NorthWestern Energy Group (NWE) Q1 2025 earnings call transcript

Thank you, Eric. Good afternoon and thank you for joining Northwestern Energy Group's Financial Results webcast for the quarter ended March 31st, 2005, excuse me 2025.

My name is Travis Meyer and I'm the Director of Corporate Development and Investor Relations Officer for Northwestern. Joining us on the call today are Brian Byrd, President and Chief Executive Officer and Crystal Lail, Chief Financial Officer. Brian and Crystal will be walking us through the results and providing a little more color on a very solid quarter. Northwestern's results have been released and the release is available on our website at NorthwesternEnergy. com. We also released our 10Q pre-market this morning. Please note that the company's press release, this presentation, comments by presenters and responses to your question, may contain forward looking statements.

As such, I'll direct you to the disclosures contained in our SEC filings and the safe harbor provisions included on the second slide of this presentation. Also note that this presentation includes non-gapped financial measures. Please see the non-gapped disclosures definitions and reconciliations including in the presentation. The webcast is being recorded. The archive replay will be available shortly after the event and remain active for one year. Please visit the financial results section of our webcast to access the replay.

With that, I'll hand it over to Brian Bird for his opening remarks.

Thanks Travis. The recent highlights for the quarter reported gap diluted EPS of $1.25 and non-gapped diluted EPS of $1.22. We are affirming our long-term rate base and earnings per shared growth retarget of four to 6%. We've completed our debt financing needs for 2025 and again, we'll stress we have no planned equity to finance our current five-year capital investment.

From a dividend declaration standpoint, we declared a 66 per share payable June 30, 2025 dividend to shareholders of record as of June 13, 2025.

The Montana rate reviews nearing completion. We have a full natural gas settlement reached with major interveners and a partial electric settlement reached as well. And I think you know, the hearing starts on June 9th. And lastly, the Montana legislature has passed wildfire and other constructive bills now pending the governor's approval.

As we start presentation day before we get into the quarterly results, just remind folks of the value proposition for Northwestern, starting with a 5% dividend yield is very, very attractive. As you know, add to that a 4% to 6% EPS growth. The great investment, as you know, the next five years over across our total business, provides a 9% to 11% total growth profile.

We do believe there are opportunities with data centers and new large load up opportunities to actually potentially achieve greater than 6% EPS growth. In addition to that, there's FERC regional transmission, incremental generating capacity and transmission capacity associated with meeting new large load opportunities, which could result in greater than 11% total growth returns.

And with that, I am going to pass it over to Crystal to talk about the first quarter.

Thank you, Brian, and good afternoon, everyone. Thank you for joining us here in our update. In my comments today, I will cover a few things. Updates since we last talked at our urine earnings call in February as Brian highlighted, we've been busy. So it's been a busy couple of months. So our first quarter 2025 results, I'll give you more of detail on those. Also update you and Brian mentioned a couple of our financing execution in the last couple of months, also providing a bit more additional insight into our key regulatory proceedings and update you on our 2025 outlook.

We delivered a solid first quarter driven by strong margin contributions from both the electric and gas segments and ongoing consistent expense management. Moving to slide seven, this details the drivers of our earnings for share compared to the same period last year. We reported earnings of $1.25 on a gap basis as compared to $1.06 in the first quarter of 2024.

These higher earnings were driven by rate recovery and colder weather, offset by operating costs, depreciation, and interest expense. Moving to slide eight for a bit more detail on how the margin increase breaks down. New rates, both via interim rates and also final base rates grow 20 cents of margin improvement which reflects impact notably in all three of our jurisdictions.

We also saw favorable lows of 13 cents during the first quarter year due to both colder weather, customer growth, and usage on our system. In addition, we continue to see favorable transition revenues of about five cents of contribution in the quarter. I would also note that the PPM column here or the non-recoverable Montana electric supply cost while that looks like a small variance for the quarter, when you think about total impact there, we had a Q1 detriment this year of $2.7 million. I almost said $2.7 million, which as many of you who follow us know, that's what the total amount would be, the 10% sharing would be the $2.7 million impact of detriment this quarter.

And this compared to $3 million of detriment in the prior quarter, so first quarter of 2024. So comparatively, only 300,000 of impact there are slightly favorable. But I would just highlight that we expected to see that as an ongoing trend here in 2025 of Headlands on the PPM front, again, cost being above that baseline. And as I'll get into a little more detail, that remains an open item in our Montana rate review.

So again, concluding the earnings for the quarter on margin significant improvement there on the backs of rate recovery really necessary to offset the cost that are already in place.

Moving to slide nine, I highlighted already that wave weather was favorable during the quarter. So weather favorably impacted the first quarter by three cents. While in the first quarter of 2024, we had milder weather. So it was unfavorable by one cents. So that's a four cents swing between first quarter of 2024 to first quarter of 2025.

In addition, in the first quarter of 2024, there was net two cents of favorable adjustments that were backed out for other matters during the first quarter of 2024 that were one-time items. So on an adjusted basis, you'll see that our gap reported results for the quarter of $1.25, removing again, favorable weather for the quarter of three cents should adjusted earnings of $1.22.

And that's a 13 cent improvement over the prior year. Those adjusted earnings were $1.09 in the prior year. And again, on the backs of favorable weather in the first quarter of 2025.

Turning to financing activities on slide 10, we are happy to say that during March, we priced 500 million of long-term debt in two separate transactions. One was included in our disclosures in the TENQ detail on these, but 144A transaction and also a smaller first mortgage amount transaction in South Dakota. And with a bit of the volatility in the market, I'm glad to say we have solid investor interests close those out before maybe some of that volatility hit and those transactions successfully address our financing needs for 2025.

So in addition to that, I would also note that we consistent with our solid earnings performance in Q1, our cash flows match that. So you'll see that our FFO to debt metrics on a consolidated basis closed out the quarter just above our 14% threshold. And again, remaining focus on building cushion there to where we wanna be from a long-term basis. But again, closing out our financing needs for 2025 and we feel good about having that work done.

So with slide 11, I will transition from talking about the financials for a regulatory update. So you all know that all of us that we submitted settlements in the Montana rate review here recently, and it was a partial settlement in the electric case with the remaining key contested issues related to the revenue requirement for the Yellowstone generating station facility and also the peak and base. But we were able to reach a settlement on the base transition distribution and base generation cost. And of course that was significant investment for us and on customers behalf.

Importantly, underlying that settlement, it maintains our existing electric ROE and also our as filed capital structure. The slide here gives you significant detail and I think there's more in the appendix on what that settlement looks like. But also importantly, the book ends of the intervener position. So again, the contested matters detailed as the Yellowstone revenue requirement and also the peak and base. And this slide gives you the book ends of what that looks like notably even with the partial settlement. And if you include our position on those contested issues, the average bill impact is just over 4% to our customers.

In addition, with the reduction in peak and so putting Yellowstone into base rates and reducing PPM, the supply mechanism related to that, it's an overall reduction in customer bills. So we feel really good with our position going into hearing to make that known to both the commission and others, the value customers are receiving on the backs of that facility.

Moving to slide 12 to talk about the gas settlement. It is a full settlement and it has a slight increase in ROEs of 955 in the prior case to 96 in this one and our as file capital structure. The average bill impact from this gas case is approximately 9% maintaining rates below the national average. For these dockets, a hearing is scheduled in June and we expect to implement rates in May. Following a hearing, a birthing schedule will be established with a final order, we believe likely in late Q3 to potentially early Q4.

Concluding my comments on the regulatory front and moving to our outlook slide here on slide 13, we believe we've made significant progress in 2025 and this provides a foundation for advancing critical customer objectives while balancing the importance of reliability and affordability to our customers, as well as the important part of delivering to our shareholders and supporting our long-term growth outlook.

We are affirming and I think Brian mentioned this up front, our long-term earnings and rate-based growth outlook, but as we've previously discussed, we don't expect to provide 2025 earnings guidance until conclusion of a hearing in the Montana rate review. However, we also wanted to be proactive in sharing how the timing impacts of that may affect our quarterly distribution of earnings in 2025 and obviously many of you already have expectations out there for us for where you think our 2025 will land.

And as noted in the regulatory update, we expect to implement updated rates in Montana in May versus of course, incurring what is already a full-year cost associated with those new investments. This causes more of our quarterly distribution to be weighted in the second half of the year.

As a result, we expect our second quarter to be a lower contribution to overall earnings than you would typically expect from us. And we have provided an indication of that earnings distribution here in the second quarter of 2025 to be approximately 10% contribution to the full year. I would also note that the first quarter was solid and slightly ahead of what would have been our expectation.

So let me conclude my comments here and the outlook discussion by reinforcing our confidence in delivering on our earnings and rate-based growth commitments over long term, which moves us to slide 14. And this is the capital slide you've seen before from us, our five-year capital plan and expected investments on our customers behalf. We updated this in February and the slide remains the same as to what you've seen before. So we are affirming our capital plan in on track for execution here in 2025. And again, as Brian highlighted leading in, this decides to need no equity, but also keeping both reliability and affordability for our customers in mind.

So with that, I will turn it back to Brian.

Thanks, Crystal. We had two main objectives going into this legislative session in 2025 and two bills that we wanted sponsored was a wildfire bill and a transmission bill. We're pleased to report that we had success in both of those efforts. And the Montana wildfire bill, something we're extremely excited about is a significant risk for the company and all Western utilities.

This bill, which passed through the House and Senate, unanimous bipartisan support, sitting on the governor's desk, believed to be signed. And so we feel extremely good about this. We provide tremendous protection, which I'll talk about in a second, but we believe this is one of the strongest wildfire bills in the country, from a state perspective.

It's, there's no strict liability. It confirms strict liability cannot be applied to utility operations related to wildfire. Legal protections, there's a replaudible presumption. Utility acted reasonably if it's substantially filed an MPSC-approved wildfire mitigation plan for wildfire ignited, what was excited. From a damages perspective, as we'd expect at any time, there's property damages and fire control costs, we'd be responsible for those economic damages.

But one thing we were extremely concerned about is where we've seen in other states, where we've seen non-economic and punitive damages assigned in this case for us, non-economic damages can only be applied if there's bodily injury or death occurs. And punitive can only be applied where there's clear and convincing evidence of gross negligence or intent.

We feel very, very good about this, and we really appreciate the state, and all the parties we work with co-ops and all parties associated with getting this done. We'd like to thank this, we'll come off. The governor's desk here relatively soon with the signatures, so excited about where that sits.

And feel really good about legislative session on that item alone. But we also had some success from the transmission perspective. As you're well aware, many states have a certificate of public convenience in necessity at CPCNs. We are now a establishment means to be able to get a CPCN for our large transmission work and at our request.

And also there's some timelines associated with approvals for getting a CPCN and actually the cost recovery of that. Provency will still be at hand in terms of when the project is complete and appropriate cost recovery. But this is a great step in the right direction. And I think everyone knows it's extremely important from a build out and being able to serve customers nationwide is to be able to have better means and more assurance around transmission build out. So really, really happy with the outcomes of our legislative session here in 2025.

Moving on in slide 18, just the reason nothing really has changed on coal strip. I think it's extremely important to talk about the importance of coal strip.

The no cost acquisition of the incremental pieces from both Avista and Puget, it certainly provides energy independence for the state and improves our reliability and certainly integrity. It moves our portfolio from a short capacity position to a long capacity.

And obviously with a zero upfront cost it maintains affordability while insulating customers from a bottle of capacity and energy market price.

That increased ownership, and I think you might recall when we talked about this at the very first time, we were very concerned about being as a 15% owner having other state policies drive the likelihood that the plant could be shut down. Now at 55% ownership, we can protect our existing ownership in coal strip and provide Montana control, keep the plan open beyond the Washington, Oregon mandated closure deadlines.

And significant capacity surplus provides opportunity for new large low customers, spreading fixed costs over more kilowatt hours, lowering and stabilizing the cost per unit for all our customers. And I'd also point out here, I think you may have seen and we certainly press released that there's been some good outcomes from the EPA that also gives us more time to address math and other issues at the coal strip facility. And what I'd argue is a more realistic timetable to make decisions for the long-term health of coal strip and ultimately give us potentially more time to decisions for the ultimate closure of coal strip. And as we like to think that could be certainly in the late 2030s and the 2040s, depending on economic, commercially available resources to replace it.

And we believe in coal strip long term, be it coal strip coal plant or whatever is there to replace it, we want to do at or around coal strip. The far right on this page shows our existing ownership, then the incremental 592 megawatts, from the Indistant Puget Psalm, collectively those would be larger than the average loaded in Montana, but certainly substantially less than our peak low.

And but obviously we have a full portfolio of resources. And again, remind folks in Montana, we're sitting currently at over 60% carbon free, but are all of the above approach and this incremental poll strip allows us to be, as I mentioned earlier, not only energy independent, but protects our customers from those peak days when the wind's not blowing and the sun's not necessarily shining. So really excited about what's happening at coal strip and how it can certainly help our customers and us from a planning perspective, going forward to certainly support economic development in the state.

Speaking of economic development, large load customers with a full portfolio and now having long capacity, we have the ability to serve large load customers.

Starting out in Montana, as you know, we've signed LOIs with SABY and Atlas and is up up to the right. You can see how those megawatts are expected to grow over time. We're in a letter of intent with those parties at this point in time. And we continue to work on various aspects to ultimately get to contracts with these parties.

Hopefully sometime in the second quarter, third quarter to get that to have that happen. And we expect to serve those two customers under existing Montana tariffs.

In addition to that, we are actually working with quite a few other parties at various stages of development in both Montana and South Dakota. And even though we have incremental capacity from Colestrip, remember that as a regulated utility, these customers would be receiving our full portfolio, not just resources off of Colestrip. So again, 60% carbon free in Montana.

In South Dakota, in addition to having to add resources like we would in Montana, but up and beyond, our first two announced data centers. In South Dakota, we already have a deviated great tariff that could certainly help us there in a means for quicker recovery. Montana would have to work on incremental tariffs associated with anything beyond say, be an atlas at this point in time. So really excited about that opportunity, but definitely a lot of work yet to do.

Lastly, not much more to report on the regional transmission opportunities. We continue to work with Grid United and the other utilities looking at that opportunity. And also with Grid United on opportunities with working with us to move power out of Southwest Montana, those discussions continue working and ultimately to get further down the contracting process. One thing I guess I would also mention is we've announced in the past as others, there was a $700 million grip financing associated with this project. And I think that's still in question, 70 million of which would be used for the transmission, excuse me, the cold strip transmission system upgrade.

I would say one thing I would argue about what the federal government's doing at this point in time. I also think they see the opportunity that transmission provides to all resources and also to keep customers billed as well as possible longer term in order for us to move power around in between markets. So I think there's quite a bit of support for transmission.

And I'd like to think that the script financing will be looked upon favorably and we will continue to work with others to certainly try to achieve that for this project.

And with that, that concludes our comments. And we'll turn it back to Mr. Meyer to drive the Q&A project.

I will put it up for questions there.

Hey Nick.

Hi Nick.

Yeah, hey, hold over there.

I think I put it to you in this context, Nick. You know, we have five levels, if you will, of process for data centers. And let me just tell you the five real quick. And there's a data center request. There's a high level assessment. There's a contractual estimate, a completed contract, and a construction. Those are your five. We are in various stages of the first three with parties.

So on your data center request, there's currently nine parties. This is between both Montana and South Dakota that are in the very early stages. You know, they've provided a data center request, if you will.

And in addition to that, there are three parties that are currently in what's called a high level assessment. They've gotten past the request. We've shared information between the two parties and we're moving on to a high level assessment. And there are two parties, the LOI parties, Atlas and Sabie that are in the contractual estimate. We are doing transmission service agreement studies to calculate total costs if you don't necessary to finalize a contract.

Once those studies are completed, we believe we'll get those two parties to a contract. Sometime in the second quarter, hopefully by the end of the second quarter, but could go into the July time period as well. So the studies take some time.

And so once those get resolved, we believe we can get to contracts with those two parties. But as you've heard also, there are 12 other parties at various levels prior to that. I'm sure there are a lot of folks, a lot of utilities talking to many different parties in that process. So hard to say on those in the early stages.

And obviously in the queue, Atlas and Sabie, we have a full portfolio to serve those two customers. We have to build generation for folks that come in behind those. So, and I don't know, Chris, we have anything to add there.

Yeah, just layering on and Nick, your question as to the tariff under which we literally serve them and how do we move forward? So today we have an existing tariff that we believe these initial ones. And Brian was talking about the process where you need can being long energy. So we can serve them under that. And the important part of that is underlying our current rate design is that commercial and industrial customers subsidize residential. So I know that's not the same everywhere, but that exists today and we'll continue outside of, or as we continue through this rate case, that underlying rate design that's there. So we believe we can serve them under our existing tariff.

And then in a future filing, we certainly think there's modifications that can make that even better. And then lay the foundation for what Brian was alluding to there as to when you get past the megawatts we have available today and need to build or have it exists in criminal infrastructure investment that there likely could be modifications to the tariff there to further continue to protect the other customers, even though those protections already exist today. And that would be an upcoming filing. But again, I would just say we believe we can serve them under existing tariffs that those tariffs will continue through this rate review to provide subsidization quite candidly of the residential customer group. And that's obviously large load can be good broadly for the system in that regard and that we can find them up as it is today.

But Brian alluded to the process where we'll bring them through to get them there. And I think, again, we iterate, South Dakota, a tariff's already established and we can move over there. And if there's progress. I was talking about Montana, I would say that. And in Montana, Chris was absolutely right. There's gonna be some work that needs to be done from the tariff development.

But further data centers beyond the first two in Montana.

Nick, that is a very nice way of asking about our 25 guidance that we haven't given you a specific range on. I'll acknowledge that. And the only thing I would just say is on the long term, I would expect that we would stay within that four to six percent range, but also acknowledging that we've had some years here where we didn't hit it, that it may not be entirely linear.

And we'll update you more after the hearing.

Hi, Chris.

Hey, Chris.

I believe so, Chris, as usual, you know as well. And so Travis is feeding me this answer. And I believe lighting is correct.

Chris, it was just a, it was really boiled down to the way we were counting our street lighting districts and the new system we have that handles that. And so yes, it was, we still saw our kind of one and a half percent customer growth, but beyond that, it was the street lighting.

I would. That average is over the long term, Chris. So I don't know that there's anything changing there. There's nothing changing our methodology that I'm aware of. Methodology is the same. We do use a rolling 10 year average. And so that may have worked up over the last 10 years. I haven't drilled in deep enough to know if we had a real warm year fall off, but it may have moved up slightly.

Either.

Yeah.

Yeah. I'll start. I'll work backwards. You're not going to see us talk mega lots until we have LOIs, right? I am really nervous about counting chicks before they hatch, as they say.

But I think what we'd like to do is have a real good idea. I talked about those three layers in the process. And as we continue to think about our resource planning perspective, I mean, we're going to work with these parties. Obviously, time is of the essence.

And we're going to work with these parties to meet their needs as best we can from a timing perspective. So we could get at things pretty quickly, but we want to make sure not just to protect the company, but protect our customers.

We don't want to get ahead of our skis in terms of starting too far down the process in terms of resources until we know that we're lined up, signed up with contracts with parties. So, Chris, you won't see us front running numbers here.

Yeah. Chris, let's just say this. At or around Colestrip, there's adequate, we'll call sections as they say. I grew up in Wisconsin where you talked acres. We talked about sections in Montana. There's adequate land for, I'd argue, a gas plant, a coal plant or both near around our transmission facilities in Montana.

Gas or nuclear.

I did say coal.

The gas or nuclear, thank you, Travis. There's plenty of coal already there. Gas or nuclear, thank you, at or around Colestrip.

So, and matter of fact, I'll be at Colestrip on Friday. They're having a study that's been done by one of the labs talking about nuclear at Colestrip, and so they'll be presenting at Colestrip to the community. And so that's the long-term solution, Chris. Obviously, federal government decides that we don't have adequate time and we need to close down Colestrip sooner, let's say, in the early 2030s. Well, I think we've said this before. We're likely to have to replace that plant with natural gas. And so, longer term, we're going to look at nuclear. That says, you know, that's something closer to the 2040s.

But if we have to do something sooner, we're going to look at natural gas. And the issue being here, we're certainly going to continue to think about renewables and storage. Don't get me wrong. But to replace a plant like that from a base load perspective, we have to look at like-kind type resources. And unfortunately, as we sit here today, it's natural gas.

And there may be other technologies beyond nuclear we can look at, but as we sit here today, we think yes or Mars make a ton of sense.

I think the 90 days is appropriate. And I think primarily from a prudence perspective, I'm expecting that really comes into play if there's any overages associated with the project. And so I think that timing is appropriate. I don't think there's any overlapping that comes into play here with those two timetables. So I think they're appropriate.

Thanks, Chris. And Chris, we're not going to build any coal plants. Just so you know.

Understand from Travis, we may have no further questions. Appreciate everyone's attendance here and staying abreast of what's happening at Northwestern. We feel like it's been a very good effort in terms of the regulatory front to negotiate a full settlement on gas and partial settlement on electric. I think it's been a great outcome. We've got a great legislative outcome. We feel real good about the first quarter as we sit here today. And so real excited about how things look and force remain to the year.

So thanks, everybody.