NorthWestern (NWE) came out with quarterly earnings of $1.09 per share, missing the Zacks Consensus Estimate of $1.39 per share. This compares to earnings of $1.05 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -21.58%. A quarter ago, it was expected that this electric and gas utility would post earnings of $1.19 per share when it actually produced earnings of $1.38, delivering a surprise of 15.97%.Over the last four quarters ...

BUTTE, Mont. and SIOUX FALLS, S.D., April 25, 2024 (GLOBE NEWSWIRE) -- NorthWestern Energy Group, Inc. d/b/a NorthWestern Energy (NASDAQ:NWE) reported financial results for the three months ended March 31, 2024. Net income for the period was $65.1 million, or $1.06 per diluted share, as compared with net income of $62.5 million, or $1.05 per diluted share, for the same period in 2023. "Solid regulatory execution provided for quarter-over-earnings growth. New rates in Montana and South Dakota helped offset m ...

EXPLANATORY NOTE Details the October 2, 2023, holding company reorganization, establishing NorthWestern Energy Group as the successor issuer, with a second phase planned for early 2024 to separate utility operations - Holding company reorganization completed on October 2, 2023, with **NorthWestern Energy Group, Inc. (New NWE)** becoming the successor issuer to NorthWestern Corporation (Old NWE)[15](index=15&type=chunk)[17](index=17&type=chunk) - A second phase of the reorganization is planned for early 2024, where Old NWE will operate the Montana utility, and NPS will operate the South Dakota and Nebraska utilities, both under New NWE[15](index=15&type=chunk)[16](index=16&type=chunk) - This Quarterly Report on Form 10-Q is co-filed by both Old NWE and New NWE to ensure continuity of information to investors[17](index=17&type=chunk) SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This section outlines the nature of forward-looking statements, emphasizing inherent risks and uncertainties that could cause actual results to differ materially from expectations - Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially[22](index=22&type=chunk) - Key factors that may cause differences include[24](index=24&type=chunk) - Adverse determinations by regulators, legislation, and environmental compliance costs[24](index=24&type=chunk) - Impact of extraordinary external events and natural disasters (e.g., pandemics, geopolitical events, weather)[24](index=24&type=chunk) - Acts of terrorism, cybersecurity attacks, and data security breaches[24](index=24&type=chunk) - Supply chain constraints, high inflation for product, services, and labor costs[24](index=24&type=chunk) - Changes in availability of trade credit, creditworthiness of counterparties, usage, commodity prices, and fuel supply costs[24](index=24&type=chunk) - Unscheduled generation outages or forced reductions in output, maintenance, or repairs[24](index=24&type=chunk) - Adverse changes in general economic and competitive conditions in financial markets and service territories[24](index=24&type=chunk) PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for NorthWestern Corporation, including statements of income, comprehensive income, balance sheets, cash flows, and shareholders' equity, along with explanatory notes [Condensed Consolidated Statements of Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues (in thousands) | $321,090 | $335,068 | $1,066,134 | $1,052,554 | | Operating Income (in thousands) | $55,630 | $48,294 | $197,292 | $179,851 | | Net Income (in thousands) | $29,335 | $27,368 | $110,989 | $116,264 | | Basic Earnings per Average Common Share | $0.48 | $0.48 | $1.85 | $2.12 | | Diluted Earnings per Average Common Share | $0.48 | $0.47 | $1.85 | $2.09 | | Dividends Declared per Common Share | $0.64 | $0.63 | $1.92 | $1.89 | [Condensed Consolidated Statements of Comprehensive Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income (in thousands) | $29,335 | $27,368 | $110,989 | $116,264 | | Total Other Comprehensive Loss (in thousands) | $(62) | $(49) | $(173) | $(140) | | Comprehensive Income (in thousands) | $29,273 | $27,319 | $110,816 | $116,124 | [Condensed Consolidated Balance Sheets](index=9&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total Current Assets | $358,354 | $538,824 | | Property, plant, and equipment, net | $5,932,179 | $5,657,480 | | Total Assets | $7,429,499 | $7,317,783 | | Total Current Liabilities | $569,514 | $620,845 | | Long-term debt | $2,544,522 | $2,474,357 | | Total Liabilities | $4,689,085 | $4,652,600 | | Total Shareholders' Equity | $2,740,414 | $2,665,183 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Cash Provided by Operating Activities | $426,922 | $309,270 | | Cash Used in Investing Activities | $(410,974) | $(387,253) | | Cash (Used in) Provided by Financing Activities | $(16,771) | $87,946 | | (Decrease) Increase in Cash, Cash Equivalents, and Restricted Cash | $(823) | $9,963 | | Cash, Cash Equivalents, and Restricted Cash, end of period | $21,640 | $28,725 | [Condensed Consolidated Statements of Shareholders' Equity](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Sep 30, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Common Stock | $648 | $633 | $613 | | Treasury Stock | $(98,122) | $(98,392) | $(98,578) | | Paid-in Capital | $2,078,554 | $1,999,376 | $1,900,992 | | Retained Earnings | $767,355 | $771,414 | $741,752 | | Accumulated Other Comprehensive Loss | $(8,021) | $(7,848) | $(7,450) | | Total Shareholders' Equity | $2,740,414 | $2,665,183 | $2,537,329 | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Nature of Operations and Basis of Consolidation](index=13&type=section&id=Note%201.%20Nature%20of%20Operations%20and%20Basis%20of%20Consolidation) NorthWestern Energy Group provides electricity and natural gas to approximately 764,200 customers across Montana, South Dakota, Nebraska, and Yellowstone National Park, completing a holding company reorganization on October 2, 2023 - Serves approximately **764,200 customers** in Montana, South Dakota, Nebraska, and Yellowstone National Park[41](index=41&type=chunk) - Completed holding company reorganization on October 2, 2023, making NorthWestern Energy Group the parent of NorthWestern Corporation[44](index=44&type=chunk) - A second phase of reorganization is planned for early 2024 to separate the Montana regulated utility from the South Dakota and Nebraska regulated utilities[44](index=44&type=chunk) - Annual goodwill impairment test as of April 1, 2023, concluded no impairment[48](index=48&type=chunk) [Note 2. Regulatory Matters](index=14&type=section&id=Note%202.%20Regulatory%20Matters) The Montana Public Service Commission approved a rate review settlement effective November 1, 2023, resulting in a total annual revenue increase of $151.6 million for electric and $18.3 million for natural gas, while a South Dakota electric rate review filing for a $30.9 million annual increase is ongoing - Montana Rate Review settlement approved by MPSC on October 25, 2023, with final rates effective November 1, 2023[50](index=50&type=chunk) - Montana Rate Review Settlement Agreement (in millions) | Metric | Electric | Natural Gas | | :-------------------------- | :------- | :---------- | | Return on Equity (ROE) | 9.65% | 9.55% | | Equity Capital Structure | 48.02% | 48.02% | | Base Rates | $67.4 | $14.1 | | Power Cost & Credit

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) The report contains forward-looking statements about future financial performance, economic conditions, capital markets, and customer usage patterns, identified by words like "anticipates," "expects," "intends," and "plans" - The report contains forward-looking statements about future financial performance, economic conditions, capital markets, and customer usage patterns, identified by words like "anticipates," "expects," "intends," and "plans" These statements involve risks and uncertainties that could cause actual results to differ materially[10](index=10&type=chunk)[11](index=11&type=chunk) - Key factors that may cause differences include adverse regulatory determinations, extraordinary external events (pandemics, geopolitical events, natural disasters), cybersecurity attacks, supply chain constraints, inflation, changes in commodity prices, unscheduled generation outages, and adverse changes in general economic conditions[13](index=13&type=chunk) [Part I. Financial Information](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial performance [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including statements of income, comprehensive income, balance sheets, cash flows, and shareholders' equity, along with detailed notes explaining the company's accounting policies, regulatory matters, income taxes, financing activities, segment information, revenue disaggregation, earnings per share, employee benefits, and commitments and contingencies [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This chapter details the company's revenues, expenses, operating income, and net income for the three and six months ended June 30, 2023 and 2022 Three Months Ended June 30, 2023 vs. 2022 (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $290,502 | $323,004 | $(32,502) | -10.1% | | Total Operating Expenses | $244,882 | $270,663 | $(25,781) | -9.5% | | Operating Income | $45,620 | $52,341 | $(6,721) | -12.8% | | Net Income | $19,124 | $29,786 | $(10,662) | -35.8% | | Basic EPS | $0.32 | $0.55 | $(0.23) | -41.8% | | Diluted EPS | $0.32 | $0.54 | $(0.22) | -40.7% | | Dividends Declared per Common Share | $0.64 | $0.63 | $0.01 | 1.6% | Six Months Ended June 30, 2023 vs. 2022 (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $745,044 | $717,486 | $27,558 | 3.8% | | Total Operating Expenses | $603,382 | $585,929 | $17,453 | 3.0% | | Operating Income | $141,662 | $131,557 | $10,105 | 7.7% | | Net Income | $81,654 | $88,896 | $(7,242) | -8.1% | | Basic EPS | $1.37 | $1.64 | $(0.27) | -16.5% | | Diluted EPS | $1.37 | $1.62 | $(0.25) | -15.4% | | Dividends Declared per Common Share | $1.28 | $1.26 | $0.02 | 1.6% | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This chapter presents the company's comprehensive income for the three and six months ended June 30, 2023 and 2022 Comprehensive Income (in thousands) | Period | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $19,069 | $29,742 | $(10,673) | | Six Months Ended June 30 | $81,543 | $88,805 | $(7,262) | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This chapter outlines the company's financial position, including total assets, liabilities, and shareholders' equity as of June 30, 2023, and December 31, 2022 Balance Sheet Highlights (in thousands) | Item | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Total Assets | $7,294,242 | $7,317,783 | $(23,541) | | Total Liabilities | $4,607,518 | $4,652,600 | $(45,082) | | Total Shareholders' Equity | $2,686,724 | $2,665,183 | $21,541 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This chapter summarizes the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Cash Provided by Operating Activities | $294,065 | $232,893 | $61,172 | | Cash Used in Investing Activities | $(265,788) | $(235,352) | $(30,436) | | Cash (Used in) Provided by Financing Activities | $(26,720) | $9,777 | $(36,497) | | Increase in Cash, Cash Equivalents, and Restricted Cash | $1,557 | $7,318 | $(5,761) | [Condensed Consolidated Statements of Shareholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This chapter details changes in the company's shareholders' equity, including net income, stock-based compensation, and dividends, for the six months ended June 30, 2023 and 2022 Shareholders' Equity Changes (Six Months Ended June 30, in thousands) | Item | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Balance at December 31 | $2,665,183 | $2,339,713 | | Net income | $81,654 | $88,896 | | Stock-based compensation | $4,672 | $3,066 | | Issuance of shares | $11,411 | $100,742 | | Dividends on common stock | $(76,085) | $(67,806) | | Balance at June 30 | $2,686,724 | $2,464,520 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This chapter provides detailed explanations of the company's accounting policies, regulatory matters, income taxes, financing activities, and commitments [(1) Nature of Operations and Basis of Consolidation](index=11&type=section&id=(1)%20Nature%20of%20Operations%20and%20Basis%20of%20Consolidation) This chapter describes NorthWestern Corporation's utility services across four states and its annual goodwill impairment test findings - NorthWestern Corporation provides electricity and/or natural gas to approximately **764,200 customers** across Montana, South Dakota, Nebraska, and Yellowstone National Park[30](index=30&type=chunk) - The company completed its annual goodwill impairment test as of April 1, 2023, concluding no further testing was necessary as the fair value of its reporting units was not less than its carrying amount[34](index=34&type=chunk) [(2) Regulatory Matters](index=12&type=section&id=(2)%20Regulatory%20Matters) This chapter discusses ongoing Montana and South Dakota rate reviews, a proposed corporate restructuring, and their potential financial impacts - A Montana electric and natural gas rate review was filed on August 8, 2022, with interim rates effective October 1, 2022, subject to refund A settlement agreement was filed on April 3, 2023, and a decision from the MPSC is expected in Q3 2023[36](index=36&type=chunk)[40](index=40&type=chunk) Montana Rate Review - Requested Revenue Increase Through Settlement Agreement (in millions) | Service | Base Rates (in millions) | PCCAM (in millions) | Property Tax (in millions) | Total (in millions) | | :--- | :--- | :--- | :--- | :--- | | Electric | $67.4 | $69.7 | $14.5 | $151.6 | | Natural Gas | $14.1 | n/a | $4.2 | $18.3 | - The settlement agreement includes an update to the Power Cost & Credit Adjustment Mechanism (PCCAM) base costs from **$138.7 million to $208.4 million**, allowing for more timely quarterly recovery of deferred balances[39](index=39&type=chunk) - A South Dakota electric rate review was filed on June 15, 2023, requesting an annual increase of approximately **$30.9 million**, based on a **10.7% ROE** and **50.5% equity capital structure**[42](index=42&type=chunk) - The company plans a legal corporate restructuring to separate its Montana utility business from its South Dakota and Nebraska utility business, establishing a holding company All necessary regulatory approvals have been received, with effectuation expected by early 2024[43](index=43&type=chunk) [(3) Income Taxes](index=13&type=section&id=(3)%20Income%20Taxes) This chapter analyzes the company's effective tax rates, the impact of regulatory benefits, and unrecognized tax benefits for the periods presented Effective Tax Rate (Three Months Ended June 30) | Item | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Income before income taxes | $21,271 | $31,221 | | Income tax expense | $2,147 | $1,435 | | Effective Tax Rate | 10.1% | 4.6% | Effective Tax Rate (Six Months Ended June 30) | Item | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Income before income taxes | $94,042 | $91,442 | | Income tax expense | $12,388 | $2,546 | | Effective Tax Rate | 13.2% | 2.8% | - The effective tax rate differs from the federal statutory rate primarily due to the regulatory impact of flowing through federal and state tax benefits from repairs deductions, accelerated tax depreciation, and production tax credits[44](index=44&type=chunk) - Unrecognized tax benefits totaled approximately **$29.5 million** as of June 30, 2023, with **$27.8 million** potentially impacting the effective tax rate if recognized The company accrued **$2.1 million** for interest and penalties on uncertain tax positions[47](index=47&type=chunk)[48](index=48&type=chunk) [(4) Comprehensive (Loss) Income](index=14&type=section&id=(4)%20Comprehensive%20(Loss)%20Income) This chapter details the components of accumulated other comprehensive loss, including derivative instruments and postretirement medical plans Accumulated Other Comprehensive Loss (AOCL) (in thousands) | Component | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Foreign currency translation | $1,432 | $1,435 | | Derivative instruments designated as cash flow hedges | $(9,599) | $(9,825) | | Postretirement medical plans | $208 | $542 | | Total AOCL | $(7,959) | $(7,848) | Changes in AOCL (Three Months Ended June 30, 2023, in thousands) | Item | Interest Rate Derivative Instruments (in thousands) | Postretirement Medical Plans (in thousands) | Foreign Currency Translation (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Beginning balance | $(9,712) | $375 | $1,433 | $(7,904) | | Net current-period other comprehensive income (loss) | $113 | $(167) | $(1) | $(55) | | Ending balance | $(9,599) | $208 | $1,432 | $(7,959) | [(5) Financing Activities](index=17&type=section&id=(5)%20Financing%20Activities) This chapter outlines recent debt issuances, amendments to the equity distribution agreement, and the issuance of pollution control revenue bonds - In March and May 2023, the company issued **$300.0 million** in Montana and South Dakota First Mortgage Bonds with fixed interest rates between **5.42% and 5.57%**, maturing in 2033 Proceeds were used to repay revolving credit facilities and for general corporate purposes[53](index=53&type=chunk) - The Equity Distribution Agreement was amended in June 2023, allowing the company to sell up to **$200.0 million** of common stock through an At-the-Market (ATM) offering program During Q2 2023, **188,682 shares** were issued under this program for net proceeds of **$10.8 million**[54](index=54&type=chunk) - On June 29, 2023, **$144.7 million** of Pollution Control Revenue Refunding Bonds were issued on the company's behalf at a fixed interest rate of **3.88%** maturing in 2028, to redeem existing bonds[55](index=55&type=chunk) [(6) Segment Information](index=17&type=section&id=(6)%20Segment%20Information) This chapter presents the company's net income by its electric and natural gas segments, with performance evaluated based on utility margin - The company's reportable business segments are electric and natural gas, with performance evaluated based on utility margin[56](index=56&type=chunk)[57](index=57&type=chunk) Net Income by Segment (Three Months Ended June 30, in thousands) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Electric | $27,274 | $29,866 | | Gas | $(7,656) | $1,192 | | Other | $(494) | $(1,272) | | Total | $19,124 | $29,786 | Net Income by Segment (Six Months Ended June 30, in thousands) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Electric | $73,096 | $67,902 | | Gas | $19,156 | $22,406 | | Other | $(10,598) | $(1,412) | | Total | $81,654 | $88,896 | [(7) Revenue from Contracts with Customers](index=20&type=section&id=(7)%20Revenue%20from%20Contracts%20with%20Customers) This chapter disaggregates total revenues by electric and natural gas segments for retail, wholesale, and regulatory amortization - The company provides retail electric and natural gas services to residential, commercial, and industrial customers across Montana, South Dakota, and Nebraska[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk) Total Revenues by Segment (Three Months Ended June 30, in millions) | Segment | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Electric | $229.3 | $243.4 | | Natural Gas | $61.2 | $79.6 | | Total | $290.5 | $323.0 | Total Revenues by Segment (Six Months Ended June 30, in millions) | Segment | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Electric | $524.6 | $515.1 | | Natural Gas | $220.4 | $202.4 | | Total | $745.0 | $717.5 | [(8) Earnings Per Share](index=21&type=section&id=(8)%20Earnings%20Per%20Share) This chapter provides average common shares outstanding for basic and diluted EPS calculations and details antidilutive share exclusions Average Common Shares Outstanding (in thousands) | Period | Basic (2023, in thousands) | Diluted (2023, in thousands) | Basic (2022, in thousands) | Diluted (2022, in thousands) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | 59,804 | 59,850 | 54,272 | 55,141 | | Six Months Ended June 30 | 59,790 | 59,820 | 54,185 | 54,981 | - As of June 30, 2023, **21,890 shares** from performance and restricted share awards were antidilutive and excluded from EPS calculations, compared to **36,296 shares** as of June 30, 2022[68](index=68&type=chunk) [(9) Employee Benefit Plans](index=22&type=section&id=(9)%20Employee%20Benefit%20Plans) This chapter details the net periodic benefit cost for pension and other postretirement plans and outlines company contributions Net Periodic Benefit Cost (Credit) (Six Months Ended June 30, in thousands) | Component | Pension Benefits (2023, in thousands) | Pension Benefits (2022, in thousands) | Other Postretirement Benefits (2023, in thousands) | Other Postretirement Benefits (2022, in thousands) | | :--- | :--- | :--- | :--- | :--- | | Service cost | $2,916 | $5,112 | $166 | $175 | | Interest cost | $13,047 | $9,393 | $337 | $179 | | Expected return on plan assets | $(13,357) | $(12,086) | $(548) | $(523) | | Amortization of prior service credit | — | — | $58 | $(946) | | Recognized actuarial loss (gain) | $137 | $191 | $36 | $(24) | | Net periodic benefit cost (credit) | $2,743 | $2,610 | $49 | $(1,139) | - The company contributed **$0.6 million** to its pension plans during the three and six months ended June 30, 2023, and expects to contribute an additional **$10.6 million** during the remainder of 2023[69](index=69&type=chunk) [(10) Commitments and Contingencies](index=22&type=section&id=(10)%20Commitments%20and%20Contingencies) This chapter addresses environmental liabilities, ongoing legal proceedings, and other significant commitments and potential financial impacts [Environmental Liabilities and Regulation](index=23&type=section&id=ENVIRONMENTAL%20LIABILITIES%20AND%20REGULATION) This chapter details environmental reserves for former gas plant sites and potential impacts of new EPA rules on coal-fired plants - The company's environmental reserve, primarily for former manufactured gas plant sites, is estimated to range between **$20.9 million and $32.0 million**, with a reserve of approximately **$25.7 million** as of June 30, 2023[73](index=73&type=chunk) - New EPA proposed rules in May 2023 for GHG emissions standards and an April 2023 amendment to the Mercury Air Toxics Standard (MATS) could materially impact coal-fired plants, potentially requiring expensive upgrades or early retirement of Colstrip Units 3 and 4[75](index=75&type=chunk) [Legal Proceedings](index=24&type=section&id=LEGAL%20PROCEEDINGS) This chapter outlines ongoing lawsuits regarding riverbed rents, Colstrip operations, coal dust litigation, and the Yellowstone County Generating Station - The State of Montana is suing for riverbed rents for 10 hydroelectric facilities If the Federal District Court finds six remaining facilities navigable and awards damages, annual rents could be approximately **$3.8 million** starting November 2014[80](index=80&type=chunk)[82](index=82&type=chunk) - An arbitration was initiated in March 2021 regarding operational funding and closure consent for Colstrip Units 3 and 4, with a stay through September 29, 2023, to explore resolution[84](index=84&type=chunk) - The company is a defendant in a coal dust litigation related to Colstrip operations, seeking economic and punitive damages, and an injunction[85](index=85&type=chunk) - BNSF Railway Company is demanding indemnity for environmental investigation and remediation costs at the Anaconda Copper Mining Superfund Site, with estimated costs for the Railroad Corridor at **$4.1 million** and other areas at **$1.8 million**[89](index=89&type=chunk) - A lawsuit regarding the Yellowstone County Generating Station's air permit led to a vacatur of the permit, pausing construction Construction recommenced in June 2023 after a stay was granted, and a final revised permit is expected in Q3 2023 Total costs incurred are **$203.6 million**, with expected total costs of **$275.0 million**[90](index=90&type=chunk)[91](index=91&type=chunk)[114](index=114&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and operational results, including a reconciliation of non-GAAP financial measures, an overview of business strategy, analysis of quarterly and year-to-date performance, significant trends, regulatory updates, and a detailed discussion of liquidity and capital resources [Non-GAAP Financial Measure](index=26&type=section&id=Non-GAAP%20Financial%20Measure) This chapter defines Utility Margin as a key non-GAAP financial measure used to analyze performance by excluding energy cost volatility - Utility Margin is defined as Operating Revenues less fuel, purchased supply, and direct transmission expense, and is used to analyze financial performance by excluding volatility in energy costs and associated regulatory mechanisms[94](index=94&type=chunk)[95](index=95&type=chunk) [Overview](index=26&type=section&id=OVERVIEW) This chapter introduces NorthWestern Energy's customer base, strategic goals for grid investment, resource integration, and commitment to net-zero carbon emissions - NorthWestern Energy serves approximately **764,200 customers** across Montana, South Dakota, Nebraska, and Yellowstone National Park, focusing on safe, reliable, and innovative energy solutions[97](index=97&type=chunk) - The company aims to deliver long-term shareholder value through infrastructure investment for a stronger grid, integrating supply resources for reliability and cost predictability, and continually improving operating efficiency[98](index=98&type=chunk) - NorthWestern is committed to a carbon-free future, expanding efforts in 2022 with a goal to achieve net zero carbon emissions by 2050[99](index=99&type=chunk) [How We Performed Against Our Second Quarter 2022 Results](index=27&type=section&id=HOW%20WE%20PERFORMED%20AGAINST%20OUR%20SECOND%20QUARTER%202022%20RESULTS) This chapter compares consolidated net income for Q2 2023 to Q2 2022, highlighting decreases due to lower volumes and higher expenses - Consolidated net income for the three months ended June 30, 2023, decreased to **$19.1 million** from **$29.8 million** in 2022, primarily due to lower electric and natural gas retail volumes, lower transmission revenues, and higher operating, maintenance, administrative, depreciation, and interest expenses[100](index=100&type=chunk) - Partially offsetting the decrease were higher Montana interim rates (subject to refund), increased Montana property tax tracker collections, and lower non-recoverable Montana electric supply costs[100](index=100&type=chunk) [Significant Trends and Regulation](index=27&type=section&id=SIGNIFICANT%20TRENDS%20AND%20REGULATION) This chapter discusses ongoing rate reviews, a corporate restructuring plan, energy supply cost recovery, and the Yellowstone plant construction status - The Montana Public Service Commission (MPSC) approved interim rates effective October 1, 2022, subject to refund, as part of an ongoing rate review A settlement agreement was filed on April 3, 2023, with a decision expected in Q3 2023[103](index=103&type=chunk)[107](index=107&type=chunk) - The settlement agreement updates the Power Cost & Credit Adjustment Mechanism (PCCAM) base costs from **$138.7 million to $208.4 million**, allowing for more timely quarterly recovery of deferred balances[106](index=106&type=chunk) - A South Dakota electric rate review was filed on June 15, 2023, requesting a **$30.9 million** annual increase based on a **10.7% ROE** and **50.5% equity capital structure**[108](index=108&type=chunk) - The company plans a legal corporate restructuring to separate its Montana utility business from its South Dakota and Nebraska utility business, establishing a holding company, expected to be effective by early 2024[109](index=109&type=chunk) - As of June 30, 2023, the company had approximately **$18.5 million** in uncollected energy supply costs for the July 2022 - June 2023 PCCAM period, which are expected to begin collection in October 2023[110](index=110&type=chunk) - Construction of the Yellowstone County **175 MW** plant, paused due to an air quality permit vacatur, recommenced in June 2023 after a stay was granted The plant is expected to be operational by the end of Q3 2024, with total costs incurred of **$203.6 million** and expected total costs of **$275.0 million**[113](index=113&type=chunk)[114](index=114&type=chunk) - Proposed EPA rules on GHG emissions and MATS amendments could significantly impact coal-fired plants, potentially requiring expensive upgrades or early retirement of Colstrip Units 3 and 4[117](index=117&type=chunk) [Results of Operations](index=30&type=section&id=RESULTS%20OF%20OPERATIONS) This chapter analyzes the factors affecting the company's revenues, expenses, and overall consolidated results for both electric and natural gas segments [Factors Affecting Results of Operations](index=30&type=section&id=Factors%20Affecting%20Results%20of%20Operations) This chapter explains how revenues, fuel costs, and operating expenses are influenced by supply costs, customer usage, weather, and regulatory approvals - Revenues fluctuate with supply costs, which are generally recovered from customers, and are impacted by customer growth, usage (affected by weather and energy efficiency), and regulatory approvals[121](index=121&type=chunk)[122](index=122&type=chunk) - Fuel, purchased supply, and direct transmission expenses are directly tied to electricity and natural gas procurement and generation, fluctuating with market prices and customer usage[123](index=123&type=chunk) - Operating and maintenance expenses, including labor, repairs, and contract services, are generally stable and do not significantly change with short-term volume fluctuations[124](index=124&type=chunk) [Overall Consolidated Results](index=31&type=section&id=OVERALL%20CONSOLIDATED%20RESULTS) This chapter provides a consolidated analysis of the company's financial performance for the three and six months ended June 30, 2023 and 2022 [Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022](index=31&type=section&id=Three%20Months%20Ended%20June%2030%2C%202023%20Compared%20with%20the%20Three%20Months%20Ended%20June%2030%2C%202022) This chapter compares the company's consolidated net income, utility margin, and operating expenses for the three months ended June 30, 2023 and 2022 - Consolidated net income decreased by **$10.7 million** to **$19.1 million**, primarily due to lower electric and natural gas retail volumes, reduced transmission revenues, and higher operating, maintenance, administrative, depreciation, and interest expenses[125](index=125&type=chunk) - Consolidated utility margin decreased by **$5.1 million (2.2%)** to **$222.9 million**, driven by lower retail volumes and transmission revenue, partially offset by Montana interim rates and property tax tracker collections[129](index=129&type=chunk)[132](index=132&type=chunk) - Operating expenses (excluding fuel, purchased supply, and direct transmission) increased by **$1.7 million (1.0%)** to **$177.3 million**, mainly due to higher labor and benefits, depreciation, and other state and local taxes[134](index=134&type=chunk)[135](index=135&type=chunk) - Interest expense increased to **$28.4 million** from **$24.0 million** due to higher borrowings and interest rates, while income tax expense rose to **$2.1 million** from **$1.4 million**, with the effective tax rate increasing to **10.1%** from **4.6%**[138](index=138&type=chunk)[140](index=140&type=chunk) [Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022](index=35&type=section&id=Six%20Months%20Ended%20June%2030%2C%202023%20Compared%20with%20the%20Six%20Months%20Ended%20June%2030%2C%202022) This chapter compares the company's consolidated net income, utility margin, and operating expenses for the six months ended June 30, 2023 and 2022 - Consolidated net income decreased by **$7.2 million (8.1%)** to **$81.7 million**, primarily due to lower natural gas retail volumes, higher depreciation, operating, maintenance, administrative, and interest expenses, and a one-time charge for alternative minimum tax credits[142](index=142&type=chunk) - Consolidated utility margin increased by **$24.7 million (5.1%)** to **$512.0 million**, driven by Montana interim rates, higher electric retail volumes, and lower non-recoverable Montana electric supply costs[146](index=146&type=chunk)[149](index=149&type=chunk) - Operating expenses (excluding fuel, purchased supply, and direct transmission) increased by **$14.5 million (4.1%)** to **$370.3 million**, mainly due to higher depreciation, labor and benefits, and electric generation facility expenses[151](index=151&type=chunk)[152](index=152&type=chunk) - Interest expense increased to **$56.4 million** from **$47.7 million** due to higher borrowings and interest rates Income tax expense rose to **$12.4 million** from **$2.5 million**, including a **$3.2 million** charge for alternative minimum tax credits, resulting in an effective tax rate of **13.2%** (vs **2.8%** in 2022)[154](index=154&type=chunk)[156](index=156&type=chunk) [Electric Segment](index=39&type=section&id=ELECTRIC%20SEGMENT) This chapter analyzes the electric segment's revenues and utility margin performance for the three and six months ended June 30, 2023 and 2022 [Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022](index=39&type=section&id=Three%20Months%20Ended%20June%2030%2C%202023%20Compared%20with%20the%20Three%20Months%20Ended%20June%2030%2C%202022) This chapter compares the electric segment's revenues and utility margin for the three months ended June 30, 2023 and 2022, highlighting key drivers Electric Segment Revenues (Three Months Ended June 30, in thousands) | Category | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Retail Electric | $246,033 | $214,379 | $31,654 | 14.8% | | Regulatory amortization | $(36,254) | $7,741 | $(43,995) | -568.3% | | Transmission | $18,352 | $20,005 | $(1,653) | -8.3% | | Wholesale and Other | $1,135 | $1,293 | $(158) | -12.2% | | Total Revenues | $229,266 | $243,418 | $(14,152) | -5.8% | | Utility Margin | $186,903 | $185,723 | $1,180 | 0.6% | - Electric utility margin increased by **$1.2 million (0.6%)** to **$186.9 million**, primarily due to Montana interim rates, lower non-recoverable Montana electric supply costs, and property tax tracker collections, despite lower retail volumes and transmission revenue[164](index=164&type=chunk) - Lower retail volumes were driven by unfavorable weather in Montana affecting residential demand and lower commercial demand, partially offset by customer growth and favorable weather in South Dakota[165](index=165&type=chunk) [Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022](index=41&type=section&id=Six%20Months%20Ended%20June%2030%2C%202023%20Compared%20with%20the%20Six%20Months%20Ended%20June%2030%2C%202022) This chapter compares the electric segment's revenues and utility margin for the six months ended June 30, 2023 and 2022, highlighting key drivers Electric Segment Revenues (Six Months Ended June 30, in thousands) | Category | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Retail Electric | $546,102 | $460,057 | $86,045 | 18.7% | | Regulatory amortization | $(61,551) | $14,281 | $(75,832) | -531.0% | | Transmission | $37,245 | $37,695 | $(450) | -1.2% | | Wholesale and Other | $2,778 | $3,112 | $(334) | -10.7% | | Total Revenues | $524,574 | $515,145 | $9,429 | 1.8% | | Utility Margin | $404,077 | $379,827 | $24,250 | 6.4% | - Electric utility margin increased by **$24.3 million (6.4%)** to **$404.1 million**, driven by Montana interim rates, higher retail volumes (customer growth and increased residential demand), lower non-recoverable Montana electric supply costs, and property tax tracker collections[173](index=173&type=chunk)[174](index=174&type=chunk) [Natural Gas Segment](index=43&type=section&id=NATURAL%20GAS%20SEGMENT) This chapter analyzes the natural gas segment's revenues and utility margin performance for the three and six months ended June 30, 2023 and 2022 [Three Months Ended June 30, 2023 Compared with the Three Months Ended June 30, 2022](index=43&type=section&id=Three%20Months%20Ended%20June%2030%2C%202023%20Compared%20with%20the%20Three%20Months%20Ended%20June%2030%2C%202022) This chapter compares the natural gas segment's revenues and utility margin for the three months ended June 30, 2023 and 2022, highlighting key drivers Natural Gas Segment Revenues (Three Months Ended June 30, in thousands) | Category | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Retail Gas | $53,995 | $71,630 | $(17,635) | -24.6% | | Regulatory amortization | $(3,369) | $(1,204) | $(2,165) | -179.8% | | Wholesale and other | $10,610 | $9,160 | $1,450 | 15.8% | | Total Revenues | $61,236 | $79,586 | $(18,350) | -23.1% | | Utility Margin | $36,021 | $42,281 | $(6,260) | -14.8% | - Natural gas utility margin decreased by **$6.3 million (14.8%)** to **$36.0 million**, primarily due to lower retail volumes driven by unfavorable weather in Montana, partially offset by customer growth and higher Montana natural gas transportation[182](index=182&type=chunk)[183](index=183&type=chunk) [Six Months Ended June 30, 2023 Compared with the Six Months Ended June 30, 2022](index=45&type=section&id=Six%20Months%20Ended%20June%2030%2C%202023%20Compared%20with%20the%20Six%20Months%20Ended%20June%2030%2C%202022) This chapter compares the natural gas segment's revenues and utility margin for the six months ended June 30, 2023 and 2022, highlighting key drivers Natural Gas Segment Revenues (Six Months Ended June 30, in thousands) | Category | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Retail Gas | $226,638 | $211,332 | $15,306 | 7.2% | | Regulatory amortization | $(28,770) | $(27,774) | $(996) | 3.6% | | Wholesale and other | $22,602 | $18,783 | $3,819 | 20.3% | | Total Revenues | $220,470 | $202,341 | $18,129 | 9.0% | | Utility Margin | $107,897 | $107,585 | $312 | 0.3% | - Natural gas utility margin increased by **$0.3 million (0.3%)** to **$107.9 million**, driven by higher Montana natural gas transportation, property tax tracker collections, and Montana interim rates, partially offset by lower retail volumes due to unfavorable weather in Montana[190](index=190&type=chunk)[191](index=191&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This chapter discusses the company's liquidity, cash flows, capital requirements, credit facilities, long-term debt, equity, and credit ratings [Liquidity](index=47&type=section&id=Liquidity) This chapter details the company's net liquidity, including cash and revolving credit facility availability, and its debt-to-capital ratio target - As of June 30, 2023, total net liquidity was approximately **$366.8 million**, comprising **$7.8 million** in cash and **$359.0 million** in revolving credit facility availability[194](index=194&type=chunk) - The company aims to maintain a **50-55% debt to total capital ratio** (excluding finance leases) and a long-term dividend payout ratio of **60-70% of EPS**[193](index=193&type=chunk) [Cash Flows](index=47&type=section&id=Cash%20Flows) This chapter analyzes cash flows from operating, investing, and financing activities, highlighting changes and key drivers for the period - Cash provided by operating activities increased to **$294.1 million** for the six months ended June 30, 2023, from **$232.8 million** in 2022, primarily due to a **$62.1 million** improvement in collections of energy supply costs and interim rates[196](index=196&type=chunk)[197](index=197&type=chunk) - Cash used in investing activities increased to **$265.8 million** from **$235.3 million**, with plant additions totaling **$263.4 million**, including **$142.2 million** for maintenance and **$121.2 million** for capacity-related capital expenditures[199](index=199&type=chunk) - Cash used in financing activities was **$26.8 million**, reflecting **$259.0 million** in net repayments under revolving lines of credit and **$76.1 million** in dividends, partially offset by **$300.0 million** from debt issuance and **$10.8 million** from common stock issuance[200](index=200&type=chunk) [Cash Requirements and Capital Resources](index=48&type=section&id=Cash%20Requirements%20and%20Capital%20Resources) This chapter assesses the sufficiency of the company's cash flows and capital resources to meet short-term and long-term financial obligations - The company expects cash flows from operations, existing borrowing capacity, debt and equity issuances, and future rate increases to be sufficient for short-term and long-term cash requirements, including operations, debt service, dividends, and capital expenditures[201](index=201&type=chunk) - Material cash requirements are linked to the capital expenditure program, with no material changes to estimated capital expenditures as of June 30, 2023[202](index=202&type=chunk) [Credit Facilities](index=49&type=section&id=Credit%20Facilities) This chapter outlines the company's various credit facilities, their maturities, and current outstanding balances and availability - The company has a **$425 million** Credit Facility maturing May 18, 2027, and a **$25 million** Swingline Facility maturing March 27, 2025 An additional **$100 million** Credit Facility matures April 28, 2024[204](index=204&type=chunk)[205](index=205&type=chunk)[207](index=207&type=chunk) - Outstanding balances on credit facilities were **$191.0 million** as of June 30, 2023, down from **$352.0 million** in 2022 Availability under revolving credit facilities was approximately **$368.0 million** as of July 21, 2023[206](index=206&type=chunk) [Long-term Debt and Equity](index=49&type=section&id=Long-term%20Debt%20and%20Equity) This chapter details recent debt and equity issuances, including first mortgage bonds and ATM common stock offerings - The company issued **$300.0 million** in Montana and South Dakota First Mortgage Bonds in March and May 2023 to refinance debt and fund capital investments[209](index=209&type=chunk) - An Equity Distribution Agreement allows for the sale of up to **$200.0 million** in common stock through an ATM program, with **$10.8 million** in net proceeds from shares issued in Q2 2023[210](index=210&type=chunk) - The City of Forsyth issued **$144.7 million** in Pollution Control Revenue Refunding Bonds on the company's behalf in June 2023 to redeem existing bonds[211](index=211&type=chunk) - The company anticipates issuing **$63.6 million** of common stock through its ATM program for the remainder of 2023 to support its debt-to-capital ratio target[213](index=213&type=chunk) [Credit Ratings](index=50&type=section&id=Credit%20Ratings) This chapter presents the company's current credit ratings from Fitch, Moody's, and S&P, including senior secured and unsecured ratings Credit Ratings (as of July 21, 2023) | Agency | Senior Secured Rating | Senior Unsecured Rating | Outlook | | :--- | :--- | :--- | :--- | | Fitch | A- | BBB+ | Stable | | Moody's | A3 | Baa2 | Stable | | S&P | A- | BBB | Stable | [Contractual Obligations and Other Commitments](index=50&type=section&id=Contractual%20Obligations%20and%20Other%20Commitments) This chapter provides a detailed table of the company's contractual cash obligations and other commitments as of June 30, 2023 Contractual Cash Obligations and Commitments (as of June 30, 2023, in thousands) | Obligation | Total (in thousands) | 2023 (in thousands) | 2024 (in thousands) | 2025 (in thousands) | 2026 (in thousands) | 2027 (in thousands) | Thereafter (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $2,670,660 | $0 | $100,000 | $325,000 | $105,000 | $166,000 | $1,974,660 | | Finance leases | $10,405 | $1,606 | $3,338 | $3,596 | $1,865 | $0 | $0 | | Estimated pension and other postretirement obligations | $57,160 | $11,392 | $11,667 | $11,367 | $11,367 | $11,367 | N/A | | Qualifying facilities liability | $342,296 | $39,234 | $74,110 | $60,360 | $55,393 | $56,665 | $56,534 | | Supply and capacity contracts | $2,748,013 | $219,539 | $289,237 | $237,647 | $248,875 | $232,176 | $1,520,539 | | Contractual interest payments on debt | $1,581,732 | $54,698 | $113,075 | $103,748 | $97,658 | $89,133 | $1,123,420 | | Commitments for significant capital projects | $118,908 | $45,399 | $63,434 | $10,075 | $0 | $0 | $0 | | Total Commitments | $7,529,174 | $371,868 | $654,861 | $751,793 | $520,158 | $555,341 | $4,675,153 | - The company provided surety bonds of approximately **$15.7 million** as of June 30, 2023, for Colstrip's remedial and closure actions[219](index=219&type=chunk) [Critical Accounting Policies and Estimates](index=51&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This chapter identifies the company's critical accounting estimates, including regulatory assets, benefit plans, income taxes, and qualifying facilities liability - Critical accounting estimates include regulatory assets and liabilities, pension and postretirement benefit plans, income taxes, and qualifying facilities liability No material changes to these policies occurred as of June 30, 2023[222](index=222&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section addresses the company's exposure to various market risks, including interest rates, energy commodity price volatility, and counterparty credit exposure, and confirms that there have been no material changes to these risks since the last annual report - The company is exposed to market risks such as interest rates, energy commodity price volatility, and counterparty credit exposure Comprehensive risk management policies are in place to manage these risks[224](index=224&type=chunk) - There have been no material changes in the company's market risks as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022[224](index=224&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting - As of June 30, 2023, the company's disclosure controls and procedures were evaluated and deemed effective by the principal executive officer and principal financial officer[226](index=226&type=chunk) - There have been no material changes in the company's internal control over financial reporting during the most recent fiscal quarter[227](index=227&type=chunk) [Part II. Other Information](index=54&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 10 - Commitments and Contingencies in the Financial Statements for detailed information regarding legal proceedings - Information regarding legal proceedings is provided in Note 10 - Commitments and Contingencies of the Financial Statements[230](index=230&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to the Annual Report on Form 10-K for a comprehensive disclosure of risk factors and confirms no material changes since that disclosure - Risk factors that could significantly impact the business, financial condition, results of operations, or cash flows are disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[231](index=231&type=chunk) - These risk factors have not materially changed since the disclosure in the Annual Report on Form 10-K[231](index=231&type=chunk) [Item 6. Exhibits](index=55&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the 10-Q report, including supplemental indentures, loan agreements, and Sarbanes-Oxley Act certifications - Exhibits include various supplemental indentures (4.1-4.4, 4.7), a Loan Agreement (4.5), a Bond Delivery Agreement (4.6), and Amendment No 1 to Equity Distribution Agreement (10.1)[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk) - Certifications from the chief executive officer and chief financial officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as Exhibits 31.1, 31.2, 32.1, and 32.2[241](index=241&type=chunk) [Signatures](index=58&type=section&id=SIGNATURES) This chapter confirms the official signing of the report by the company's Vice President and Chief Financial Officer on July 25, 2023 - The report was signed on July 25, 2023, by Crystal Lail, Vice President and Chief Financial Officer of NorthWestern Corporation[245](index=245&type=chunk)

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section provides cautionary statements about future-oriented information, highlighting inherent risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements about future financial performance, economic conditions, and customer usage, identified by words like "anticipates," "expects," and "intends." These statements involve **risks and uncertainties** that could cause **actual results to differ materially**[10](index=10&type=chunk)[11](index=11&type=chunk) - Factors that may cause such differences include adverse regulatory determinations, extraordinary external events (pandemics, geopolitical events, natural disasters), cybersecurity attacks, supply chain constraints, inflation, changes in commodity prices, unscheduled generation outages, and adverse economic conditions[13](index=13&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statements[14](index=14&type=chunk) [Part I. Financial Information](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period [Item 1. Financial Statements](index=10&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for NorthWestern Corporation, including statements of income, comprehensive income, balance sheets, cash flows, and shareholders' equity, along with accompanying notes - NorthWestern Corporation provides electricity and/or natural gas to approximately **764,200 customers** in Montana, South Dakota, Nebraska, and Yellowstone National Park[28](index=28&type=chunk) [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This statement details the company's revenues, expenses, and net income for the three months ended March 31, comparing 2023 to 2022 Condensed Consolidated Statements of Income (Three Months Ended March 31, 2023 vs. 2022) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :--- | :--- | :----- | :------- | | Electric Revenues | $295,308 | $271,727 | $23,581 | 8.7% | | Gas Revenues | $159,234 | $122,755 | $36,479 | 29.7% | | **Total Revenues** | **$454,542** | **$394,482** | **$60,060** | **15.2%** | | Total Operating Expenses | $358,500 | $315,266 | $43,234 | 13.7% | | **Operating Income** | **$96,042** | **$79,216** | **$16,826** | **21.2%** | | Interest expense, net | $(28,008) | $(23,716) | $(4,292) | 18.1% | | Income before income taxes | $72,771 | $60,221 | $12,550 | 20.8% | | Income tax expense | $(10,241) | $(1,111) | $(9,130) | 821.8% | | **Net Income** | **$62,530** | **$59,110** | **$3,420** | **5.8%** | | Basic EPS | $1.05 | $1.09 | $(0.04) | -3.7% | | Diluted EPS | $1.05 | $1.08 | $(0.03) | -2.8% | | Dividends Declared per Common Share | $0.64 | $0.63 | $0.01 | 1.6% | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents the company's net income and other comprehensive income/loss components for the three months ended March 31 Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31, 2023 vs. 2022) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :--- | :--- | :----- | :------- | | Net Income | $62,530 | $59,110 | $3,420 | 5.8% | | Total Other Comprehensive Loss | $(56) | $(47) | $(9) | 19.1% | | **Comprehensive Income** | **$62,474** | **$59,063** | **$3,411** | **5.8%** | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (March 31, 2023 vs. December 31, 2022) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Total Current Assets | $448,336 | $538,824 | $(90,488) | -16.8% | | Property, plant, and equipment, net | $5,702,670 | $5,657,480 | $45,190 | 0.8% | | Total Assets | $7,280,994 | $7,317,783 | $(36,789) | -0.5% | | Total Current Liabilities | $680,681 | $620,845 | $59,836 | 9.6% | | Total Liabilities | $4,587,994 | $4,652,600 | $(64,606) | -1.4% | | Total Shareholders' Equity | $2,693,000 | $2,665,183 | $27,817 | 1.0% | | Total Liabilities and Shareholders' Equity | $7,280,994 | $7,317,783 | $(36,789) | -0.5% | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31 Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2023 vs. 2022) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :--- | :--- | :----- | :------- | | Cash Provided by Operating Activities | $213,699 | $195,666 | $18,033 | 9.2% | | Cash Used in Investing Activities | $(136,604) | $(116,069) | $(20,535) | 17.7% | | Cash Used in Financing Activities | $(72,456) | $(67,461) | $(4,995) | 7.4% | | Increase in Cash, Cash Equivalents, and Restricted Cash | $4,639 | $12,136 | $(7,497) | -61.8% | | Cash, Cash Equivalents, and Restricted Cash, end of period | $27,102 | $30,898 | $(3,796) | -12.3% | [Condensed Consolidated Statements of Shareholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) This statement details changes in the company's shareholders' equity, including net income and dividends, for the three months ended March 31 Condensed Consolidated Statements of Shareholders' Equity (Three Months Ended March 31, 2023 vs. 2022) | Metric | March 31, 2023 (in thousands) | March 31, 2022 (in thousands) | Change (in thousands) | % Change | | :-------------------- | :------------- | :------------- | :----- | :------- | | Total Shareholders' Equity (End of Period) | $2,693,000 | $2,366,981 | $326,019 | 13.8% | | Net income | $62,530 | $59,110 | $3,420 | 5.8% | | Dividends on common stock | $(38,041) | $(33,901) | $(4,140) | 12.2% | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides explanatory notes that offer additional detail and context to the condensed consolidated financial statements [(1) Nature of Operations and Basis of Consolidation](index=10&type=section&id=(1)%20Nature%20of%20Operations%20and%20Basis%20of%20Consolidation) This note outlines the company's business activities and the principles used in preparing its consolidated financial statements Reconciliation of Cash, Cash Equivalents, and Restricted Cash (in thousands) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------------------------------------------------------- | :------------- | :---------------- | :------------- | :---------------- | | Cash and cash equivalents | $10,730 | $8,489 | $13,645 | $2,820 | | Restricted cash | $16,372 | $13,974 | $17,253 | $15,942 | | **Total cash, cash equivalents, and restricted cash** | **$27,102** | **$22,463** | **$30,898** | **$18,762** | [(2) Regulatory Matters](index=11&type=section&id=(2)%20Regulatory%20Matters) This note discusses significant regulatory filings, rate reviews, and approvals impacting the company's operations and revenue - The company filed a Montana electric and natural gas rate review on August 8, 2022, requesting an annual increase. Interim rates were approved effective October 1, 2022, subject to refund. A settlement agreement was filed on April 3, 2023, which is subject to MPSC approval[33](index=33&type=chunk) Montana Rate Review - Requested and Interim Revenue Increases (in millions) | Category | Requested (Rebuttal Testimony) (in millions) | Interim Granted (in millions) | Requested (Settlement Agreement) (in millions) | | :------------------------------------ | :----------------------------- | :-------------- | :------------------------------- | | **Electric** | | | | | Base Rates | $90.6 | $29.4 | $67.4 | | PCCAM | $69.7 | $61.1 | $69.7 | | Property Tax (tracker true-up) | $14.5 | $10.8 | $14.5 | | **Total Electric Revenue Increase** | **$174.8** | **$101.3** | **$151.6** | | **Natural Gas** | | | | | Base Rates | $22.4 | $1.7 | $14.1 | | Property Tax (tracker true-up) | $4.2 | $2.9 | $4.2 | | **Total Natural Gas Revenue Increase** | **$26.6** | **$4.6** | **$18.3** | - The MPSC approved the company's legal corporate restructuring plan on February 21, 2023, which aims to separate Montana utility business from South Dakota and Nebraska utility business under a holding company structure for greater transparency[39](index=39&type=chunk) [(3) Income Taxes](index=12&type=section&id=(3)%20Income%20Taxes) This note explains the company's income tax expense, effective tax rate reconciliation, and unrecognized tax benefits - The effective tax rate differs from the federal statutory rate due to regulatory impact of flowing through federal and state tax benefits from repairs deductions, accelerated tax depreciation, and production tax credits[40](index=40&type=chunk) Reconciliation of Effective Tax Rate to Federal Statutory Rate (Three Months Ended March 31, 2023 vs. 2022) | Metric | 2023 (in thousands) | 2023 (%) | 2022 (in thousands) | 2022 (%) | | :------------------------------------------ | :------------------ | :------- | :------------------ | :------- | | Income before income taxes | $72,771 | | $60,221 | | | Income tax calculated at federal statutory rate | $15,282 | **21.0%** | $12,646 | **21.0%** | | State income tax, net of federal provisions | $959 | **1.3%** | $400 | **0.7%** | | Flow-through repairs deductions | $(5,845) | (**8.0%**) | $(6,801) | (**11.3%**) | | Production tax credits | $(3,199) | (**4.4%**) | $(3,824) | (**6.4%**) | | Amortization of excess deferred income tax | $(799) | (**1.1%**) | $(411) | (**0.7%**) | | Reduction to previously claimed alternative minimum tax credit | $3,186 | **4.4%** | — | — | | Plant and depreciation of flow-through items | $688 | **0.9%** | $(255) | (**0.4%**) | | Share-based compensation | $388 | **0.5%** | $(253) | (**0.4%**) | | Other, net | $(419) | (**0.5%**) | $(391) | (**0.7%**) | | **Income tax expense** | **$10,241** | **14.1%** | **$1,111** | **1.8%** | - Unrecognized tax benefits were approximately **$29.9 million** as of March 31, 2023, with **$27.9 million** potentially impacting the effective tax rate. The company accrued **$1.7 million** for interest and penalties on the balance sheet as of March 31, 2023, up from **$1.4 million** at December 31, 2022[42](index=42&type=chunk)[43](index=43&type=chunk) [(4) Comprehensive (Loss) Income](index=13&type=section&id=(4)%20Comprehensive%20(Loss)%20Income) This note details the components of other comprehensive income/loss and changes in accumulated other comprehensive loss Components of Other Comprehensive (Loss) Income, After-Tax (Three Months Ended March 31, 2023 vs. 2022) | Component | March 31, 2023 (Net-of-Tax) (in thousands) | March 31, 2022 (Net-of-Tax) (in thousands) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Foreign currency translation adjustment | $(2) | $(2) | | Reclassification of net income on derivative instruments | $113 | $113 | | Postretirement medical liability adjustment | $(167) | $(158) | | **Total Other Comprehensive Loss** | **$(56)** | **$(47)** | Accumulated Other Comprehensive Loss (AOCL) Balances (Net of Tax, in thousands) | Component | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------------ | :------------- | :---------------- | | Foreign currency translation | $1,433 | $1,435 | | Derivative instruments designated as cash flow hedges | $(9,712) | $(9,825) | | Postretirement medical plans | $375 | $542 | | **Accumulated other comprehensive loss** | **$(7,904)** | **$(7,848)** | [(5) Financing Activities](index=14&type=section&id=(5)%20Financing%20Activities) This note describes recent debt issuances and other financing transactions undertaken by the company - On March 30, 2023, the company issued **$239.0 million** in Montana First Mortgage Bonds and **$31.0 million** in South Dakota First Mortgage Bonds, both at **5.57%** interest, maturing March 30, 2033. Proceeds of **$220.0 million** were received, with an additional **$50.0 million** expected on May 1, 2023[47](index=47&type=chunk) - An additional **$30.0 million** of South Dakota First Mortgage Bonds were priced on March 29, 2023, at **5.42%** interest, expected to be issued on May 1, 2023, and mature on May 1, 2033[48](index=48&type=chunk) [(6) Segment Information](index=15&type=section&id=(6)%20Segment%20Information) This note provides financial data disaggregated by the company's electric and natural gas business segments - The company's reportable business segments are electric and natural gas, with performance evaluated based on utility margin[49](index=49&type=chunk)[50](index=50&type=chunk) Segment Financial Data (Three Months Ended March 31, 2023, in thousands) | Metric | Electric (in thousands) | Gas (in thousands) | Other (in thousands) | Total (in thousands) | | :-------------------------------------------------------------------------------- | :------- | :---- | :---- | :------ | | Operating revenues | $295,308 | $159,234 | $0 | $454,542 | | Fuel, purchased supply and direct transmission expense | $78,134 | $87,358 | $0 | $165,492 | | Utility margin | $217,174 | $71,876 | $0 | $289,050 | | Operating income (loss) | $67,644 | $28,414 | $(16) | $96,042 | | Net income (loss) | $45,822 | $26,812 | $(10,104) | $62,530 | | Total assets | $5,874,061 | $1,399,717 | $7,216 | $7,280,994 | | Capital expenditures | $120,819 | $15,785 | $0 | $136,604 | Segment Financial Data (Three Months Ended March 31, 2022, in thousands) | Metric | Electric (in thousands) | Gas (in thousands) | Other (in thousands) | Total (in thousands) | | :-------------------------------------------------------------------------------- | :------- | :---- | :---- | :------ | | Operating revenues | $271,727 | $122,755 | $0 | $394,482 | | Fuel, purchased supply and direct transmission expense | $77,623 | $57,450 | $0 | $135,073 | | Utility margin | $194,104 | $65,305 | $0 | $259,409 | | Operating income (loss) | $55,017 | $24,456 | $(257) | $79,216 | | Net income (loss) | $38,036 | $21,214 | $(140) | $59,110 | | Total assets | $5,523,726 | $1,291,946 | $6,363 | $6,822,035 | | Capital expenditures | $98,609 | $16,893 | $0 | $115,502 | [(7) Revenue from Contracts with Customers](index=16&type=section&id=(7)%20Revenue%20from%20Contracts%20with%20Customers) This note details the company's revenue recognition policies and disaggregates revenue by major source and customer class - The company provides retail electric and natural gas services to residential, commercial, and industrial customers across Montana, South Dakota, and Nebraska. Revenue is recognized upon delivery of electricity or natural gas[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) Disaggregation of Revenue by Major Source and Customer Class (Three Months Ended March 31, in millions) | Category | Electric 2023 (in millions) | Natural Gas 2023 (in millions) | Total 2023 (in millions) | Electric 2022 (in millions) | Natural Gas 2022 (in millions) | Total 2022 (in millions) | | :------------------------------------------ | :------------ | :--------------- | :--------- | :------------ | :--------------- | :--------- | | **Total Customer Revenues** | **$300.1** | **$172.6** | **$472.7** | **$245.7** | **$139.7** | **$385.4** | | Other tariff and contract based revenues | $21.4 | $12.3 | $33.7 | $20.1 | $10.0 | $30.1 | | Regulatory amortization and other | $(26.2) | $(25.7) | $(51.9) | $5.9 | $(26.9) | $(21.0) | | **Total Revenues** | **$295.3** | **$159.2** | **$454.5** | **$271.7** | **$122.8** | **$394.5** | [(8) Earnings Per Share](index=16&type=section&id=(8)%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted earnings per share, including the shares used in computation Average Shares Used in Computing Basic and Diluted EPS (Three Months Ended March 31) | Metric | March 31, 2023 | March 31, 2022 | | :------------------------------------------ | :------------- | :------------- | | Basic computation | 59,776,195 | 54,096,768 | | Dilutive effect of: Performance share awards | 13,009 | 11,244 | | Dilutive effect of: Forward equity sale | — | 711,383 | | **Diluted computation** | **59,789,204** | **54,819,395** | - As of March 31, 2023, **69,853 shares** from performance and restricted share awards were antidilutive and excluded from EPS calculations, compared to **100,671 shares** as of March 31, 2022[59](index=59&type=chunk) [(9) Employee Benefit Plans](index=17&type=section&id=(9)%20Employee%20Benefit%20Plans) This note provides information on the net periodic benefit cost for the company's pension and other postretirement plans Net Periodic Benefit Cost (Credit) for Pension and Other Postretirement Plans (Three Months Ended March 31, in thousands) | Component | Pension Benefits 2023 (in thousands) | Pension Benefits 2022 (in thousands) | Other Postretirement Benefits 2023 (in thousands) | Other Postretirement Benefits 2022 (in thousands) | | :------------------------------------------ | :-------------------- | :-------------------- | :--------------------------------- | :--------------------------------- | | Service cost | $1,494 | $2,884 | $87 | $91 | | Interest cost | $6,565 | $4,668 | $176 | $91 | | Expected return on plan assets | $(6,686) | $(6,052) | $(275) | $(262) | | Amortization of prior service credit | — | — | $29 | $(473) | | Recognized actuarial loss (gain) | $140 | — | $31 | $(14) | | **Net periodic benefit cost (credit)** | **$1,513** | **$1,500** | **$(567)** | **$48** | - The company has not contributed to its pension plans during the three months ended March 31, 2023, but expects to contribute **$11.2 million** during the remainder of 2023[60](index=60&type=chunk) [(10) Commitments and Contingencies](index=17&type=section&id=(10)%20Commitments%20and%20Contingencies) This note discloses the company's environmental reserves, legal proceedings, and other significant commitments and contingent liabilities - The company's environmental reserve, primarily for former manufactured gas plant sites, is estimated to range from **$21.3 million** to **$32.4 million**, with a reserve of approximately **$26.1 million** as of March 31, 2023[65](index=65&type=chunk) - The State of Montana is suing for riverbed rents for 10 hydroelectric facilities. If the court finds riverbeds navigable and awards damages, annual rents could be approximately **$3.8 million** starting November 2014, which the company anticipates would be recoverable in rates[72](index=72&type=chunk)[74](index=74&type=chunk) - A Montana District Court vacated the air quality permit for the Yellowstone County Generating Station due to deficient environmental analysis regarding exterior lighting and greenhouse gases, halting construction. The company has appealed and expects the plant to be operational by the end of 2024[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed discussion and analysis of the company's financial condition and results of operations, including business strategy, performance, and regulatory updates [How We Performed Against Our First Quarter 2022 Results](index=22&type=section&id=HOW%20WE%20PERFORMED%20AGAINST%20OUR%20FIRST%20QUARTER%202022%20RESULTS) This section analyzes the key drivers behind the company's financial performance in Q1 2023 compared to Q1 2022, focusing on net income variance Net Income Variance (Three Months Ended March 31, 2023 vs. 2022, in millions) | Metric | Q1 2022 (in millions) | Variance Impacting Net Income (in millions) | Q1 2023 (in millions) | Change in Net Income (in millions) | | :-------------------------------------------------------------------------------- | :------ | :---------------------------- | :------ | :------------------- | | Income Before Income Taxes | $60.2 | $12.5 | $72.7 | | | Income Tax (Expense) Benefit | $(1.1) | $(9.1) | $(10.2) | | | **Net Income** | **$59.1** | **$3.4** | **$62.5** | **$3.4** | | **Key Drivers of Variance:** | | | | | | Higher electric retail volumes | | $7.3 | | | | Montana interim rates (subject to refund) | | $6.3 | | | | Higher natural gas retail volumes | | $2.8 | | | | Lower non-recoverable Montana electric supply costs | | $1.0 | | | | Higher electric transmission revenue | | $0.9 | | | | Higher operating, maintenance, and administrative expenses | | $(4.9) | | | | Higher interest expense | | $(3.2) | | | | Higher depreciation expense | | $(3.2) | | | | Reduction to previously claimed alternative minimum tax credit | | $(3.2) | | | - Consolidated net income **increased by $3.4 million** to **$62.5 million** for Q1 2023, primarily driven by higher electric and natural gas retail volumes, Montana interim rates, lower non-recoverable electric supply costs, and higher transmission revenues. These gains were partly offset by increased operating, maintenance, administrative, depreciation, interest, and income tax expenses[91](index=91&type=chunk) [Significant Trends and Regulation](index=22&type=section&id=SIGNIFICANT%20TRENDS%20AND%20REGULATION) This section highlights anticipated rate filings, corporate restructuring, and project delays impacting the company's operations and future outlook - The company anticipates making a South Dakota electric general rate filing in mid-2023[100](index=100&type=chunk) - The Montana Public Service Commission (MPSC) approved the company's legal corporate restructuring plan on February 21, 2023, which will legally separate the Montana utility business from the South Dakota and Nebraska utility business under a holding company[102](index=102&type=chunk) - The Yellowstone County Generating Station project faces delays and potential cost increases after its air quality permit was vacated by a Montana District Court due to deficiencies in environmental analysis. Construction is halted, but the plant is still expected to be operational by the end of 2024, with total costs incurred of **$174.7 million** out of an expected **$275.0 million**[106](index=106&type=chunk) [Results of Operations](index=24&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's consolidated and segment-specific operating results, including revenues, expenses, and utility margin - Revenues fluctuate with supply costs, which are generally recovered from customers, and are also impacted by customer growth, usage (affected by weather and energy efficiency), and regulatory approvals[112](index=112&type=chunk)[113](index=113&type=chunk) - Fuel, purchased supply, and direct transmission expenses are directly tied to energy generation/procurement and are generally recovered in rates. Operating and maintenance expenses are relatively stable and do not significantly fluctuate with short-term volume changes[114](index=114&type=chunk)[115](index=115&type=chunk) [Overall Consolidated Results](index=26&type=section&id=OVERALL%20CONSOLIDATED%20RESULTS) This section presents the company's overall consolidated financial performance, focusing on gross margin, utility margin, and operating expenses Consolidated Gross Margin and Utility Margin (Three Months Ended March 31, in millions) | Metric | 2023 (in millions) | 2022 (in millions) | Change (in millions) | % Change | | :------------------------------------------ | :--- | :--- | :----- | :------- | | Gross Margin | $130.7 | $110.8 | $19.9 | 18.0% | | **Utility Margin** | **$289.0** | **$259.4** | **$29.6** | **11.4%** | | Electric Utility Margin | $217.2 | $194.1 | $23.1 | 11.9% | | Natural Gas Utility Margin | $71.8 | $65.3 | $6.5 | 10.0% | - The increase in consolidated utility margin was primarily driven by higher electric retail volumes (**$9.8 million**), Montana interim rates (**$8.5 million**), higher natural gas retail volumes (**$3.7 million**), and lower non-recoverable Montana electric supply costs (**$1.3 million**)[124](index=124&type=chunk)[125](index=125&type=chunk) Consolidated Operating Expenses (Excluding Fuel, Purchased Supply and Direct Transmission Expense) (Three Months Ended March 31, in millions) | Metric | 2023 (in millions) | 2022 (in millions) | Change (in millions) | % Change | | :------------------------------------------ | :--- | :--- | :----- | :------- | | Operating and maintenance | $55.9 | $52.8 | $3.1 | 5.9% | | Administrative and general | $34.7 | $31.6 | $3.1 | 9.8% | | Property and other taxes | $49.2 | $46.9 | $2.3 | 4.9% | | Depreciation and depletion | $53.2 | $48.9 | $4.3 | 8.8% | | **Total Operating Expenses (excluding fuel, purchased supply and direct transmission expense)** | **$193.0** | **$180.2** | **$12.8** | **7.1%** | [Electric Segment](index=30&type=section&id=ELECTRIC%20SEGMENT) This section analyzes the financial performance of the electric segment, detailing revenues, utility margin, and key drivers of change Electric Segment Revenues and Utility Margin (Three Months Ended March 31, in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :--- | :--- | :----- | :------- | | Total Retail Electric Revenues | $300,069 | $245,676 | $54,393 | 22.1% | | Total Electric Revenues | $295,308 | $271,727 | $23,581 | 8.7% | | Fuel, purchased supply and direct transmission expense | $78,134 | $77,623 | $511 | 0.7% | | **Electric Utility Margin** | **$217,174** | **$194,104** | **$23,070** | **11.9%** | - Electric retail volumes increased due to **9% colder** winter weather in Montana and **6% colder** in South Dakota, along with customer growth[140](index=140&type=chunk)[143](index=143&type=chunk) - Key drivers for the **$23.1 million** increase in electric utility margin include higher retail volumes (**$9.8 million**), Montana interim rates (**$8.4 million**), lower non-recoverable Montana electric supply costs (**$1.3 million**), and higher transmission revenue (**$1.2 million**)[143](index=143&type=chunk) [Natural Gas Segment](index=32&type=section&id=NATURAL%20GAS%20SEGMENT) This section analyzes the financial performance of the natural gas segment, detailing revenues, utility margin, and key drivers of change Natural Gas Segment Revenues and Utility Margin (Three Months Ended March 31, in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :--- | :--- | :----- | :------- | | Total Retail Gas Revenues | $172,643 | $139,700 | $32,943 | 23.6% | | Total Natural Gas Revenues | $159,234 | $122,755 | $36,479 | 29.7% | | Fuel, purchased supply and direct transmission expense | $87,358 | $57,450 | $29,908 | 52.1% | | **Natural Gas Utility Margin** | **$71,876** | **$65,305** | **$6,571** | **10.1%** | - Natural gas retail volumes increased due to colder winter weather in all jurisdictions (Montana **9% colder**, South Dakota **6% colder**, Nebraska **9% colder**) and customer growth[150](index=150&type=chunk)[154](index=154&type=chunk) - The **$6.5 million** increase in natural gas utility margin was primarily driven by higher retail volumes (**$3.7 million**) and Montana interim rates (**$0.1 million**)[153](index=153&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's liquidity needs, capital structure targets, and cash flow activities from operations, investing, and financing - The company's liquidity needs include working capital, capital expenditures, investments, and debt repayment. It expects cash flows from operations, borrowing capacity, debt/equity issuances, and future rate increases to be sufficient[157](index=157&type=chunk) - The company targets a **50-55%** debt to total capital ratio (excluding finance leases) and a long-term dividend payout ratio of **60-70%** of EPS[157](index=157&type=chunk) Consolidated Cash Flows (Three Months Ended March 31, in millions) | Metric | 2023 (in millions) | 2022 (in millions) | Change (in millions) | % Change | | :------------------------------------------ | :--- | :--- | :----- | :------- | | Cash Provided by Operating Activities | $213.7 | $195.7 | $18.0 | 9.2% | | Cash Used in Investing Activities | $(136.6) | $(116.1) | $(20.5) | 17.7% | | Cash Used in Financing Activities | $(72.5) | $(67.5) | $(5.0) | 7.4% | | Increase in Cash, Cash Equivalents, and Restricted Cash | $4.6 | $12.1 | $(7.5) | -61.8% | [Critical Accounting Policies and Estimates](index=37&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) This section outlines the significant accounting policies and estimates that require management judgment in preparing the financial statements - The preparation of financial statements requires estimates and assumptions, which are continually evaluated. Critical estimates include regulatory assets and liabilities, pension and postretirement benefit plans, income taxes, and qualifying facilities liability[187](index=187&type=chunk)[188](index=188&type=chunk) - There have been no material changes in these critical accounting policies since the Annual Report on Form 10-K for the year ended December 31, 2022[188](index=188&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section describes the company's exposure to market risks, including interest rates, commodity prices, and counterparty credit, and its risk management approach - The company is exposed to market risks including interest rates, energy commodity price volatility, and counterparty credit exposure[190](index=190&type=chunk) - There have been no material changes in market risks as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[190](index=190&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting - Disclosure controls and procedures were evaluated and concluded to be effective as of March 31, 2023[191](index=191&type=chunk)[192](index=192&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[193](index=193&type=chunk) [Part II. Other Information](index=41&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional disclosures including legal proceedings, risk factors, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed information on legal proceedings, including lawsuits and regulatory actions, found in the notes to the financial statements - Information regarding legal proceedings is detailed in Note 10 - Commitments and Contingencies of the Financial Statements[196](index=196&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive disclosure of risk factors that could impact the business, as detailed in the annual report - Risk factors are disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[197](index=197&type=chunk) - No material changes to the risk factors have occurred since the previous disclosure[197](index=197&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists various agreements, certifications, and XBRL documents filed as exhibits to the report - The exhibits include various agreements (e.g., Colstrip abandonment, supplemental indentures), award agreements (performance unit, restricted unit), and certifications (CEO, CFO under Sarbanes-Oxley Act)[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) - XBRL (eXtensible Business Reporting Language) documents are also included as exhibits for interactive data filing[204](index=204&type=chunk) [Signatures](index=43&type=section&id=SIGNATURES) This section contains the official certification and signature of the authorized financial officer for the report - The report was signed on April 28, 2023, by Crystal Lail, Vice President and Chief Financial Officer, as the duly authorized officer and principal financial officer[208](index=208&type=chunk)

Financial Data and Key Metrics Changes - The company reported Q4 2022 GAAP earnings of $1.16 per share, a $0.20 increase from the previous year, and non-GAAP earnings of $1.13, a $0.09 increase [33] - For the full year, GAAP earnings were $3.25, down from $3.60 the previous year, while non-GAAP earnings were $3.18, down from $3.51 [45][61] - Net income for the year was $183 million, a decrease of $3.8 million or 2% compared to the prior year [45] Business Line Data and Key Metrics Changes - The company achieved record system peaks for both electric and gas businesses in 2022, indicating strong operational performance [17] - The company invested $580 million in capital expenditures in 2022, marking the largest investment year to date [20] Market Data and Key Metrics Changes - The company faced significant challenges due to severe weather events, which impacted operational costs and market prices [36][39] - The PCCAM (Power Cost and Credit Adjustment Mechanism) had a detrimental impact of $7.2 million on the company's results for the year [36][52] Company Strategy and Development Direction - The company announced a commitment to achieve Net Zero by 2050 and has published a Sustainability Report aligned with TCFD and SASB [20] - The acquisition of Colstrip for zero purchase price is aimed at enhancing reliability, affordability, and sustainability, with plans to mitigate reliance on imported power [21][22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about 2023, citing favorable regulatory reception and operational tailwinds [3] - The company is focused on addressing capacity constraints and enhancing its generation and transmission capabilities [58][65] Other Important Information - The company is in the process of a rate case in Montana, which is expected to significantly influence future earnings and growth [55] - The company plans to issue $75 million under its ATM equity program during 2023 [63] Q&A Session Questions and Answers Question: Thoughts on the 2023 guidance and capital plan - Management confirmed that they will evaluate the base year for guidance and expect to provide updated guidance after the rate case [75] Question: Clarification on rate base and capital expenditures - Management explained that the capital roll-forward represents a steady approach and is focused on maintaining affordability while addressing capacity needs [80] Question: Impact of acquiring Colstrip on rates - Management indicated that acquiring Colstrip for zero upfront cost will allow for recovery of operating costs starting January 1, 2026, with strong support from local stakeholders [96] Question: Comments on the Broadview decision and its implications - Management expressed disappointment with the Broadview decision but noted that the acquisition of Colstrip helps close the capacity gap [88]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Address of principal executive offices) (Zip Code) (I.R.S. Employer Identification No.) Registrant's telephone number, including area code: 605-978-2900 For the transition period from to Commis ...

Wells Fargo Utility Symposium December 7, 20228-K December 7, 2022 NorthWestern® Delivering a Bright Future 2 Forward Looking Statements Forward Looking Statements During the course of this presentation, there will be forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "int ...

EEI Financial Conference November 20228-K November 14, 2022 NorthWestern® 2 Forward Looking Statements Forward Looking Statements During the course of this presentation, there will be forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future business and financial performance, and often contain words such as "expects," "anticipates," "intends," "plans," "believes," "seeks ...

NorthWestern Corporation (NASDAQ:NWE) Q3 2022 Earnings Conference Call October 25, 2022 3:30 PM ET Company Participants Travis Meyer - Director of Corporate Finance & Investor Relations Officer Bob Rowe - CEO Crystal Lail - VP & CFO Brian Bird - President & COO Conference Call Participants Shar Pourreza - Guggenheim Securities Sophie Karp - KeyBanc Travis Meyer Good afternoon, and thank you for joining NorthWestern Corporation's Financial Results Webcast for the Quarter Ending September 30, 2022. My name is ...