NorthWestern (US:NWE)2021-10-25 12:46PART I. FINANCIAL INFORMATION This section covers the company's unaudited financial statements, MD&A, market risk disclosures, and internal controls Financial Statements Presents NorthWestern Corporation's unaudited condensed consolidated financial statements for Q3 2021 and 2020, including income, balance sheets, cash flows, and equity Condensed Consolidated Statements of Income Highlights | Indicator | Three Months Ended Sep 30, 2021 ($) | Three Months Ended Sep 30, 2020 ($) | Nine Months Ended Sep 30, 2021 ($) | Nine Months Ended Sep 30, 2020 ($) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $325,955 | $280,610 | $1,024,975 | $885,225 | | Operating Income | $55,664 | $49,655 | $195,692 | $169,708 | | Net Income | $35,196 | $29,466 | $135,504 | $101,664 | | Diluted EPS | $0.68 | $0.58 | $2.64 | $2.01 | Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 (thousands of $) | Dec 31, 2020 (thousands of $) | | :--- | :--- | :--- | | Total Assets | $6,666,630 | $6,389,449 | | Total Liabilities | $4,420,097 | $4,310,354 | | Total Shareholders' Equity | $2,246,533 | $2,079,095 | Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended, in thousands) | Activity | Sep 30, 2021 (thousands of $) | Sep 30, 2020 (thousands of $) | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $221,610 | $322,515 | | Cash Used in Investing Activities | ($311,815) | ($283,029) | | Cash Provided by (Used in) Financing Activities | $97,328 | ($37,547) | Notes to Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies and specific financial items for the financial statements - The MPSC dismissed the company's application to increase the Power Costs and Credits Adjustment Mechanism (PCCAM) Base, which may result in delayed recovery of 90% of excess supply costs and higher non-recoverable losses on the remaining 10%3637 - In April 2021, the company initiated an At-the-Market (ATM) offering program for up to $200.0 million of common stock. As of September 30, 2021, it had issued 1,919,394 shares for net proceeds of $121.1 million55 - The company's environmental reserve for remediation, primarily for former manufactured gas plant sites, is estimated to be between $24.7 million and $30.4 million, with a recorded reserve of approximately $27.1 million as of September 30, 202174 - The company is involved in litigation with Pacific Northwest Solar (PNWS), where a court ruled that four power purchase agreements are valid and NorthWestern breached them. A jury trial for damages, which could be up to approximately $8.0 million, is scheduled for December 13, 20219899 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management's perspective on Q3 2021 financial condition and operations, including key drivers, trends, segment results, liquidity, and capital Q3 2021 vs Q3 2020 Net Income Change (in millions) | Description | Income Before Taxes (Millions of $) | Income Tax (Expense) Benefit (Millions of $) | Net Income (Millions of $) | | :--- | :--- | :--- | :--- | | Third Quarter 2020 | $26.8 | $2.7 | $29.5 | | Higher Montana electric transmission revenue | $10.1 | ($2.6) | $7.5 | | Higher electric retail volumes | $8.4 | ($2.1) | $6.3 | | Higher operating, general, and administrative expenses | ($5.0) | $1.3 | ($3.7) | | Third Quarter 2021 | $37.7 | ($2.5) | $35.2 | - The company is currently 630 MW short of its peak needs in Montana and forecasts this shortfall to grow to 725 MW by 2025. To address this, it plans to construct the 175 MW Laurel Generating Station and enter a 20-year agreement for a 50 MW battery storage facility120121 - The February 2021 cold weather event led to extreme natural gas prices, resulting in the company recording regulatory assets of approximately $26.0 million in Nebraska and $22.0 million in South Dakota to be recovered from customers over one to two years127129130 - As of September 30, 2021, the company had total net liquidity of approximately $163.6 million, consisting of $8.6 million in cash and $155.0 million available under its revolving credit facility205 Results of Operations Analyzes the company's operating performance, including gross margin by segment and key revenue and expense drivers Gross Margin by Segment (Non-GAAP) | Segment | Q3 2021 (Millions of $) | Q3 2020 (Millions of $) | Change (%) | YTD 2021 (Millions of $) | YTD 2020 (Millions of $) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Electric | $198.1 | $183.0 | 8.3% | $580.2 | $533.4 | 8.8% | | Natural Gas | $29.2 | $29.6 | (1.4)% | $133.6 | $131.4 | 1.7% | | Total | $227.3 | $212.6 | 6.9% | $713.8 | $664.8 | 7.4% | - The increase in Q3 electric gross margin was primarily driven by higher Montana transmission revenue ($10.1M) and higher electric retail volumes ($8.4M), partially offset by lower Montana electric supply cost recovery (-$2.1M)145176 - The slight decrease in Q3 natural gas gross margin was mainly due to lower retail volumes (-$0.6M) resulting from warmer weather189190 Liquidity and Capital Resources Examines the company's cash flows, capital expenditures, financing activities, and contractual obligations for financial flexibility - Cash provided by operating activities decreased to $221.6 million for the nine months ended Sep 30, 2021, from $322.5 million in the prior year period, primarily due to a $106.7 million net increase in the under-collection of energy supply costs215216 - The company is moving forward with the construction of the 175 MW Laurel Generating Station, estimated to cost approximately $275 million, which was not previously included in capital expenditure estimates221 Contractual Cash Obligations and Commitments as of Sep 30, 2021 (in thousands) | Obligation | Total (thousands of $) | 2022 (thousands of $) | 2023 (thousands of $) | 2024 (thousands of $) | Thereafter (thousands of $) | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $2,474,660 | $0 | $439,660 | $100,000 | $1,935,000 | | Supply and capacity contracts | $2,639,374 | $241,819 | $264,729 | $221,282 | $1,831,244 | | Contractual interest payments | $1,501,841 | $87,352 | $85,386 | $79,760 | $1,227,505 | | Total Commitments | $7,169,345 | $425,306 | $888,229 | $491,678 | $4,577,344 | Quantitative and Qualitative Disclosures About Market Risk Details the company's exposure to market risks, including interest rates, commodity price volatility, and counterparty credit, with no material changes since 2020 - The company is exposed to market risks including interest rates, energy commodity price volatility, and counterparty credit exposure232 - There have been no material changes in the company's market risks as disclosed in its 2020 Annual Report on Form 10-K232 Controls and Procedures Confirms management's evaluation of disclosure controls and procedures as effective, with no material changes to internal control over financial reporting - Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of September 30, 2021235 - No changes occurred in the company's internal control over financial reporting during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, these controls236 PART II. OTHER INFORMATION This section provides information on legal proceedings, risk factors, and exhibits filed with the report Legal Proceedings Refers to Note 10 of the financial statements for detailed information on the company's ongoing legal proceedings - For information regarding legal proceedings, the report refers to Note 10, Commitments and Contingencies, in the Financial Statements239 Risk Factors Details significant risks and uncertainties impacting the company's business, including COVID-19, regulatory, operational, and financial challenges - The COVID-19 pandemic continues to pose risks, including potential negative impacts from adverse economic conditions, operational disruptions due to workforce or supply chain issues, and challenges from vaccine mandates242245249 - The company faces significant regulatory risk, including the potential for unfavorable outcomes in rate cases and cost recovery mechanisms, such as the MPSC's rejection of the request to reset the PCCAM Base revenue amount252254 - Early closure of the Colstrip generating facility, driven by environmental regulations or differing views among joint owners, could materially impact operations. The company has initiated arbitration to clarify closure requirements and funding obligations among the owners269270 - The company's significant reliance on market purchases to meet energy demand (approximately 46% of peak electric requirements) exposes it to commodity price volatility and supply availability risks, particularly as regional generation facilities are retired294295 Exhibits Lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002310311312313 - The filing includes Inline XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase documents313314