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Feb 13, 2020 2:25 AM ET

NorthWestern Reports 2019 Financial Results


NorthWestern Reports 2019 Financial Results

iCrowd Newswire - Feb 13, 2020

BUTTE, Mont. and SIOUX FALLS, S.D.,– NorthWestern Corporation d/b/a NorthWestern Energy (NYSE: NWE) reported financial results for the year ended December 31, 2019. Net income for the period was $202.1 million, or $3.98 per diluted share, as compared with net income of $197.0 million, or $3.92 per diluted share, for the same period in 2018. This $5.1 million increase in net income is primarily due to a reduction in revenue in 2018 related to Tax Cuts and Jobs Act regulatory settlements, higher volumes due to colder winter weather and customer growth, and a larger income tax benefit recognized in 2019. These improvements were partly offset by a smaller benefit related to an electric Qualifying Facilities (QF) adjustment and higher operating expenses in 2019.

Non-GAAP Adjusted diluted earnings per share for the period were $3.42; within the $3.38 – $3.48 guidance range communicated for the year. See “Significant Items Not Contemplated in Guidance” and “Non-GAAP Financial Measures” sections below for more information on these measures.

“2019 is behind us but we have much to look forward to in building on the great foundation laid during the year. We planned for higher expenses in 2019 to focus on risk mitigation, system maintenance and planning for the future. We accomplished this while delivering another year of record customer satisfaction, solid safety and reliability performance, and modest earnings growth.  Additionally, we took an important step in 2019 by announcing our Carbon Vision for NorthWestern Energy in Montana; a commitment to reducing our carbon intensity in Montana by 90% by 2045,” said Bob Rowe, President and Chief Executive Officer.

“Looking ahead, construction will soon be underway on a project to replace 60 megawatts of capacity with more reliable and cost-effective natural gas units in South Dakota. These newer and more efficient – and therefore lower carbon – units will allow us to get more benefit for our customers from participating in the Southwest Power Pool. In Montana we just kicked-off an all-resource competitive solicitation process to add up to 280 megawatts of much-needed capacity and have recently filed our request with the Public Service Commission to approve acquisition of an incremental 185 megawatts of capacity at Colstrip for a one dollar purchase price – without taking on additional closure responsibility for the amount purchased and keeping customer rates flat. These added capacity resources will be valuable in our planning as we prepare to join the Western Energy Imbalance Market just over a year from now. Much like the Southwest Power Pool has done for our South Dakota customers, this real-time energy market to the west is expected to provide lower cost energy for our Montana customers, provide greater power grid reliability and more efficient use of renewables.”

Additional information regarding this release can be found in the earnings presentation found at www.northwesternenergy.com/our-company/investor-relations/presentations-and-webcasts.

 

Year Ended December 31,

 

(in thousands, except per share amounts)

2019

 

2018

 

Revenues

$

1,257,910

   

$

1,192,009

   

Cost of sales

318,020

   

272,883

   

Gross Margin (1)

939,890

   

919,126

   
         

  Operating, general and administrative expense

318,229

   

307,119

   

  Property and other taxes

171,888

   

171,259

   

  Depreciation and depletion

172,923

   

174,476

   

Total Operating Expenses

663,040

   

652,854

   

Operating income

276,850

   

266,272

   

Interest expense, net

(95,068)

   

(91,988)

   

Other income, net

413

   

3,966

   

Income before income taxes

182,195

   

178,250

   

Income tax benefit

19,925

   

18,710

   

Net Income

202,120

   

196,960

   

Basic Shares Outstanding

50,429

   

49,985

   

     Earnings per Share – Basic

$

4.01

   

$

3.94

   

Diluted Shares Outstanding

50,752

   

50,237

   

     Earnings per Share – Diluted

$

3.98

   

$

3.92

   
         

Dividends Declared per Common Share

$

2.30

   

$

2.20

   
 

(1) Gross Margin, defined as Revenues less Cost of Sales, is a non-GAAP financial measure.

      See “Non-GAAP Financial Measures” section below for more information.

Significant Highlights and Regulation

Electric Resource Planning – Montana
In August 2019, we issued our final 2019 Electricity Supply Resource Procurement Plan (Montana Resource Plan) that included responses to public comments. The Montana Resource Plan supports the goal of developing resources that will address the changing energy landscape in Montana to meet our customers’ electric energy needs in a reliable and affordable manner.

We are currently 630 MW short of our peak needs, which we procure in the market. We forecast that our energy portfolio will be 725 MW short by 2025, considering expiring contracts and a modest increase in customer demand. Based on our customers’ future energy resource needs as identified in the Montana Resource Plan, we issued a competitive solicitation request in February 2020 for up to 280 megawatts of peaking and flexible capacity to be available for commercial operation in early 2023. An independent administrator and evaluator is being used to administer the solicitation process, with the successful project(s) selected by the first quarter of 2021. We expect the process will be repeated in subsequent years to provide a resource-adequate energy and capacity portfolio by 2025.

The solicitation process will allow us to consider a wide variety of resource options. These options include power purchase agreements and owned energy resources comprised of different structures, terms and technologies that are cost-effective resources. The staged approach is designed to allow for incremental steps through time with opportunities for different resource type of new technologies while also building a reliable portfolio to meet local and regional conditions and minimizing customer impacts.

Proposed Colstrip Unit 4 Capacity Acquisition – In February 2020, we filed an application for pre-approval with the Montana Public Service Commission (MPSC) to acquire Puget Sound Energy’s 25% interest, 185 megawatts of generation, in Colstrip Unit 4 for one dollar. In addition, we are seeking approval to sell 90 megawatts to Puget Sound Energy for roughly 5 years at a price indexed to hourly prices at the Mid-Columbia power hub, with a price floor reflecting the recovery of fixed operating and maintenance and variable generation costs. Our proposal includes zero net effect on customer bills while setting aside the benefits from the transaction – estimated to be $4 million annually – to address environmental compliance, remediation and decommissioning costs associated with our existing 222 megawatts of ownership. Puget Sound Energy remains responsible for its presale 25% ownership share of all costs for remediation of existing environmental conditions and decommissioning regardless of the proposed acquisition or when Colstrip Unit 4 is retired. We expect the MPSC to establish a procedural schedule in this docket in the first quarter of 2020. If this capacity acquisition is approved, this will reduce our need for capacity identified above in our resource plan by 170 MW, which is the accredited capacity.

We also entered into an agreement with Puget Sound Energy to acquire an additional 95 MW interest in the 500 kV Colstrip Transmission System for net book value at the time of the sale, if the generation transaction is approved. The net book value is expected to range between $2.5 million to $3.8 million. After expiration of the roughly 5-year purchase power agreement with Puget Sound Energy, we will have the option to acquire another 90 MW interest in the 500 kV Colstrip Transmission System for net book value at that time. These transmission acquisitions are conditioned upon approval and closing of the Unit 4 acquisition.

Recovery of the additional rate base from these transactions, if completed, will be subject to review in the next Montana general electric rate case.

Electric Resource Planning – South Dakota
In April 2019, we issued a request for proposals for 60 MW of flexible capacity resources to begin serving South Dakota customers by the end of 2021. As a result of a competitive solicitation process, we expect to own natural gas fired reciprocating internal combustion engines at Huron, South Dakota. Dependent upon selection of manufacturer, we anticipate 55 – 60 MW to be online by late 2021 at a total investment of approximately $80 million. The selected proposal is subject to the execution of construction contracts and obtaining the applicable environmental and construction related permits.

We anticipate financing this project with a combination of cash flow from operations, first mortgage bonds and equity issuances. Based on current expectations, any equity issuance would be late 2020 or early 2021 and would be sized to maintain and protect current credit ratings.

Montana General Electric Rate Case
In December 2019, the MPSC issued a final order approving our electric rate case settlement for rates effective April 1, 2019, resulting in an annual increase to electric revenue of approximately $6.5 million (based upon a 9.65% return on equity (ROE) and rate base and capital structure as filed) and an annual decrease in depreciation expense of approximately $9.3 million. Various parties have filed petitions for reconsideration of parts of that December 2019 order, and we expect the MPSC to issue an order on these requests during the first quarter of 2020.

FERC Filing – In May 2019, we submitted a filing with the FERC for our Montana transmission assets. The revenue requirement associated with our Montana FERC assets is reflected in our Montana MPSC-jurisdictional rates as a credit to retail customers. We expect to submit a compliance filing with the MPSC upon resolution of our Montana FERC case adjusting the proposed credit in our Montana retail rates.

Significant Earnings Drivers

Gross Margin
Consolidated gross margin for the twelve months ended December 31, 2019 was $939.9 million compared with $919.1 million for the same period in 2018. This $20.8 million increase was a result of a $20.2 million increase to items that have an impact on net income and $0.6 million increase to items that are offset in operating expenses, property tax expense and income tax expense with no impact to net income.

Consolidated gross margin for items impacting net income increased $20.2 million, due to the following:

These increases were partly offset by the following items:

The change in consolidated gross margin for items that had no impact on net income represented a $0.6 million increase primarily due to the following:

Operating, General and Administrative Expenses
Consolidated operating, general and administrative expenses for the twelve months ended December 31, 2019 were $318.2 million compared with $307.1 million for the same period in 2018. This $11.1 million increase was a result of a $17.3 million increase to items that have an impact on net income and $6.2 million decrease to items that are offset in gross margin and other income (expense) with no impact to net income.

Consolidated operating, general and administrative expenses for items impacting net income increased $17.3 million, including:

The change in consolidated operating, general and administrative expenses for items that had no impact on net income decreased $6.2 million primarily due to the following:

Property and Other Taxes
Property and other taxes were $171.9 million for the twelve months ended December 31, 2019, as compared with $171.3 million in the same period of 2018. This increase was primarily due to plant additions and higher estimated property valuations in Montana. We estimate property taxes throughout each year, and update based on valuation reports received from the Montana Department of Revenue. Under Montana law, we are allowed to track the increases in the actual level of state and local taxes and fees and adjust our rates to recover the increase between rate cases less the amount allocated to FERC-jurisdictional customers and net of the associated income tax benefit.

Depreciation and Depletion Expense
Depreciation and depletion expense was $172.9 million for the twelve months ended December 31, 2019, as compared with $174.5 million in the same period of 2018. This decrease was primarily due to the depreciation adjustment consistent with the final order in our Montana electric rate case, as discussed above, partly offset by plant additions.

Operating Income
Consolidated operating income for the twelve months ended December 31, 2019 was $276.9 million as compared with $266.3 million in the same period of 2018. This increase was primarily due to higher gross margin, as discussed above, offset in part by the overall increase in operating, general, and administrative expenses.

Interest Expense
Consolidated interest expense for the twelve months ended December 31, 2019 was $95.1 million, as compared with $92.0 million in the same period of 2018, due primarily to higher borrowings.

Other Income
Consolidated other income was $0.4 million for the twelve months ended December 31, 2019 as compared to $4.0 million during the same period of 2018. This decrease was primarily due to a $7.8 million increase in other pension expense that was partly offset by a $2.3 million increase in the value of deferred shares held in trust for non-employee directors deferred compensation, both of which are offset in operating, general, and administrative expense with no impact to net income. This decrease was also partly offset by $1.6 million higher capitalization of AFUDC (Allowance for Funds Used During Construction).

Income Tax
Consolidated income tax benefit for the twelve months ended December 31, 2019 was $19.9 million as compared with $18.7 million in the same period of 2018.  The income tax benefit for 2019 reflect the release of approximately $22.8 million of unrecognized tax benefits, including approximately $2.7 million of accrued interest and penalties, due to the lapse of statues of limitations in the second quarter of 2019.  The income tax benefit in 2018 reflects a benefit of approximately $19.8 million associated with the final measurement of excess deferred taxes associated with the Tax Cuts and Jobs Act.

Contact Information:

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