NorthWestern Energy Group - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 printed mixed: revenue rose 7.1% year over year to $342.7M while GAAP EPS fell to $0.35 (from $0.52); adjusted EPS was $0.40. Management initiated FY25 non-GAAP EPS guidance of $3.53–$3.65 and declared a $0.66 dividend.
• Versus S&P Global consensus, Q2 revenue beat by ~$6.0M and adjusted EPS beat by ~$0.02; prior quarter Q1’25 was an EPS beat but a revenue miss, and Q4’24 was in-line EPS with a revenue miss (see Estimates Context) (Values retrieved from S&P Global).
• Regulatory momentum is a key catalyst: revised Montana electric interim rates began July 2, with final rate review decision expected early Q4; CFO highlighted ongoing PCCAM headwinds and higher O&M, depreciation, and interest costs.
• Strategic load growth narrative strengthened: signed third LOI with Quantica Infrastructure (up to 500 MW by 2030) and reiterated “no equity” for the current $2.7B five-year capex plan, expanding the medium-term EPS growth pathway.

What Went Well and What Went Wrong

• What Went Well

  • Utility margin increased 9.9% YoY to $267.4M, driven by interim/base rates and transmission; electric utility margin +10.3% to $219.8M, gas +7.7% to $47.6M.
  • Data center pipeline expanded: LOI signed with Quantica (Phase 1 500 MW, growth to 1 GW), management expects ESAs for at least one LOI by next call; large loads seen as rate-moderating and grid-efficiency enhancers.
  • Initiated FY25 non-GAAP EPS guidance of $3.53–$3.65; long-term EPS and rate base growth of 4–6% affirmed; dividend maintained at $0.66.

• What Went Wrong

  • GAAP EPS declined to $0.35 from $0.52 YoY due to lower retail volumes (weather), Montana property tax tracker collections, non-recoverable supply costs, higher depreciation/O&M/interest; adjusted EPS fell to $0.40 from $0.53.
  • Operating expenses excluding fuel rose 13.6% YoY (+$24.8M), driven by depreciation, generation maintenance, higher wildfire insurance premiums, and taxes not recovered in trackers.
  • PCCAM continued to be a headwind: under-collected supply costs of $7.6M (10% shareholder share ~$0.8M detriment to pre-tax); management expects continued PCCAM pressure through 2025.

Transcript

Speaker 0

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Northwestern Energy Second Quarter twenty twenty five Financial Results Webinar. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Thank you. I will now turn the call over to Travis Meyer. Please go ahead.

Speaker 1

Thank you, Rebecca. Good afternoon, and thank you for joining Northwestern Energy Group's financial results webcast for the quarter ended 06/30/2025. My name is Travis Meyer, and I'm the Director of Corporate Development and Investor Relations Officer for Northwestern. Joining us on the call today are Brian Bird, President and Chief Executive Officer and Crystal Lale, Chief Financial Officer. They'll walk you through our results for the quarter and provide an overall update on our progress.

Northwestern's results have been released, and the release is available on our website at northwesternenergy.com. We also released our 10 Q premarket this morning. Please note that our company's press release, this presentation, comments by presenters and responses to your questions may contain forward looking statements. As such, I'll direct you to the disclosures contained within our SEC filings and the Safe Harbor provisions included on the second slide of this presentation. Also note that this presentation includes non GAAP financial measures.

Please see the non GAAP disclosures, definitions and reconciliations included in the presentation. The webcast is being recorded. The archived replay will be available shortly after the event and remain active for one year. Please visit the Financial Results section of our website to access the replay. With that, I'll hand the presentation over to Brian Burr for his opening remarks.

Thanks, Travis. Recent highlights for the quarter. We have reported GAAP diluted EPS of $0.35 with some adjustments. The non GAAP diluted EPS is $0.40 for the quarter. We're initiating our 2025 earnings guidance range of 3.53 to $3.65 We're affirming our long term rate base and earnings per share growth rate targets of 4% to 6%.

We completed our acquisition of the Energy West and Cutbank Gas facilities, adding 33,000 customers and 43 valued employees. We entered into our third letter of intent with Hanukkah to a 500 plus megawatt data center developer, and we declared a dividend of 66¢ per share payable 09/30/2025 to shareholders of record as of 09/15/2025. The Northwestern value proposition continues. We continue to have a very strong dividend yield right around 5%. That plus our four to 6% EPS growth range based upon a five year capital of about 2,750,000,000.00.

I'd argue in about 80% of that is in certainly noncontroversial transmission and distribution investment. On a combined basis, that gets us to a nine to 11% total return. We do have some incremental opportunities to invest incremental capital and and and grow our earnings, things like data centers and new large load opportunities that we'll discuss and plus FERC regional transmission, and also any incremental generating capacity or gas transmission, for instance, anything like that to get us over 11% total return. And with that, I'm gonna hand it back over to Crystal for the second quarter financial review.

Speaker 2

Thank you, Brian. Coming to you from Sunny Bozeman here. In my comments today, I will cover our second quarter twenty twenty five results, update you on some key regulatory proceedings. I think you all know we've been busy here in second quarter on that front. And then also provide you our 2025 outlook, which we had indicated we would provide following the Montana rate review hearing.

So starting on slide seven, you will see that our earnings for the second quarter were $0.35 on a GAAP basis, and that's compared with $0.52 in the prior period. On an adjusted non GAAP basis, earnings were $0.40 as compared with $0.53 in the prior period. Obviously, a notable decline there in our second quarter results when you think about and compare them to the prior year, certainly impacted by the lack of interim rates and timing of those decisions. But I would point out that these results are in line with our expectations and start the year where we think we need to be. I'll provide more color on that and our outlook as I get to those slides.

Moving to slide eight, just to remind you then what does that look like from a year to date results perspective. You'll see we're pretty flat against the prior period. Our earning results for the first half with net income and EPS in line with 2024. You'll recall that we started out the year with a solid first quarter, and then our year to date results reflect that. Moving to slide nine to give you a bit more detail on what happened during the quarter.

You'll see the bar charts here of what are the significant drivers. Quarterly earnings were driven primarily by the key topics of rate recovery. You'll see that

Speaker 1

in the first part of

Speaker 2

the left here, offset by, in the second quarter, a bit of unfavorable weather and certainly pressures at the operating cost, depreciation, and interest lines. Again, all in line with our expectations of where we thought we'd be here in the second quarter. To give you a bit more detail on the margin portion of that, slide 10, you'll see that the impact of rates, both, I think, interim rates and final rates, drove 24¢ of margin improvement in the quarter. Again, that reflects the impact of the Montana rate review moving from the amount of interim results that were in there from, I think, up till late May to the adjusted interim rates that were put in at that point, and then also gas rates in both South Dakota and Nebraska. Again, 24¢ from the impacts of those two buckets.

In addition, I think Brian mentioned lots around transmission, but you'll see both electric and gas transmission show improved results for us. That's 7¢ on the electric transmission side and 2¢ on the gas transportation side, respectively. Those were offset by unfavorable weather and usage of 9¢ for the quarter. And then also impacts of Montana property tax legislation, you'll see that's a 5¢ detriment for the quarter. We do expect that detriment to have some continuance throughout the back part of the year.

Again, there was new property tax legislation enacted in the state of Montana adjusting the amount that is collected through our bills. In addition, the PCM was a detriment of 2¢ in the quarter. We talked about that last quarter that we would expect to see some continued headwinds there throughout 2025. Moving to Slide 11 to discuss our adjusted items. So I've already just mentioned on the margin slide that weather unfavorably impacted us.

You'll see here that was $03 in the second quarter, and that compares to a $01 unfavorable add back in the 2024. So you can see a $02 swing there versus the prior period. In addition, we have adjusted out the impact of a CREP penalty, and that is the con consistent with prior treatment of that item. And when we've recorded amounts related to that, we have adjusted that out. That results in adjusted earnings, as I have reflected earlier, of 40¢ for the second quarter compared to $0.53 in the 2024.

Moving to Slide 12. We talked about on our first quarter call, our financing plans remain unchanged from that. We'd also discussed that we'd already executed upon any financing needs through the year, so our debt financing needs were taken care of. So no changes to our view on financing for the year. And you'll see from a credit and cash flow perspective, a little bit of a dip in our cash flows for the quarter, again reflecting the timing of that rate recovery and relief.

So we expect to conclude the year above our downside threshold. We are making good progress there. Moving to Slide 13 to discuss regulatory updates. I'll comment on our Montana rate review proceedings. We have previously announced a full settlement on our gas case and a partial settlement in the electric case.

The remaining contested items are primarily related to the recovery of our Yellowstone generating facility and the Pecan base. We were pleased to be able to you know, the tremendous work it took to narrow the focus of that proceeding and having a solid hearing where, I would say, largely really impressive group of about 30 employees who represented the company and how we serve our customers very well in front of the commission. With that hearing concluded, we moved on and filed opening briefs, we expect an outcome in the ultimate proceeding sometime in the fourth quarter. So with that hearing concluded, moving to slide 15, I'll discuss our outlook for 2025. We are pleased with our start to the year and introducing our 2025, as Brian alluded to, our non GAAP guidance of $3.53 to $3.65 I would note that this includes some significant assumptions, and one of those is with regard to the outcome in our Montana rate review.

While we await an outcome, we are reporting revenue consistent with our settlement position, and we expect to record ultimately a final adjustment to whatever, if that's applicable, whatever the outcome in in the proceeding. But I would note that that final decision when received, and again, likely in the fourth quarter of this year, will be retroactive back to May 23. This guidance is consistent with our commitment to deliver on a 4% to 6% long term earnings growth off of our base of 2024, which is $3.4 Additional key and important details are available on Slide 16 for your review. Moving to slide 17 and concluding my comments, you'll see our five year regulated capital investment expectations remain unchanged, and our execution in the first half of the year is on track. And with that, I will turn it back to Brian.

Speaker 1

Thanks, Crystal. On Page 19, it mentions the Montana wildfire bill. Should say we should not call that Montana wildfire law. Four nineties now. It's been passed, as you probably all well aware, had nearly unanimous support in the state.

I I would argue, and I think Chad GBT would agree with me, I think the Montana and Utah bills are seen as the best protection for utilities in the industry. The nice thing about the law itself, very half the battle is the fact we no longer have to deal with strict liability in the state for any utility operations related to wildfire. Strict liability cannot be applied to utility operations related to wildfire. Incrementally, we do need to get our wildfire mitigation mitigation plan ultimately approved. But with that approval, we will receive a negligent standard that's based on Montana specific circumstances, not California, for instance.

And more importantly to me, there'd be a rebuttable presumption that utility acted reasonably if it substantially followed the approved wildfire plan. In other words, that burden of proof would now would rest on the plaintiffs, not on the utility. And damages associated with that, as we'd expect, we should be responsible for economic damages to property. Always have been. But the protections we receive on noneconomic damages would only be bodily injury or death occurs.

And from a punitive perspective, only would come into play with clear and convincing evidence of gross negligent intent. So we feel very, very good about this. Obviously, like to get our wildfire plan approved in front of the commission, and we will be making that filing here shortly sometime in August. That was our number one priority from a bill perspective during the legislative session, and so that was great. And I'll come our our second most important bill was senate bill three zero one, which is the transmission bill that's also law and effectively has given us a CPCN associated with our regional transmission investment.

In essence, giving us better certainty or greater certainty, we can prudently invest in our utilities and get fair treatment upon receiving our CPCN. In essence, once the project's done, we can argue if we spent more than we invested more than we initially planned, obviously, that prudency comes into place. But this gives us much greater certainty as we continue to think about how we invest from a regional transmission perspective in large projects. I'll talk more about those projects in a moment. So great legislative outcome.

I know we talked about it in the first quarter, but the second quarter is when these things became law. So I wanna reiterate those two great outcomes in 2025. Large load customers on slide 21, those are primarily data centers. And as you saw the announcement today regarding Quantica, we now have our third letter of intent in Montana. And I think what I would say here on Montana is is on 01/01/1926, we will go from a short position to a long position with the 592 megawatts associated with Colstrip.

And I'll speak to Colstrip specifically in a moment. But being in that long position has given us an opportunity to serve large load customers. And what we need to do ultimately is go arm in arm with these large load customers. We go into the MPSC with a tariff that protects customers, but also certainly something that they want to they can live with as a data center. We're we're intend to do just that.

We have some time. The these large load data centers aren't really coming into play really until 2027. So we have some time, and we plan to file probably 26 tariffs with them to get service as a state regulated resource, if you will. But if, in fact, we are turned down from the commission for whatever reason, we intend to serve these customers in a FERC regulated basis. We intend to serve these customers regardless, but we certainly intend and and would like to, with the support of the Montana Public Service Commission, serve them in a state regulated basis.

In South Dakota, we continue to have significant interest there as well. I'll acknowledge that the lack of a sales tax certainly helps prospects in or hurts prospects in South Dakota. But we still have quite a bit of interest, and we continue to work with hyperscalers and others there. And so we're excited about what opportunities that we're seeing in front of us on data centers. We need to capture those and all.

And from a lot of intent perspective, I think by the time we have this next call in October, we expect to have at least one of these LOIs in place at that point in time. Moving forward, the data center process on page 22, we matter of fact, I'd argue we have increasing interest in data center requests and high level assessments, continue to moving through those processes. Letter of intent, we mentioned our third, and I'm sure you saw the press release separately on Quantica. And and excited we're and and working with them. These are folks that have worked in Montana in the past with talent and then at the Colstrip Plan and many of their employees.

So we we know them well, and we're excited to work with them to move their projects forward. And I mentioned energy service agreements. We'd like to next time we we talk, at least I wanna see one or two in that queue count in that particular item. I mentioned regional transmission opportunities on slide 23. Continue to stay very active with Bridge United on North Plains Connector and the and our own project we're working with them on, I call the Montana the Idaho project through the Southwest Montana into Idaho and thus elsewhere from there, of course.

We continue to look at other opportunities on our path and also with the coal strip transmission line itself to increase capacity. So excited about transmission opportunities, and I'd argue even more so now that we have our CPC in. Regarding incremental pole strip capacity, a little bit of history on pole strip per second. You might recall when we acquired the Avista piece, we were definitely short from a resource adequacy perspective, and that incremental two twenty two megawatts fits perfectly into our portfolio to serve our existing customers and actually help us achieve resource adequacy on oneonetwenty six. In addition, we bought the three seventy megawatts from Puget that we will be buying on oneonetwenty six.

That incremental $370,000,000 really helped us achieve a 55% ownership at Colstrip as a whole. And I think many of you are well aware, many of those owners didn't intend to be in Colstrip long term. And so we believe that 55% ownership actually protected the plant from being shut down. Having said that, when we made those decisions, a couple things weren't necessarily well known at the time. We didn't know the federal actions that have been taken that have certainly helped Colstrip from a viability standpoint and a cost perspective on it going forward.

That has

Speaker 3

certainly been a tailwind.

Speaker 1

And, obviously, the ability to serve large load customers' data centers weren't much of a thing when we were negotiating this. So this is just a great opportunity for us to continue to stay engaged in Colstrip. And, ultimately, as we've mentioned before, we see Colstrip as an energy hub and a great opportunity for us to continue to operate that plant until we can find something that's cleaner and provides the same dispatch characteristics sometime in the future. And we're excited to working with the Colstrip community and the state of Montana to ultimately see that come to fruition. And with that, from a conclusion standpoint, I mean, I think it's a

Speaker 4

pretty good quarter. I think we're

Speaker 1

in pretty good shape on a year to date basis. We feel good about where we are from a year end guidance perspective. And I think, as Crystal pointed out, we've working on a lot of things for the quarter and continue to move the ball in terms of improving shareholder value for our shareholders. Thank you very much. And I guess we'll go to mister Meyer to ask about questions.

I think we'll open the queue up for questions.

Speaker 0

Your first question comes from the line of Jeremy Tonet with JPMorgan.

Speaker 5

Hey, good afternoon. This is actually Aiden Kelly on for Jeremy.

Speaker 1

Hey, Aiden. Hey.

Speaker 5

Yeah. So just on the data center front, could you offer an updated sense on the potential timing to sign ESAs for the three data centers that are currently under LOIs? Are you waiting on a transmission service agreement study to wrap up at this point? Or are there any other gating items here to move these projects forward?

Speaker 1

Yeah. We're wrapping up on the transmission service issue side in the first two. And I'd argue those are certainly in earlier stages from an LOI since we just signed, Monica, if you will, here recently. And so as I mentioned earlier, I think by the time we have this call in October, I'd like to think at least one of the either ATLAS or SEBI will be an ESA, have an assigned ESA by that point in time. I'd like to think both of them will.

Very confident that at least one of them will.

Speaker 5

Understood. Understood. That's good to hear. And then I guess just, you know, with this pipeline kind of expanding today, could you speak to how you are thinking about addressing load requirements like in the scenario that this data center interest develops beyond existing capacity? I know you mentioned you would also look to work with regulators to kind of structure tariffs in 'twenty six.

So maybe just curious on that end. And then also, like, the thoughts on the possibility to integrate more utility owned generation in the scenario of excess demand in Montana.

Speaker 1

Yes. I think because of the need, obviously, for speed of deliverability here, we're working with these data centers. And in fact, they are planning to build some of their own generation to serve these data centers. We want to work with them on that. And, ultimately, from our ability to put those into rates, we we we've talked to we have been talking to them potentially about build own transfer, build, transfer capabilities.

That allows us to demonstrate that those resources from a preapproval perspective gives us time to ultimately get approval from the Montana Commission to actually own them. And, again, if for whatever reason, if the MPSC doesn't support that, we will find a means and a FERC regulated basis to do the same.

Speaker 5

Got it. Got it. Understood. And then maybe just one last one if I could. Just looking at the queue count of nine customers in the data center, like, request stage, could you just kinda quantify, if you could, like, how many are in Montana versus South Dakota?

Speaker 1

That's a that's a good question. I would say I think it's about the same. And and you could say, jeez, Brian, you can't divide nine and a half. You get four and a half. But I'd argue they're relatively the same.

Speaker 5

Okay. Okay. That that's good to know. Thanks. I'll leave it there.

Speaker 0

Your next question comes from the line of Ross Fowler with Bank of America.

Speaker 4

Good afternoon, Brian, Crystal. Congrats on a good quarter and a good update here. So maybe following on Jeremy's question a little bit. Obviously, these data that are coming in by the end of the next decade, obviously, that keeps the tariff under the right tariff, which help affordability. But when do we flip over to that new generation needed capital being deployed?

Like when do we drive to that sort of what you're talking about on Slide four there, that 6% or higher growth? And is there a transmission component to that well?

Speaker 1

Yeah. I would say this, in essence, to serve them, there's gonna be necessary investment on our system, I'd argue, from an interconnection standpoint, from a transmission perspective. So that capital being deployed relatively quickly during this process. If, in fact, from a build transfer perspective, we'd like to do that as soon as the generation is available to serve those customers. So that would be, you know, relatively soon.

Speaker 4

Okay. And this You know, sorry. Go ahead.

Speaker 1

Sorry, Ross. Just to be more clear on that point, you're seeing a 2027 timetable, and that is a bit of a ramp up. You'll notice that much of the build, particularly I'll pick on Quantico here for a minute to get to that 500 megawatts, it's gonna be 2,030 for them. So this is gonna be over time a relatively build, but we want to be and and and and talking particularly with saving Quantica because these are large data center plans. We've had very, very good conversations about the the build transfer aspects here.

Speaker 4

Yeah. And if I if I understand Quantica correctly, I mean, it was created three days ago, but this is this is backed by private equity. Right? It's backed by end cap investments. It's been around since, like, 1990.

Yeah. And I pretty close.

Speaker 1

We we've met customer.

Speaker 3

Yeah, Ross. And and I

Speaker 1

I know when they they rolled out their plan, but we've been talking to Quantica for some time now. It's it's been at least six months. And we know these folks well from their talent days. We met with all of Quantica and the NCAP folks early on in this process, and so we feel good about who they are and what they're gonna bring to the table to Montana.

Speaker 4

Fantastic. And I apologize for the feedback on this end of the line. We're having a thunderstorm roll through New York right now. There you go. A great afternoon, Good

Speaker 1

to hear your voice, Rob. Thanks, No worries.

Speaker 4

Take care.

Speaker 0

Your next question comes from the line of Nicolas Campanella with Barclays.

Speaker 3

Good afternoon. Thanks for all the updates.

Speaker 1

Hey, Nick. Nick, I know your mother calls you Nicholas, right? Sorry, Nick. Just kidding. Can hear me?

Or. Nicholas is more respectful. See that.

Speaker 3

So just on the DC Ramp, just thanks for clarifying on like when you think you're going to get the ESAs in place. If you do get that by the third quarter, just what is the ramp of the megawatts on the system? Like what year would it hit? Is more '27 and beyond? Could you see some uptake in '26?

Just how are you kind of can do that?

Speaker 1

Yeah. I would say that the the stuff in '26 is gonna be relatively small, just in essence from a construction standpoint, whatever megawatts are needed there. So I I would stay focused on '27.

Speaker 3

Appreciate it. And then just, can you kind of anticipate handling the cold strip cost, once you acquire the facility in '26? I know that there's some pending processes, and we have, you know, some variability about how, that will get kinda captured in the rates. But, you know, if you were able to keep that merchant, is that an option? And how do you feel about the growth rate in that scenario?

Speaker 2

Yeah. Nick, I'll take a stab at it, and Brian will fat clean up on this one. Your question's excellent as to our where we're headed with cold strip. I would just say two things related to that. One, there's as you guys know, we've entered into two transactions, one to take a business portion and another to take Puget.

The Avista portion, we believe, is needed to serve existing customers, at least a portion of that, and expect to make a filing here sometime in q three to propose a process to get us really to the next rate review to recover those costs. The Puget Megawatts wouldn't be needed to as you looked at our load today, just serve regulated load. This kinda goes back to what Brian was addressing with our ability to serve large load. We expect to serve large load. Whether it's Montana regulated or FERC regulated, we wanna make sure we leave our options open if the Montana commission well.

And I think a comment earlier alluded to a tariff that can help affordability for others. We absolutely believe there's a path for that. But if the commission doesn't wanna go down that road, we're certainly keeping and working to have our FERC regulated approach open to be able to serve out of that what would be the Puget tranche. So, again, to deliver from a data center perspective, whether it be Montana regulated or the Puget piece that might be FERC regulated. All that being said to say, we do expect to make a filing here in this quarter to address recovery of some of those culture costs.

Brian, anything you'd add there? No.

Speaker 1

That's great. Thanks.

Speaker 3

Alright. Thank you. Appreciate it.

Speaker 1

Thanks, Nick.

Speaker 0

At this time, there are no further questions. I will now turn the call back over to Brian Berg for closing remarks.

Speaker 1

Closing remarks from my perspective, hey, a continued progress on a lot of fronts, What we've done from a wildfire perspective, both operationally and from a legislative standpoint, extremely proud of that, extremely proud of the abilities of company's ability to address our capacity shortfall and put us in a long position, particularly in the generation front. Certainly good movement on the data center. Ultimately, we need to get a good outcome on the rate review and continue to move forward and provide returns in line with your expectations. So I appreciate your interest today and going forward. Thank you.

Speaker 0

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.