NorthWestern (NWE) - 2021 Q1 - Quarterly Report

Form 10-Q Filing Information This section details NorthWestern Corp's Form 10-Q filing specifics for Q1 2021, including registrant status and common stock outstanding - NorthWestern Corp (NWE) filed a Quarterly Report on Form 10-Q for the period ended March 31, 2021[2] - The registrant is a Large Accelerated Filer and is not a shell company[3][4] Common Stock Outstanding | Metric | Value | | :-------------------------------- | :------------------- | | Common Stock, Par Value | $0.01 | | Shares Outstanding (as of April 16, 2021) | 50,675,207 shares | Index This section presents the table of contents, outlining the structure of the financial information and disclosures within the Form 10-Q - The index provides a table of contents for the Quarterly Report on Form 10-Q, outlining the structure of the financial information and other disclosures[7] Special Note Regarding Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to risks and uncertainties, with no obligation for public updates - This section cautions that the report contains forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially from projections[9][10] - Key factors that may cause differences include adverse regulatory determinations, the impact of the COVID-19 pandemic, changes in commodity prices, unscheduled generation outages, and adverse economic conditions[14] - The company undertakes no obligation to publicly update or revise any forward-looking statements[13] Part I. Financial Information This part presents the unaudited condensed consolidated financial statements and related disclosures for the reporting period Item 1. Financial Statements 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 detailed notes explaining the company's accounting policies, regulatory matters, income taxes, financing activities, segment information, revenue recognition, earnings per share, employee benefits, and commitments and contingencies Condensed Consolidated Statements of Income This section presents the unaudited condensed consolidated statements of income for the three months ended March 31 Condensed Consolidated Statements of Income (Three Months Ended March 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Electric Revenues | $270,071 | $244,625 | $25,446 | 10.4% | | Gas Revenues | $130,732 | $90,630 | $40,102 | 44.2% | | Total Revenues | $400,803 | $335,255 | $65,548 | 19.6% | | Total Operating Expenses | $319,818 | $260,041 | $59,777 | 23.0% | | Operating Income | $80,985 | $75,214 | $5,771 | 7.7% | | Net Income | $63,071 | $50,704 | $12,367 | 24.4% | | Basic Earnings per Average Common Share | $1.25 | $1.00 | $0.25 | 25.0% | | Diluted Earnings per Average Common Share | $1.24 | $1.00 | $0.24 | 24.0% | | Dividends Declared per Common Share | $0.62 | $0.60 | $0.02 | 3.3% | Condensed Consolidated Statements of Comprehensive Income This section presents the unaudited condensed consolidated statements of comprehensive income for the three months ended March 31 Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31) | Metric | 2021 (in thousands) | 2020 (in thousands) | | :---------------------------------- | :------------------ | :------------------ | | Net Income | $63,071 | $50,704 | | Foreign currency translation adjustment | $(76) | $101 | | Postretirement medical liability adjustment | $(158) | — | | Reclassification of net losses on derivative instruments | $113 | $113 | | Total Other Comprehensive (Loss) Income | $(121) | $214 | | Comprehensive Income | $62,950 | $50,918 | Condensed Consolidated Balance Sheets This section presents the unaudited condensed consolidated balance sheets as of March 31, 2021, and December 31, 2020 Condensed Consolidated Balance Sheets (As of March 31, 2021 and December 31, 2020) | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :---------------------------------- | :------------------------------ | :------------------------------- | | Total Current Assets | $358,711 | $308,680 | | Property, plant, and equipment, net | $4,993,255 | $4,952,935 | | Total Assets | $6,502,813 | $6,389,449 | | Total Current Liabilities | $386,447 | $466,423 | | Long-term debt | $2,464,121 | $2,315,261 | | Total Liabilities | $4,388,978 | $4,310,354 | | Total Shareholders' Equity | $2,113,835 | $2,079,095 | Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows for the three months ended March 31 Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | Metric | 2021 (in millions) | 2020 (in millions) | | :---------------------------------- | :----------------- | :----------------- | | Cash Provided by Operating Activities | $65.7 | $158.1 | | Cash Used in Investing Activities | $(77.9) | $(78.4) | | Cash Provided by (Used in) Financing Activities | $17.1 | $(26.7) | | Increase in Cash, Cash Equivalents, and Restricted Cash | $4.9 | $53.0 | | Cash, Cash Equivalents, and Restricted Cash, end of period | $22.0 | $65.1 | - Cash provided by operating activities decreased significantly due to an $80.9 million increase in market purchases of supply during the February cold weather event and a $20.5 million refund to FERC regulated wholesale customers[168] Condensed Consolidated Statements of Shareholders' Equity This section presents the unaudited condensed consolidated statements of shareholders' equity for the three months ended March 31 Condensed Consolidated Statements of Shareholders' Equity (Three Months Ended March 31, in thousands) | Metric | Balance at Dec 31, 2020 | Net Income | Dividends on Common Stock | Balance at Mar 31, 2021 | | :---------------------------------- | :---------------------- | :--------- | :------------------------ | :---------------------- | | Total Shareholders' Equity | $2,079,095 | $63,071 | $(31,124) | $2,113,835 | Notes to Condensed Consolidated Financial Statements These notes provide additional detail and context for the condensed consolidated financial statements, covering the nature of operations, regulatory matters, income taxes, comprehensive income, financing activities, segment information, revenue recognition, earnings per share, employee benefit plans, and commitments and contingencies. Key updates include a reclassification of excess deferred income taxes, details on FERC and MPSC regulatory filings, and environmental liabilities Note 1. Nature of Operations and Basis of Consolidation This note describes NorthWestern Energy's operations, customer base, and accounting reclassifications - NorthWestern Energy provides electricity and/or natural gas to approximately 743,000 customers in Montana, South Dakota, Nebraska, and Yellowstone National Park[29] - A reclassification of excess deferred income taxes from a regulatory asset to a regulatory liability was made in Q4 2020, with no effect on previously reported Net Income[32] - Identified one 35 MW coal-fired QF contract as a potential Variable Interest Entity (VIE), with estimated remaining gross contractual payments of approximately $109.1 million through 2025[34] Note 2. Regulatory Matters This note details significant regulatory actions, including customer refunds and compliance with renewable energy obligations - Refunded approximately $20.5 million to FERC regulated wholesale customers in Q1 2021 following FERC approval of a settlement for Montana transmission service rates[36] - The MPSC approved, on an interim basis, an updated revenue credit and a refund to retail customers for the difference between FERC interim and approved settlement rates, effective April 1, 2021[37] - Acquired approximately 50 MW of Community Renewable Energy Projects (CREPs) towards a 65 MW obligation by December 31, 2020, with pending waiver requests and potential, but not material, penalties[38] Note 3. Income Taxes This note provides details on income tax benefits, effective tax rates, and unrecognized tax benefits Income Tax Benefit (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | | :---------------------------------- | :----- | :----- | | Income Before Income Taxes | $63,049 | $48,898 | | Income tax calculated at federal statutory rate (21.0%) | $13,240 | $10,268 | | Total Permanent or flow-through adjustments | $(13,262) | $(12,074) | | Income tax benefit | $(22) | $(1,806) | | Effective tax rate | 0.0% | (3.7)% | - Unrecognized tax benefits were approximately $33.1 million as of March 31, 2021, with $27.9 million potentially impacting the effective tax rate[41] Note 4. Comprehensive (Loss) Income This note details the components of other comprehensive income and accumulated other comprehensive loss Components of Other Comprehensive (Loss) Income (Three Months Ended March 31, in thousands) | Component | 2021 Net-of-Tax | 2020 Net-of-Tax | | :-------------------------------------------------- | :-------------- | :-------------- | | Foreign currency translation adjustment | $(76) | $101 | | Reclassification of net income on derivative instruments | $113 | $113 | | Postretirement medical liability adjustment | $(158) | — | | Total Other Comprehensive (Loss) Income | $(121) | $214 | Accumulated Other Comprehensive Loss (AOCL) Balances (Net of Tax, in thousands) | Component | March 31, 2021 | December 31, 2020 | | :------------------------------------------ | :------------- | :---------------- | | Foreign currency translation | $1,424 | $1,500 | | Derivative instruments designated as cash flow hedges | $(10,616) | $(10,729) | | Postretirement medical plans | $1,802 | $1,960 | | Accumulated other comprehensive loss | $(7,390) | $(7,269) | Note 5. Financing Activities This note outlines recent financing activities, including bond issuance and debt repayment - Issued $100 million aggregate principal amount of Montana First Mortgage Bonds in March 2021 at a fixed interest rate of 1.00%, maturing March 26, 2024[45] - The net proceeds from the bond issuance were used to repay in full an outstanding $100 million term loan[45] Note 6. Segment Information This note provides disaggregated financial data for the electric, natural gas, and other segments Segment Financial Data (Three Months Ended March 31, 2021, in thousands) | Metric | Electric | Gas | Other | Total | | :---------------------------------- | :------- | :---- | :---- | :---- | | Operating revenues | $270,071 | $130,732 | $— | $400,803 | | Cost of sales | $80,188 | $64,325 | $— | $144,513 | | Gross margin | $189,883 | $66,407 | $— | $256,290 | | Operating income (loss) | $56,417 | $26,488 | $(1,920) | $80,985 | | Net income | $38,632 | $23,961 | $478 | $63,071 | | Total assets | $4,735,853 | $1,755,465 | $11,495 | $6,502,813 | | Capital expenditures | $68,940 | $8,914 | $— | $77,854 | Segment Financial Data (Three Months Ended March 31, 2020, in thousands) | Metric | Electric | Gas | Other | Total | | :---------------------------------- | :------- | :---- | :---- | :---- | | Operating revenues | $244,625 | $90,630 | $— | $335,255 | | Cost of sales | $63,834 | $27,438 | $— | $91,272 | | Gross margin | $180,791 | $63,192 | $— | $243,983 | | Operating income | $49,991 | $23,041 | $2,182 | $75,214 | | Net income (loss) | $30,444 | $20,795 | $(535) | $50,704 | | Total assets | $4,482,316 | $1,650,531 | $4,619 | $6,137,466 | | Capital expenditures | $63,348 | $15,023 | $— | $78,371 | Note 7. Revenue from Contracts with Customers This note disaggregates revenue by major source and customer class for electric and natural gas segments Disaggregation of Revenue by Major Source and Customer Class (Three Months Ended March 31, in millions) | Category | 2021 Electric | 2021 Natural Gas | 2021 Total | 2020 Electric | 2020 Natural Gas | 2020 Total | | :------------------------------------------ | :------------ | :--------------- | :--------- | :------------ | :--------------- | :--------- | | Total Customer Revenues | $239.0 | $101.0 | $340.0 | $234.1 | $87.4 | $321.5 | | Other Tariff and Contract Based Revenues | $16.9 | $9.7 | $26.6 | $14.9 | $9.6 | $24.5 | | Total Revenue from Contracts with Customers | $255.9 | $110.7 | $366.6 | $249.0 | $97.0 | $346.0 | | Regulatory amortization and other | $14.2 | $20.0 | $34.2 | $(4.4) | $(6.4) | $(10.8) | | Total Revenues | $270.1 | $130.7 | $400.8 | $244.6 | $90.6 | $335.2 | Note 8. Earnings Per Share This note details the average shares used in basic and diluted earnings per share computations Average Shares Used in EPS Computation (Three Months Ended March 31) | Metric | March 31, 2021 | March 31, 2020 | | :---------------------------------- | :------------- | :------------- | | Basic computation | 50,631,448 | 50,506,794 | | Dilutive effect of: Performance share awards | 105,352 | 198,486 | | Diluted computation | 50,736,800 | 50,705,280 | - 30,007 shares from performance and restricted share awards were antidilutive and excluded from EPS calculations as of March 31, 2021[57] Note 9. Employee Benefit Plans This note provides information on net periodic benefit costs for pension and other postretirement plans Net Periodic Benefit Cost (Credit) (Three Months Ended March 31, in thousands) | Component | Pension Benefits 2021 | Pension Benefits 2020 | Other Postretirement Benefits 2021 | Other Postretirement Benefits 2020 | | :---------------------------------- | :-------------------- | :-------------------- | :--------------------------------- | :--------------------------------- | | Service cost | $3,263 | $2,846 | $99 | $92 | | Interest cost | $4,596 | $5,726 | $75 | $109 | | Expected return on plan assets | $(6,843) | $(6,545) | $(230) | $(247) | | Amortization of prior service credit | — | — | $(459) | $(471) | | Recognized actuarial loss (gain) | $1,228 | $1,280 | $(11) | $(18) | | Net periodic benefit cost (credit) | $2,244 | $3,307 | $(535) | $(526) | - Contributed $1.4 million to pension plans during Q1 2021, with an additional $9.8 million expected for the remainder of 2021[58] Note 10. Commitments and Contingencies This note outlines the company's environmental liabilities, regulatory matters, and legal proceedings Environmental Liabilities and Regulation This section details environmental remediation reserves and the potential impact of new GHG emission regulations - The environmental reserve for remediation, primarily related to former manufactured gas plant sites, is estimated to range between $26.2 million and $31.8 million, with $28.5 million accrued as of March 31, 2021[61] - New Biden Administration policies are expected to lead to new and revised environmental laws and regulations focusing on GHG emissions, potentially increasing compliance costs and impacting coal-fired plants[72][73][203][205] - The company has joint ownership interests in four coal-fired electric generating plants, which are under scrutiny due to GHG emissions[70] Legal Proceedings This section describes ongoing legal disputes, including a breach of contract lawsuit and riverbed ownership claims - Pacific Northwest Solar, LLC (PNWS) sued the company for alleged breach of four power purchase agreements, seeking approximately $8 million in damages; a jury trial was postponed due to the COVID-19 pandemic[85][87] - The State of Montana claims ownership of riverbeds under 6 hydroelectric facilities and seeks annual rents, estimated at approximately $3.8 million annually if the State prevails and damages are calculated as in 2008[89][93] - The company disputes the State's claims and intends to vigorously defend the lawsuit, anticipating any rent obligation would be recoverable in rates from customers, though not assured[93] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of NorthWestern Corporation's financial condition and results of operations for the three months ended March 31, 2021, compared to the same period in 2020. It includes an overview of the company's business strategy, performance against prior year results, significant trends and regulatory updates, and a comprehensive discussion of consolidated and segment-specific financial performance, liquidity, and capital resources. The company reported increased net income and gross margin, driven by colder weather and lower operating costs, but also faced challenges from higher Montana electric supply costs and the impacts of the February cold weather event Non-GAAP Financial Measure This section defines Gross Margin as a non-GAAP measure used by management to analyze financial performance - Gross Margin is defined as Operating Revenues less Cost of Sales, used by management to analyze financial performance by excluding the effect of energy cost volatility and associated regulatory mechanisms[96][97] Overview This section provides an overview of NorthWestern Energy's business, customer base, and strategic focus areas - NorthWestern Energy provides electricity and/or natural gas to approximately 743,000 customers in Montana, South Dakota, Nebraska, and Yellowstone National Park[99] - Strategic focus areas include infrastructure investment for a stronger grid, integrating balanced supply resources, and continually improving operating efficiency to deliver long-term shareholder value[100][101] How We Performed Against Our First Quarter 2020 Results This section compares the company's financial performance in Q1 2021 against Q1 2020 results Net Income Performance (Three Months Ended March 31, in millions) | Metric | Q1 2020 | Items Increasing (Decreasing) Net Income | Q1 2021 | Change | | :-------------------------------------------------- | :------ | :--------------------------------------- | :------ | :----- | | Net Income | $50.7 | Higher electric retail volumes: $3.1 | $63.1 | $12.4 | | | | Lower operating, general, and administrative expenses: $2.7 | | | | | | Higher Montana natural gas volumes: $2.1 | | | | | | Higher Montana electric transmission revenue: $1.6 | | | | | | Lower Montana electric supply cost recovery: $(1.0) | | | | | | Higher depreciation and depletion: $(1.3) | | | | | | Other: $5.2 | | | - Consolidated net income for Q1 2021 increased to $63.1 million from $50.7 million in Q1 2020, primarily due to improved gross margin from colder winter weather and lower operating costs[103] Significant Trends and Regulation This section discusses significant trends and regulatory developments impacting the company's operations and financial outlook COVID-19 Pandemic This section discusses the ongoing impacts of the COVID-19 pandemic on operations, customer balances, and future financial results - The company's essential services remain uninterrupted, and past due customer account balances have significantly improved since Q3 2020[105][106] - Future impacts of the COVID-19 pandemic remain uncertain, potentially leading to lower economic growth, reduced energy demand, and adverse effects on financial results[107] Electric Resource Planning - Montana This section outlines Montana's electric portfolio shortfall and selected projects from the January 2020 RFP - The company forecasts an electric portfolio shortfall of 630 MW for peak needs, increasing to 725 MW by 2025[108] - Selected projects from the January 2020 RFP include the 175 MW Laurel Generating Station (natural gas-fired) and a 5-year power purchase agreement for 100 MWs with Powerex[110] - MPSC approval for the Laurel Generating Station and a potential energy storage contract is expected in May 2021[110] February Cold Weather Event This section details the financial impact of the February 2021 cold weather event and regulatory recovery efforts - A prolonged cold spell in February 2021 led to record winter peak demand and extreme price excursions for purchased power and natural gas[111] - The Nebraska Public Service Commission (NPSC) is investigating the event; the company proposed two-year recovery for approximately $26 million in costs, recorded as a regulatory asset[112] - The South Dakota Public Utilities Commission (SDPUC) allowed one-year recovery for approximately $17.8 million in natural gas costs, recorded as a regulatory asset[113] Regulatory Update This section provides updates on anticipated regulatory filings and rate case expectations for 2021 - No general rate case filings are expected in any regulatory jurisdictions during 2021; a request was filed to delay the Montana fixed cost recovery mechanism pilot until July 2022 or beyond[114] - Anticipated regulatory filings include a request to increase forecasted electric power costs by approximately $17 million and seeking approval for electric capacity resources from the January 2020 RFP[117] Financing Activity This section details recent financing activities, including bond issuance and anticipated equity offerings - In March 2021, the company issued $100 million in Montana First Mortgage Bonds at 1.00% to repay an existing $100 million term loan[115] - An At-the-Market (ATM) offering of $200 million is anticipated to be initiated during Q2 2021 to fund ongoing capital programs and maintain credit ratings[116] Results of Operations This section provides a detailed analysis of the company's consolidated and segment-specific financial performance Factors Affecting Results of Operations This section explains how revenues are impacted by supply costs, customer growth, and weather patterns - Revenues fluctuate substantially with changes in supply costs, which are generally collected in rates from customers, and are also impacted by customer growth and usage, primarily affected by weather[120][121] - The company measures weather effects using heating and cooling degree-days, which compare average daily temperatures to a baseline of 65 degrees[121] Overall Consolidated Results This section presents the consolidated net income, gross margin, and operating expenses for the reporting period Consolidated Net Income and Gross Margin (Three Months Ended March 31, in millions) | Metric | 2021 | 2020 | Change | % Change | | :---------------------------------- | :----- | :----- | :----- | :------- | | Net Income | $63.1 | $50.7 | $12.4 | 24.4% | | Total Revenues | $400.8 | $335.2 | $65.6 | 19.6% | | Consolidated Gross Margin | $256.3 | $244.0 | $12.3 | 5.0% | Consolidated Operating Expenses (Excluding Cost of Sales) (Three Months Ended March 31, in millions) | Expense Category | 2021 | 2020 | Change | % Change | | :---------------------------------- | :----- | :----- | :----- | :------- | | Operating, general and administrative | $80.9 | $79.0 | $1.9 | 2.4% | | Property and other taxes | $47.5 | $44.5 | $3.0 | 6.7% | | Depreciation and depletion | $47.0 | $45.3 | $1.7 | 3.8% | | Total | $175.4 | $168.8 | $6.6 | 3.9% | - Consolidated interest expense decreased primarily due to lower interest on revolving credit facilities and higher capitalization of Allowance for Funds Used During Construction (AFUDC)[136] - Consolidated other income increased by $7.6 million, including $6.3 million related to items offset in operating, general and administrative expense with no impact to net income and higher capitalization of AFUDC[137] Electric Segment This section details the revenues, cost of sales, and gross margin for the electric segment Electric Segment Revenues and Gross Margin (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | Change | % Change | | :---------------------------------- | :----- | :----- | :----- | :------- | | Total Revenues | $270,071 | $244,625 | $25,446 | 10.4% | | Total Cost of Sales | $80,188 | $63,834 | $16,354 | 25.6% | | Gross Margin | $189,883 | $180,791 | $9,092 | 5.0% | - Electric retail revenue increased by $4.1 million, driven by residential usage in Montana primarily due to colder winter weather and overall customer growth[142][145] - Montana transmission rates increased by $2.1 million, partly offset by lower demand to transmit energy across transmission lines[142][145] Natural Gas Segment This section details the revenues, cost of sales, and gross margin for the natural gas segment Natural Gas Segment Revenues and Gross Margin (Three Months Ended March 31, in thousands) | Metric | 2021 | 2020 | Change | % Change | | :---------------------------------- | :----- | :----- | :----- | :------- | | Total Revenues | $130,732 | $90,630 | $40,102 | 44.2% | | Total Cost of Sales | $64,325 | $27,438 | $36,887 | 134.4% | | Gross Margin | $66,407 | $63,192 | $3,215 | 5.1% | - Natural gas retail volumes increased by $2.8 million due to colder winter weather in Montana and Nebraska and customer growth, partly offset by warmer weather in South Dakota[149][151] - A reduction of rates from the step down of Montana gas production assets negatively impacted gross margin by $0.5 million[149][151] Liquidity and Capital Resources This section discusses the company's sources and uses of funds, factors impacting liquidity, and capital requirements Sources and Uses of Funds This section outlines the company's liquidity sources, including credit facilities and debt/equity issuances, and financial targets - Liquidity is supported by cash flows from operations, a $425 million Credit Facility, a $25 million revolving credit facility, and debt/equity issuances[154][155] - As of March 31, 2021, total net liquidity was approximately $187.9 million, including $8.9 million cash and $179.0 million revolving credit facility availability[156] - Issued $100 million Montana First Mortgage Bonds in March 2021 to repay a term loan, and anticipates initiating a $200 million At-the-Market (ATM) equity offering in Q2 2021[158][159] - Targets a 50-55% debt to total capital ratio (excluding finance leases) and a 60-70% long-term dividend payout ratio[157] Factors Impacting our Liquidity This section explains how seasonal cash flow fluctuations, regulatory mechanisms, and credit ratings affect liquidity - Liquidity is impacted by seasonal fluctuations in cash flow, with under-collections of supply costs typically occurring in fall and winter[161] - Montana's Power Costs and Credits Adjustment Mechanism (PCCAM) design impacts cash flows by requiring the company to absorb certain power cost increases before recovery[162] - As of March 31, 2021, under-collected costs through tracking mechanisms totaled approximately $32.8 million, up from $5.7 million at December 31, 2020[163] Credit Ratings (As of April 16, 2021) | Agency | Senior Secured Rating | Senior Unsecured Rating | Commercial Paper | Outlook | | :----- | :-------------------- | :---------------------- | :--------------- | :------ | | Fitch | A | A- | F2 | Stable | | Moody's | A3 | Baa2 | Prime-2 | Negative | | S&P | A- | BBB | A-2 | Stable | - Moody's revised the company's outlook from stable to negative on March 12, 2021, citing rising debt to fund higher capital expenditures and no substantive revenue increase over the next two to three years[164] Cash Flows This section presents the consolidated cash flow activities for operating, investing, and financing Consolidated Cash Flows (Three Months Ended March 31, in millions) | Activity | 2021 | 2020 | | :---------------------------------- | :----- | :----- | | Cash Provided by Operating Activities | $65.7 | $158.1 | | Cash Used in Investing Activities | $(77.9) | $(78.4) | | Cash Provided by (Used in) Financing Activities | $17.1 | $(26.7) | | Increase in Cash, Cash Equivalents, and Restricted Cash | $4.9 | $53.0 | | Cash, Cash Equivalents, and Restricted Cash, end of period | $22.0 | $65.1 | - Cash provided by operating activities decreased significantly to $65.7 million in Q1 2021 from $158.1 million in Q1 2020, primarily due to an $80.9 million increase in market purchases during the February cold weather event and a $20.5 million refund to FERC customers[168] Capital Requirements This section discusses the company's capital expenditures program and its funding sources - The capital expenditures program is subject to continuing review and modification, funded through cash flows from operations, available credit sources, debt, and equity issuances[171] - No material changes in estimated capital expenditures have occurred as of March 31, 2021[171] Contractual Obligations and Other Commitments This section details the company's contractual cash obligations and other commitments as of March 31, 2021 Contractual Cash Obligations and Commitments (As of March 31, 2021, in thousands) | Obligation | Total | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | | :------------------------------------------ | :---------- | :----- | :----- | :----- | :----- | :----- | :--------- | | Long-term debt | $2,477,637 | $— | $— | $415,660 | $100,000 | $300,000 | $1,661,977 | | Finance leases | $16,797 | $2,026 | $2,875 | $3,097 | $3,338 | $3,596 | $1,865 | | Estimated pension and other postretirement obligations | $61,877 | $11,084 | $12,905 | $12,905 | $12,492 | $12,491 | NA | | Qualifying facilities liability | $532,527 | $58,292 | $79,572 | $81,646 | $79,384 | $65,041 | $168,592 | | Supply and capacity contracts | $2,289,036 | $182,716 | $191,130 | $192,205 | $169,743 | $166,443 | $1,386,799 | | Contractual interest payments on debt | $1,556,224 | $65,328 | $87,104 | $85,177 | $79,760 | $78,358 | $1,160,497 | | Total Commitments | $6,934,098 | $319,446 | $373,586 | $790,690 | $444,717 | $625,929 | $4,379,730 | - Provided surety bonds of approximately $19.9 million as of March 31, 2021, for Colstrip operations and maintenance related to environmental compliance[175] Critical Accounting Policies and Estimates This section identifies key accounting estimates and confirms no material changes since the last annual report - Critical accounting estimates include regulatory assets and liabilities, pension and postretirement benefit plans, income taxes, and qualifying facilities liability[178] - No material changes in critical accounting policies and estimates have occurred as of March 31, 2021[178] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks such as interest rates, energy commodity price volatility, and counterparty credit exposure. Management employs comprehensive risk management policies and procedures, and no material changes in market risks have been disclosed since the Annual Report on Form 10-K for December 31, 2020 - The company is exposed to market risks, including interest rates, energy commodity price volatility, and counterparty credit exposure[180] - No material changes in market risks have been disclosed since the Annual Report on Form 10-K for the year ended December 31, 2020[180] Item 4. Controls and Procedures The company's disclosure controls and procedures were evaluated and deemed effective as of the end of the reporting period by the principal executive and financial officers. There have been no material changes in internal control over financial reporting during the most recent fiscal quarter - Disclosure controls and procedures were evaluated under the supervision of the principal executive officer and principal financial officer and concluded to be effective as of the end of the reporting period[182] - There have been no material changes in internal control over financial reporting during the most recent fiscal quarter[183] Part II. Other Information This part provides additional information not covered in the financial statements, including legal proceedings and risk factors Item 1. Legal Proceedings This section refers to Note 10, Commitments and Contingencies, in the Financial Statements for detailed information regarding legal proceedings - Information regarding legal proceedings is detailed in Note 10, Commitments and Contingencies, to the Financial Statements[186] Item 1A. Risk Factors This section outlines significant risks that could adversely affect the company's business, financial condition, and results of operations. Key risk categories include the ongoing impacts of the COVID-19 pandemic, regulatory and legislative changes (especially environmental laws and climate change policies), operational hazards inherent in utility services, and liquidity and financial risks related to capital investments, credit ratings, and commodity price volatility COVID-19 Risks This section details the negative impacts and operational risks posed by the ongoing COVID-19 pandemic - The COVID-19 pandemic has negatively impacted the business through lower sales volumes, increased uncollectible accounts, and higher interest expense in 2020[190] - Operational risks include workforce absenteeism, increased cyber risk due to employees working from home, and supply chain disruptions[191][192] - Government responses, such as disconnect moratoriums, could impose restrictions on operations[193] Regulatory, Legislative and Legal Risks This section discusses risks from unfavorable regulatory outcomes, new environmental policies, and potential facility closures - Profitability is dependent on recovering costs and earning a return on capital, but unfavorable regulatory outcomes (e.g., disallowance of costs, differing cost allocations) pose significant risks[196][197][199] - New Biden Administration policies and legislation (e.g., CLEAN Future Act) are expected to lead to new environmental laws and regulations, especially on GHG emissions, potentially increasing compliance costs and requiring substantial capital expenditures or facility abandonment[203][204] - Early closure of owned and jointly owned electric generating facilities (like Colstrip Units 3 and 4) due to environmental risks, litigation, or public policy changes could have a material adverse impact, with ongoing arbitration regarding Colstrip closure[207][208][211][212] - Increased risks of regulatory penalties (up to $1.2 million per violation per day for NERC reliability standards) and federally mandated power purchases from QFs could increase costs to customers and decrease system reliability[215][216][217][218] Operational Risks This section outlines inherent hazards in utility operations, cyber threats, weather impacts, and supply reliance risks - Electric and natural gas operations involve inherent hazards such as equipment breakdown, fires, system outages, and catastrophic events, with potential for significant damages and financial losses[220] - Cyber and physical attacks, including the SolarWinds breach, pose ongoing threats to critical infrastructure and confidential data, risking unauthorized access, data compromise, and operational disruption[224][225] - Weather patterns, including seasonal fluctuations and extreme events (blizzards, fires, floods), significantly impact demand, operational requirements, and financial performance, with limited regulatory mechanisms to mitigate volatility[229][230][231][232] - Significant reliance on market purchases for electric and natural gas supply exposes the company to market volatility, capacity deficits (725 MW by 2025), and transmission constraints, risking reliability and cost recovery[233][234][235] - Customer growth and usage, influenced by economic conditions, price increases, and distributed generation technologies, can impact revenues and potentially lead to asset obsolescence[237][238] Liquidity and Financial Risks This section addresses risks related to future expansion, credit ratings, pension performance, and qualifying facility obligations - Future expansion plans, including asset acquisitions and capital improvements, involve substantial risks such as regulatory approval, cost escalation, and financing availability[241][242][243] - Inability to maintain investment-grade credit ratings could adversely affect liquidity, access to capital, and increase borrowing costs and collateral requirements[244] - Poor investment performance of defined benefit pension and postretirement plans could unfavorably impact results of operations and liquidity[245] - The obligation to purchase minimum power from QFs at agreed prices exposes the company to material commodity price risk if QFs underperform, and price escalation risk exists with one of the largest QF contracts[246][247] Item 5. Other Information NorthWestern entered into two agreements on April 19, 2021, for the Laurel Generating Station: an EPC Contract with Burns & McDonnell for approximately $98.6 million for engineering, procurement, and construction services, and a Procurement Contract with Caterpillar for approximately $86.6 million to acquire RICE units. Both projects are planned for commercial operations by January 2024, pending MPSC regulatory approvals - Entered into an EPC Contract with Burns & McDonnell for approximately $98.6 million for the Laurel Generating Station, a 175 MW natural gas plant, with completion anticipated by January 2024[249][250] - Entered into a Procurement Contract with Caterpillar for approximately $86.6 million to acquire the RICE units for the Laurel Generating Station[249][254] - Both contracts are subject to timely receipt of regulatory approvals, including from the MPSC[251][255] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including supplemental indentures, performance unit award agreements, certifications from the CEO and CFO (Sarbanes-Oxley Act Sections 302 and 906), and Inline XBRL documents - Exhibits include Forty-First Supplemental Indenture, Form of Performance Unit Award Agreement, CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906), and Inline XBRL documents[258][259][260][261][262][263] Signatures This section provides the signature and title of the authorized officer for the Form 10-Q filing - The report was signed on April 22, 2021, by Crystal D. Lail, Vice President and Chief Financial Officer, and Duly Authorized Officer and Principal Financial Officer of NorthWestern Corporation[266]