changed from its 2023 annual report. It expects operating cash flow, borrowing capacity, financing and future rate increases to support operations, debt service, dividends and capital spending, while noting there is no assurance its financial targets will be met.
- On April 25, 2024, the EPA issued final greenhouse-gas and strengthened MATS rules. Compliance could be required as early as 2028 and 2032, respectively; potential effects and compliance costs for Colstrip and other facilities were still under evaluation.
- Key legal matters include the State of Montana riverbed-rent appeal, ongoing Colstrip ownership and operating-cost arbitration, coal-dust litigation, and the challenge to the Yellowstone County Generating Station air permit. The company cannot predict the coal-dust litigation outcome; permit litigation could affect operation or increase costs.
- Other disclosed risks include regulatory decisions, wildfire and natural-disaster exposure, cybersecurity, inflation and supply constraints, commodity-price volatility, generation outages, and financing and counterparty risks. Management reported no material change in risk factors from the 2023 Form 10-K; disclosure controls were considered effective.
Important facts for investors to verify
- Progress and final cost of the Yellowstone County Generating Station, its expected Q3 2024 operating date, and the outcome of permit proceedings.
- Recovery timing for the Montana PCCAM under-collections and any resulting effects on cash flow and earnings.
- Impacts and recoverability of costs associated with final EPA rules, Colstrip arbitration and other material litigation.
- Debt, revolving-credit availability and financing costs, including the post-quarter $100 million term loan and its variable rate.
- Actual 2024 capital spending and whether the company’s stated liquidity, leverage and dividend objectives remain achievable.