NorthWestern Energy Group - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 was operationally solid but mixed financially: revenue rose 4.9% year over year to $373.5M while GAAP EPS declined 4.4% to $1.31; adjusted EPS was $1.13 vs $1.38 in Q4 2023, with weather, insurance, non‑recoverable supply costs, depreciation and interest offsetting rate relief and higher transmission revenues.
• Full-year 2024 GAAP EPS was $3.65 and adjusted EPS was $3.40, up 13.4% and 4.0% respectively, driven by Montana/South Dakota rate outcomes, higher electric transmission revenues, and tax benefits (unrecognized tax benefit release and gas repairs method), partially offset by supply costs and higher O&M, depreciation and interest.
• Management affirmed 4–6% long-term EPS and rate base growth and raised the quarterly dividend 1.5% to $0.66; a 2025–2029 capital plan of ~$2.7–$2.74B (+11% vs prior plan) will be funded with cash from operations and secured debt, with no equity expected for the base plan; 2025 EPS guidance will be provided after the Montana rate review.
• Strategic catalysts: (1) two Montana data center LOIs (75 MW in 2026 growing to 150 MW; 50 MW in 2027 growing to 250 MW+), (2) planned no‑cost acquisition of 592 MW of additional Colstrip capacity by YE 2025 (operations beginning 1/1/2026), (3) North Plains Connector transmission opportunity (10% potential ownership), all positioning NWE to support large-load growth and moderate rates longer-term.

What Went Well and What Went Wrong

• What Went Well

  • New base rates in Montana and South Dakota and stronger electric transmission revenues supported utility margin; full-year GAAP EPS rose to $3.65, adjusted EPS to $3.40.
  • Yellowstone County Generating Station entered service in October 2024, improving reliability and reducing market purchases; MT Supreme Court reinstated the air quality permit on Jan 3, 2025.
  • CEO on strategic progress: “We substantially completed our 175MW Yellowstone County Generating Station… announced plans to invest in several regional transmission projects… and entered into an agreement to acquire incremental Colstrip ownership… These actions have opened the door to large-load customers like the two recently announced data centers”.

• What Went Wrong

  • Q4 earnings down YoY on unfavorable weather, higher insurance (wildfire premiums), depreciation and interest, plus non‑recoverable electric supply costs; Q4 adjusted EPS fell to $1.13 from $1.38.
  • Montana interim rates were only partially approved (effective 12/1/24), contributing to under-earning and credit metric pressure; management noted FFO/debt dipped below the >14% “downside threshold” at YE before expected improvement with final rates.
  • Persistent headwinds from non-recoverable supply costs and a less favorable QF liability adjustment reduced net income vs prior periods.

Transcript

Operator (participant)

As a reminder, today's call is being recorded. I will now hand today's call over to Travis Meyer. Please go ahead, sir.

Travis Meyer (Director of Corporate Development and Investor Relations)

Thank you, Tamika. Good afternoon, and thank you for joining NorthWestern Energy Group's Financial Results Webcast for the year ended December 31st, 2024. My name is Travis Meyer. I'm the Director of Corporate Development and Investor Relations Officer for NorthWestern. Joining us today to walk you through the results and provide an overall update are Brian Bird, President and Chief Executive Officer, and Crystal Lail, Chief Financial Officer.

NorthWestern's results have been released, and the release is available on our website at northwesternenergy.com. We also released our 10-K pre-market this morning. Please note that the 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 in our SEC filings and the safe harbor provisions included on the second slide of this presentation. Also note, this presentation includes non-GAAP financial measures.

Please see the non-GAAP disclosures, definitions, and reconciliations included in the presentation as well. The presentation is being recorded. The archive 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 Bird for his opening remarks.

Brian Bird (President and CEO)

Thanks, Travis. I'm going to start on page three for the 2024 year in review. First and foremost, from a critical infrastructure investment perspective, we maintain safe and reliable service while reaching new all-time winter and summer electric system peaks in Montana. We safely completed over $550 million of capital investment. The Yellowstone County Generating Station is now online and serving customers.

We strengthened Montana's presence with a planned acquisition of the Energy West Montana and Cut Bank Gas assets. We have an agreement for incremental Colstrip ownership in Montana, which addresses remaining capacity gap and enables opportunities for new large load customers. And we've announced plans for regional transmission expansion. Moving over to regulatory and operational performance, we filed rate reviews across all jurisdictions to recover necessary investment to provide safe and reliable service.

We refreshed our wildfire mitigation plan and implemented our public safety power shutoff plan. Lastly, from strong financial performance and outlook, we reported diluted GAAP EPS of $3.65, and we're affirming our long-term EPS and rate-based target growth rates of 4%-6%. We're increasing our quarterly dividend by 1.5% to $0.66 per share payable March 31st, 2025, and announcing a $2.74 billion five-year capital plan, which is an 11% increase over our prior plan. Moving you to the next slide from a NorthWestern value proposition.

If you take our 4%-6% EPS growth rate and you add that to our 5% dividend yield, you're looking at 9%-11% total growth. That's off of the $2.74 billion capital plan I just talked about. If you think about other incremental opportunities, some of which I'll talk about today, think about data centers and new large load opportunities, FERC regional transmission, incremental generating capacity. If we're able to do any of those things and some others not listed here, we'd see EPS growth rate greater than 6%, obviously our total growth rate greater than 11%.

Speaking of that $2.74 billion of capital investment, that's highly executable and low-risk capital investment over the next five years. And that investment is expected to drive annualized earnings rate-based growth of 4%-6%. And again, as I mentioned earlier, that's 11% above the prior plan we shared with you last time we talked. And with that, I'm going to hand it over to Crystal to go through the financial results.

Crystal Lail (CFO)

Thank you, Brian, and good afternoon, everyone. As Brian started the call with, it feels like 2024 was a little bit busy. There's a long list of things that we've been up to. So it was a year of execution on many fronts, and we expect to certainly continue that focus as we're into 2025 here. In my comments today, I will discuss our financial performance for 2024, financing and updated capital plans, and also our expectations with regard to timing of 2025 guidance.

I'll also provide a bit of a regulatory update as to where we are here and then turn it back to Brian to speak to a bit more of those opportunities incremental to our current plans that I think many of you are interested in today. So how did we conclude 2024 results?

As Brian mentioned, $1.31 for Q4 GAAP earnings as compared to $1.37 last year. And then from a full year basis, that's $3.65 of GAAP earnings as compared to $3.22. To provide a bit more detail both on Q4 and year to date, I'll move to slide seven. As I alluded to, our Q4 results are in line with our expectations other than certainly the impacts of mild weather. I think you'll hear that from many utilities of Q4 being much milder than any of us probably planned, delivering $1.31 on a GAAP basis.

Our Q4 results also included tax benefit related to prior periods, which we are adjusting out, and I'll walk through those adjustments here on the next slide, offset by pressures from operating costs, depreciation, and interest. Also, I would remind you that our Q4 in 2023 included some impacts that were favorable related to the final outcome in the Montana rate review, so in slide eight, you see all of that delivering $1.31, adjusting out $0.18, as I alluded to, both weather and tax items delivering $1.13 on an adjusted basis for the quarter.

Moving to slide 10 to give you that granular detail on what we're adjusting out from an ongoing earnings perspective, mild weather reduced Q4 results versus normal by $0.10 and $0.04 versus the prior period. We are also adjusting out the release of a prior period unrecognized tax benefit of $0.28. So again, $1.31 on a GAAP basis, you net out the $0.10 of unfavorable weather, $0.28 of favorable tax benefit gets you to $1.13 for Q4 this year.

Last year, we did have $0.05 of a tax benefit in that period and $0.06 of unfavorable weather, so comparatively, $1.13 on an adjusted basis versus $1.38 in the prior period, and again, $0.10 of weather in Q4 alone. It was certainly a mild Q4. Moving to slide 10 to recap and maybe remind us all of a bit of full year results. For 2024, on a full year basis, we delivered GAAP earnings of $3.65 and $3.40 on an adjusted basis.

I would note on an adjusted basis, pulling out some of those benefits offset by mild weather, that is a 4% increase over our 2023 earnings. We were impacted significantly in 2024 by mild weather, much of which was in Q4. We talked about on our Q3 call the impacts of higher insurance costs presenting headwinds at the operating cost line.

And also, unfortunately, in Q4, impacted by a difficult Montana interim rate decision, so to deliver 4% growth after all of those things. We're pretty proud of that on an adjusted basis off 2023 and committed to delivering growth on a long-term basis. You'll note that many of those headwinds were offset by good cost control and execution across the business to deliver the $3.40 on an adjusted basis here.

In 2024, the earnings improvement was driven largely, and I think it can't go without mentioning the left side of this bar chart, $0.85 of margin improvement over the prior period. That's regulatory execution and certainly critical to the environment we've seen of increasing costs across the board and needing to recover our costs from customers. Also, $0.34 of tax benefits, as we've already talked about, and offset by, you can see the pressures at the operating cost line, depreciation, and interest.

Moving to slide 11, highlighting the significant impact of full year of new base rates. I just mentioned that, but that $62.4 million is full year of base rates in both Montana and South Dakota. So Montana Electric and Gas, South Dakota Electric, and then continued improvement in our transmission revenues when you look at this margin detail offset by, I would remind you, last year in Q4, as I alluded to earlier, we had some favorable impacts from the Montana rate review, one of which included PCAM impacts. So you see $7.9 million of detriment offsetting there and also the mild weather that we've already discussed.

Moving to slide 12, again, detail on those adjustments, wanting to be very transparent as to what we are adjusting out of our earnings. Mild weather reduced earnings on a full year basis by $0.13 compared to normal and $0.08 versus the prior period. We also had two one-time items that we talked about in prior quarters and net to $0.01. Then you have the $0.39 of tax benefits between Q3 and Q4 here that are all related to prior periods. We had previously talked about the gas repairs final guidance that had come out and the favorable benefit recognized there.

And then in Q4 here, recognizing previously recorded unrecognized tax benefits based off the lapse of statutes of limitations, resulting in an overall adjusted basis EPS of $3.40 or again, 4% improvement off of 2023 of $3.27. Moving from the detail of earnings here to a bit of our credit quality and financing plans, we had previously talked about the importance of improving our FFO and our commitment to credit quality and being above downgrade thresholds.

Unfortunately, with the lack of interim rate support in Montana, particularly on the electric side, we concluded 2024 a bit lower than what we had reported to you as of the end of Q3 and dropped below our downside threshold of 14%. As I alluded to, we have been committed to improving our balance sheet and credit quality here and understand that criticality and being able to serve our customers certainly depends upon our balance sheet and the ability to attract low-cost capital.

We remain focused on this and improving it such that we have a cushion and making sure we are effectively communicating to our commissions the importance of supporting credit quality here. We do have a very clear path moving forward to improving this number, and we'll continue to work with our commissions to do so. From a financing plan in 2025, you'll see that that is all regulated debt financing that we plan to do to term out some debt that we have and to fund our capital plan, which is a good transition to thinking about how do we look forward and what's the next step with our plan of closing the books on 2024 and looking ahead.

I think it's important to note that we are confident in both our capital forecast and optimistic regarding the incremental investment potential and growth opportunities. Again, Brian highlighted some of those to start the call, and we'll give you a bit more detail on those that are not included in our current assumptions, and I think that's important to note for the group because I am certain we will get that question.

Those are not included in the current assumptions we're laying out here, but we're certainly working on having incremental opportunity, building on what we believe is a solid financial position and the growing opportunity for regional transmission and large load development. We are confident in our ability to deliver sustainable earnings growth and getting to consistency with that regard over the long term to deliver on our EPS growth target of 4%-6%.

Our commitment to deliver on those financial targets remains the same while we've updated our base period to 2024 from 2022, and we are certainly holding ourselves accountable to delivering on that long-term growth range and what shareholders expect over the long term. While you'll note an increase to capital plan, and Brian started off with talking about that 11% overall increase, we continue to size that investment to not need equity funding currently.

Opportunities incremental to this plan would drive equity needs, and in addition, those incremental opportunities would also push us upward in our long-term growth range. Slide 16 gives you more detail on that capital investment plan from 2025 to 2029. Our capital plan is designed to incorporate investments that, as everyone does, we need to support our ability to serve our customers in a safe, reliable, and cost-effective manner and support long-term growth.

Our five-year plan here expects a capital investment of $2.7 billion, again, 11% increase over the five-year plan we showed you before, and again, self-funded. That increase is driven by low-risk, highly executable projects. As a reminder, our prior and current forecast includes the addition of a dispatchable generation resource in South Dakota.

Again, any of the opportunities that Brian's going to talk to you about in a bit here are incremental to this plan. With that, I would also move you to an update on slide 17 regarding regulatory matters. During Q4, we quietly reached a settlement and got a commission approval from the South Dakota PUC with regard to our South Dakota gas filing and have implemented final rates.

I'm always impressed by the efficiency of the South Dakota Commission and the ability to make a filing in July and reach a settlement and implement rates by December. Working with that commission and staff is certainly a model in that sense of how we go about that. And I would give hats off to also our internal team. It's pretty fantastic there. Meanwhile, the Montana rate review progresses, and we received intervenor testimony here in January. I know many of you have taken a look at that.

We are currently working on a rebuttal filing, and we'll be filing that here in early March. The thing I would comment about with regard to the testimony from the primary intervenors that addressed revenue requirement is that that testimony is reasonable and I think set the base for constructive settlement negotiations. We will update you in our Q1 call as to progress in that filing, and as we've alluded to, and I think not alluded to, directly mentioned, we will delay our rolling out of 2025 guidance until we have an outcome in that proceeding. With that, I will turn it back to Brian to talk about the next few slides.

Brian Bird (President and CEO)

Here we sit in February 2025, so we're about 300 days away from taking on some incremental Colstrip. As I bring that up, the Avista and Puget Sound pieces in total will be 592 MW that we would add to our portfolio on 01/01/2026. To remind folks, those were both no-cost acquisition of incremental Colstrip ownership, which allows us to reliably and affordably serve our existing customers, provides energy independence, improves system reliability integrity.

It moves our portfolio from a short capacity position to a long capacity, which is critical in these cold days of February. It helps us maintain affordability while insulating customers from volatile capacity and energy market pricing. In addition, by increasing ownership from today at 15%-55% on 01/01/2026, that's going to protect our existing interest in Colstrip and provide Montana control to keep the plant open beyond the Washington and Oregon mandated closure deadlines.

And last, I'd like to say significant capacity surplus provides opportunity for new large load customers from our total portfolio, spreading fixed costs over more kilowatt hours, lowering and stabilizing the cost per unit for all of our customers. Just a reminder regarding Colstrip, but when I mention large load customers, I moved to that page. And I think in December, well, I know in December, December 17th, actually, we announced a data center expecting to come to Montana at the initial load of about 50 MW to grow to 200-250 MW. That would be expected to start around mid-2027.

And we've got a letter of intent there and continue to work on commercial agreements to move that forward. Shortly thereafter, we announced Atlas Power, which is currently one of our largest customers in Montana on the transmission side, but on 01/01/2026, will become a customer on our generation side as well. And they expect to grow their facility from 75 MW to 150 MW over time. And so, again, letter of intent, but as an existing transmission customer that's already located within our system, very, very confident we'll get that done here relatively soon.

Both of those customers, we want to serve under our existing Montana tariffs as regulated customers. As I think about incremental load in Montana, we want to be able to serve these customers with any excess capacity that we have. Certainly want to protect our existing customers. And when I talk about our portfolio in Montana, I'm proud to point out that we in Montana now are serving our customers on a total megawatt hour basis from our owned and contracted resources and over 60% carbon-free portfolio, and a third of which is from our hydro facilities.

If any data center demand interest develops beyond our existing capacity, we will need to work with the Montana PSC to structure appropriate tariffs, and we'll have to also contemplate how to meet that new load with generation build in the state. In South Dakota, we also have significant indications of interest, but by the way, there's significant indications of interest in both Montana and South Dakota, and any new large load customers in South Dakota would require incremental capacity.

We'll work with the South Dakota PUC. We have established a process already for large load customers with a deviated rate tariff. Last, I would just say a lot of discussion around data centers. I mentioned earlier that one great thing for customers is the ability to moderate rates and be able to spread those incremental kilowatt hours over a fixed cost and spreading those costs over much, much larger kilowatt hours. That helps lower and stabilize the cost per unit for everyone. These data centers also bring economic development to the communities that they'll be operating in.

They'll bring increased property tax revenue, provide grid efficiency for us, and then certainly revenue stability for us too as a company. So with that, I'd also point out on the next page, we mentioned in the December timetable as well, regional transmission opportunities. I think many on this call have certainly heard about North Plains Connector. There's certainly other utilities that are participating in this, but we are uniquely positioned on this line and very excited about North Plains Connector.

As you know, it certainly dead ends at Colstrip on the western side, and it also extends over into North Dakota where we will interconnect, if you will, with both MISO and SPP. We are the only utility, by the way, in both sides of this line. And so excited about the opportunity. We need to continue to work with those participants in the line and certainly Grid United to move it forward and excited to see that develop. But within Montana, we also have other transmission investments. The Colstrip owners are certainly looking forward to expanding the capacity on the Colstrip transmission system.

And in addition to that, we're working with Grid United on a Southwest Montana to Idaho line and early innings associated with that. But we're excited about all the activity that's happening in Montana from a transmission perspective and ability to not only improve or bolster reliability for our customers, but allow for incremental imports and exports to take advantage of price differentials for the benefit of our customers. And with that, I'm going to conclude and see if we open up things up for Q&A.

Operator (participant)

If you would like to ask a question at this time, press star followed by the number one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star one. We'll pause for just a moment to compile the Q&A roster. Your first question is from the line of Nicholas Campanella with Barclays.

Nicholas Campanella (Senior Equity Research Analyst)

Hey. Good afternoon.

Brian Bird (President and CEO)

Good afternoon. Hi. How are you doing?

Nicholas Campanella (Senior Equity Research Analyst)

Hey. So , I just wanted to ask about the 4%-6% growth rate off of 2024. You know 2024 and 2025, you can correct me if I'm wrong, but these do seem like they're kind of depressed years. You're under-earning. You're going in for new rates in Montana. So why is 2024 kind of the right year to base growth off of from this point out? Can you kind of frame where you are in the plan and where you see yourself going if you get the data center load coming to fruition here? Thanks.

Crystal Lail (CFO)

Hi, Nick. Crystal, I'll take the first part of this question, and I have no doubt Brian will back me up for me here. But the question of rolling forward to 2024 versus 2022, no magic to 2024. It's really just updating to a more current period. We've had lots of feedback from many of you that still sitting with a 2022 base was a bit outdated. So just from a pragmatic perspective, rolling forward to 2024. So the first part of your question, is there any reason why 2024 is the year other than being the most recent period concluded? The answer is no.

As to our long-term commitments, which is, I think, the fundamental underlying question as to what does that mean, because certainly our 2024 results were impacted by the lack of constructive interim rate support in Montana being in historic rate making and needing the opportunity to, I think about that filing. We're in 2025, and we're still talking about 2023 rate base to get reasonable interim rate treatment would have certainly put our earnings in 2024 where we believe they should be and delivering shareholder value in a way that attracts capital.

However, obviously, that did not conclude 2024 in that manner, but there's no magic to it being 2024 versus some other period. Your question then extends on to 2025, certainly impacted by that decision on an interim rate perspective as well. While we have not released guidance in 2025, I can tell you that we are thinking an awful lot about how we mitigate the impacts of that and still deliver on the shareholder fund. We'll give you more clarity on that as we conclude, obviously, negotiations in that rate review.

All that being said to say, we are still committed to a long-term ability in whatever year you want to track the base off of that we're delivering within that 4%-6% growth range. Your next question was, gee, it sounds like you've got a lot of good opportunities that are incremental to your good plan, which I would agree. Brian's talking about those and working on those very diligently. And those certainly we have been, I think, nonlinear is the word. I might call it lumpy with our earnings.

We expect those kinds of opportunities to push us upward in that growth rate and certainly help us deliver on a more consistent basis what I think you all expect from us. So I know that was a long and winding answer, but Brian, if you have anything to add on to that?

Brian Bird (President and CEO)

Yeah, I think I would just say this. I think Crystal made a good point earlier in the call. In light of a very poor outcome on interim rates for a particular utility that's earning substantially below its authorized rate of return, to still be able to achieve 4% earnings growth on a year-over-year basis on non-GAAP, I think is a good outcome. It certainly should have been something better than that, but we had to do quite a few things from a cost control and others to achieve that.

A better interim rate outcome, of course, certainly allows us to have an easier growth path to grow our earnings and put less pressure on our earnings on a going forward basis. Should be easier and allows us to maybe sell out rate cases on an every year basis. So hopefully, we'll see better outcomes from an interim on a going forward basis. Incremental to that, I would just say this. I think we need to be more consistent, certainly from an earnings perspective. And 4%, our range is 4%-6%. We'd like to certainly see ourselves move up within that range.

And as these large load opportunities and other opportunities, as we pointed out on one of the earliest slides in the deck, as they happen, you're going to see upward pressure on our earnings growth rate. At that time, they're in, and we're able to actually calculate from an earnings perspective what we think they are. We'll think about our earnings growth rate at this point in time. First, we need to deliver on our 4%-6% as we sit here today.

Nicholas Campanella (Senior Equity Research Analyst)

When I think about the,just to follow up on that, I appreciate the context there. When I think about just growth into 2025, though, with the lumpiness, are you still within this growth rate range, or could you be outside of it, like more flattish growth?

Crystal Lail (CFO)

Nich, I feel like you're asking me for 2025 guidance, but I will say I certainly expect that we will be within our 4%-6% growth range.

Nicholas Campanella (Senior Equity Research Analyst)

Okay. Okay. I appreciate it. Sorry to ask so many ways. On the data centers, just one follow-up. The commission did open an inquiry in Montana, it seems. So Brian, I was wondering if you could just kind of talk about how that plays out, and is there a chance that the tariff could change in Montana and just maybe expand on what the value proposition is for customers here for these new data centers coming in?

Brian Bird (President and CEO)

Yeah, I think it's a fair question that's asked. And again, I think the commission and many commissions want to understand a couple of things. What does this mean to our system overall, and how does it impact existing customers? And because of our opportunity as adding incremental Colstrip in our portfolio in its entirety, allowing us to serve these larger load customers, we don't see that impact on customers here. And I actually think it's going to be a benefit.

So giving us the opportunity to speak to that and making sure we get an opportunity to recover all our costs associated with Colstrip to serve these customers, I think is actually a good thing. So we're certainly open to the dialogue here.

Nicholas Campanella (Senior Equity Research Analyst)

All right. Thanks so much. Talk soon.

Brian Bird (President and CEO)

See you, Nick.

Crystal Lail (CFO)

See you, Nick.

Operator (participant)

Your next question is from the line of Julian DeMoulin-Smith with Jefferies.

Yeah. Hi, good afternoon. It's Brian Russo for Julian.

Brian Bird (President and CEO)

Hey, Brian.

Travis Meyer (Director of Corporate Development and Investor Relations)

Hey, Brian.

Brian Russo (Analyst)

Hey, just quickly, just curious, what is attracting these large data centers to Montana versus some of the surrounding areas where we've seen a lot more activity, either from a state-level perspective or even from a NorthWestern utility-specific level?

I think, first of all, Brian, we have capacity. And one of the issues to our data centers today is, is there sufficient capacity that exists already? And I mentioned Montana's overall portfolio, one of the few utilities that can point to a 60% carbon-free. And so I think, first and foremost, I'd say that weather, certainly, obviously, cooler climates make sense. We have certainly good latency in terms of from a communications perspective.

So I think Montana brings a lot. I'd argue that South Dakota does as well. So you think of all of those characteristics, including fiber, we're actually in pretty good shape in Montana and South Dakota to attract those folks. And I think in South Dakota, we already have, if you will, a tariff to deal with that. So that's an incremental advantage there. And we hope as we have discussions with the Montana Commission, we kind of move down that path as well.

Okay. Great. And then just to segue into South Dakota, actually, I think you said any large customers would require new generation. I'm just curious, what makes your system different than some of your pure utilities that are pursuing more of a "capital light" type strategy, just generating a fee to distribute the capacity to the customer versus the supply side?

Crystal Lail (CFO)

One thing, Brian, I would point out that's unique about what I'm aware of, that capital light utility that uses a PPA. Where we sit in South Dakota, we're an SPP. And so when you're not capacity adequate, that's a specific tariff in a certain jurisdiction. Otherwise, you need to bring resources to the table. But as Brian alluded to, there's certainly opportunity still in South Dakota. So while it might look a little bit different, we already have a backdrop in South Dakota of some data centers being served by other IOUs that are here.

Secondly, the South Dakota Commission has been very favorable to economic development that's supportive in the state. So we've used a tariff that's a contract with deviation that allows you to fit that contract to the needs of whatever large load it is, but is important to attracting them to the state of South Dakota and provides a very quick regulatory mechanism that would allow for, again, interconnection and SPP or for others might be MISO. But to be able to build that generation and serve them.

So while I'm aware of the capital light opportunity, I think that's unique to a certain jurisdiction. And then South Dakota has some things that are very favorable to attraction, including already an existing tariff that's been used to serve other large load customers before data centers was the thing. And secondly, there's an infrastructure rider in South Dakota. So all of it, I guess, would fundamentally say, where is the regulatory support that allows for that type of thing. And that's why it's a little bit different, but I would say just as constructive.

Brian Russo (Analyst)

Okay. Great. And this is lastly on the North Plains Connector. Are there any near-term milestones that we should be looking out for in terms of that project development? And when might we expect any financial commitments from NorthWestern? Is it outside the five-year planning period?

Brian Bird (President and CEO)

Oh, it's not outside the five-year planning horizon on the financial commitment, but it's certainly in the back half. And I think the main thing in 2025 is to move from kind of an LOI perspective into commercial agreements. And so that's the plan. And we'd like to see that happen certainly by mid-year, if not Q3.

Brian Russo (Analyst)

Okay. Thank you very much.

Brian Bird (President and CEO)

Thanks, Brian.

Travis Meyer (Director of Corporate Development and Investor Relations)

Thanks, Brian.

Brian Bird (President and CEO)

Your next question is from the line of Dylan Lipner with Ladenburg.

Dylan Lipner (Equity Research Associate)

Hey, how are you guys?

Brian Bird (President and CEO)

Hey, Dylan.

Travis Meyer (Director of Corporate Development and Investor Relations)

Good, Dylan.

Dylan Lipner (Equity Research Associate)

So two questions here. So one getting to Montana with all rates coming into play here. So when are you guys expecting to earn your authorized return in Montana?

Crystal Lail (CFO)

Dylan, that's your question for me out of the gate. Wonderful question. I would tell you we're in the midst of, obviously, a rate review there. And the thing I would say, and I think I alluded to it earlier, but Montana's historic rate making. So that rate review test period is 2023. We have some known and measurable adjustments into 2024. But I would tell you, because of that, there will always be regulatory lag. So your question was, when will you earn your returns?

And I would tell you, we're working to close the gap on those earned returns. But I won't overpromise in the sense of saying that we would actually earn our authorized return in the state because of the nature of that regulatory lag. Now, if you could give me the trifecta of decreasing interest rates, decreasing taxes, and I don't know, inflation coming down to zero sorts of things, you might get a bit closer. But I would tell you, we're very focused on a constructive outcome in this Montana rate review to closing that gap.

Brian Bird (President and CEO)

Dylan, I can't help but take the bait here, Dylan. I would say this. I think about South Dakota, which also has historic test years. And the efficiency in terms of how quickly we're able to settle a case, get new rates, have interim rates if need be, it's easier to earn closer to your authorized rate of return. And it's also another reason why you may not have to come in for rate cases every year. We need to come to something similar like that in Montana, or in essence, we're not allowed to earn close to our authorized rate of return under the current scenario.

So we're going to have to keep coming in for rate cases, if not every year, every other year. And we certainly rather come up with outcomes with the Montana Commission and others. So we wouldn't have to do that. There are so many jurisdictions in this country that allow for more frequent recovery, and so those utilities don't have to come in every year for rate reviews, so we need to change the paradigm here, certainly, I think, from an economic development standpoint for Montana as well.

Dylan Lipner (Equity Research Associate)

Gotcha. Thank you for that, and in the case that Montana weren't necessary to build any additional plant, would the company seek to change its rate structure in the state?

Crystal Lail (CFO)

I would say, Dylan, we certainly have a portfolio today. We have a current, what I would call a GS2 substation rate that can accommodate at least some new customers coming on, but then the next phase of that, and again, the commission's opened an investigation, and I think if you look around commissions elsewhere, they want to know the impact these large load customers are going to have.

I think it's a great opportunity to think about, should there be a separate tariff for this type of customer? What should be the constraints on them? And so I certainly would say we're not opposed to having a separate tariff to serve these customers and would like to look forward to maybe working with the Montana Commission to find the right answer that's right for Montana.

Dylan Lipner (Equity Research Associate)

Gotcha. But even for data centers, you guys would maybe change your type of rate that you would charge?

Crystal Lail (CFO)

I would say two pieces. What I maybe didn't say as directly as I should is, A, we have, I would say, a large customer rate today that we believe works to serve those customers. And that's where we have a portfolio that can serve them.

But moving to the future, and given some of the interest that we've seen from lots of data centers looking, and I think we all acknowledge they're looking everywhere, there certainly, and because the commission issued a letter this week wanting to talk about this exact issue, while we believe we can serve them today under our existing tariff, we also think there's a huge opportunity to potentially work together to craft the next version of that tariff that might fit the longer term.

Right. Gotcha. Okay. That makes sense. Yeah. Thank you very much, guys. Appreciate it.

Travis Meyer (Director of Corporate Development and Investor Relations)

Thanks, Dylan.

Operator (participant)

This question is from the line of Jonathan Reeder with Wells Fargo.

Crystal Lail (CFO)

Hey, Jonathan

Hey, Jonathan. How are you doing?

Jonathan Reeder (Equities Research Associate Analyst)

I'm doing well. Thanks for asking. So I think you said that you thought the intervenor testimony was a constructive starting point for the settlement negotiations, and you're currently preparing rebuttal testimony. Can you walk us through the settlement negotiation process from here? When might we cease those? If I recall, I think last time around, the settlement pretty much ended at the deadline.

Crystal Lail (CFO)

Yeah, Jonathan, Crystal, I'll take that one. So step one, we have to file rebuttal testimony, and that'll set the line in the sand as to the final revenue requirement. I think we included on slide 17 trying to point you to what the timeline is there. So once we file that rebuttal testimony, we actually have a pretty short timeframe between there and when settlements are due. They are due March 24th, and so we will be in active conversations with intervenors and a quick turnaround there to see if we can find a reasonable outcome between the two of us that meets all of our needs. We would file that settlement toward the end of March there, and then a hearing would be held in April.

Jonathan Reeder (Equities Research Associate Analyst)

Okay. So do the negotiations not really begin until after the rebuttal testimony? Because, yeah, that's what I'm just kind of concerned with, is that short timeframe seems a little potentially challenging to get it done.

Crystal Lail (CFO)

I would say this. The primary intervenors that file revenue requirement testimony, we've worked with them in the past. They're very well prepared, and they know what they're doing when it comes to our revenue requirement. They are running their model, I can tell you right now, just like we're running our model. So once we get down to brass tacks of talking about the things, it does move pretty quickly. I would tell you we're working to get that rebuttal testimony filed, and certainly, we'll probably start talking early enough to make sure it is a tight timeline, and they're 100% acknowledge that.

But I would also tell you that the areas in which we have to talk and get to an agreement on, I think if they were sitting in this call today, they would tell you they know what those are just as much as we do. And again, the consumer counsel, consumer advocate, your large customer group, those types of folks, they're pretty sophisticated when it comes to knowing how our revenue requirement works, and we'll be ready to engage and have a conversation.

Jonathan Reeder (Equities Research Associate Analyst)

Okay. Great. Can you talk a little bit about the utility-related bills that are being considered by the Montana legislature and which ones perhaps have the best chance of getting across the finish line?

Brian Bird (President and CEO)

Yeah. From our perspective, there's quite a few bills that certainly are in play. Two, of course, are of interest to us. In both states, Montana and South Dakota, the most important bill for us is to reduce strict liability issues. So in Montana and South Dakota, there'll be bills associated with that. Obviously, we're not the only utility interested in that, but the utilities in the states and the co-ops working together to get something done from a wildfire perspective is important, and we feel pretty good about that, but a lot of things have to come together to make sure we get legislation associated to address that issue for us. That's first and foremost.

Also, in Montana, another important bill is on the transmission perspective to get us a means for, I'd argue, more certainty regarding recovery of investment in transmission and also allow for a quicker recovery of that investment. That's primarily what we're trying to accomplish there, Jonathan.

Jonathan Reeder (Equities Research Associate Analyst)

Has there been a strict liability bill proposed in Montana and in South Dakota, or are they still kind of in the works?

Brian Bird (President and CEO)

The one, I think, in South Dakota is already out and on the floor. Montana's is coming here shortly.

Jonathan Reeder (Equities Research Associate Analyst)

Okay. Yeah. No, I hadn't seen one in Montana, so I didn't know if I'd kind of missed anything. What about the restructuring of the Public Service Commission in Montana? Is that something that has legs, or?

Brian Bird (President and CEO)

I have no idea if that has legs or not, and we're certainly not behind that bill.

Jonathan Reeder (Equities Research Associate Analyst)

Okay. Fair enough. And then I hopped on a little late, so I apologize if I missed this. But the drivers of the CapEx increase, can you kind of walk through a little bit of that? It looks like the Montana electric spend drives the uplift in 2025-2028. Is any of that associated with these data centers that are kind of in the works? And then in 2029, it looks like there's a big jump in the Montana gas spend, which maybe electric.

Crystal Lail (CFO)

Yeah. Jonathan, a few things on the five-year capital plan. One, as our engineers constantly remind me, they would like to spend a lot more than this capital plan gives them. So the uplift being heavily in Montana electric, there's plenty of growth there. We've kind of reached the end of what was a fantastic build-out on a transmission system decades ago.

There's plenty of work to be done there, and so we're trying to size this within being able to self-fund the plan, so you see a lot of push on the electric side, but I would tell you this and every other CFO is probably in the same spot. The engineers would like to build a lot more.

In the fifth year, your question on gas transmission, I would also tell you that we're getting to the edge of our gas transmission system, and that capacity is also critical when we're seeing our peak days to being able to serve our customers and to enable the rest of the system, so you would see thoughts on large gas transmission investment really driving that number getting larger in 2029, and obviously, as that becomes closer, we'll give you more detail on some of those capital projects.

But just overall, the system, a lot of growth. That's a good thing to have. But we're also getting to the point where we need to refresh and renew that system. But we also need reasonable ways to recover that. I think some of the transmission legislation that Brian alluded to would certainly be helpful in that regard and maybe allow us to lift our capital plan. But that's kind of the meat of it. It's still the nuts and bolts of capital to serve our customers.

Brian Bird (President and CEO)

Yeah. Jonathan, I would just pile on. I mean, obviously, what we've done here at Colstrip, it certainly helps on electric generation capacity. But as we've talked about in the past, we still have a tremendous amount of investment both in the electric and gas transmission system. On the gas side too, even from a supply and storage perspective, there's certainly a need to continue to invest in our system and be able to serve our customers as we see low growth continue there as well.

Jonathan Reeder (Equities Research Associate Analyst)

Okay. So nothing really specific on the electric side, just kind of the reliability, kind of hardening stuff, something more specific?

Crystal Lail (CFO)

Everything above, Jonathan. Everything above. It's a mix of both the transmission and distribution side of the house.

Jonathan Reeder (Equities Research Associate Analyst)

Okay. But it doesn't have any.

Brian Bird (President and CEO)

Jonathan, we use the word highly executable and low-risk capital.

Jonathan Reeder (Equities Research Associate Analyst)

Yeah. Okay. But there's nothing tied specifically to those data centers in it, or?

Crystal Lail (CFO)

No. That is not what's in our plan here. That's opportunity incremental to the plan. And as we've talked about, that would go into our plan when we've signed a service agreement with those folks. At this point, we're at an LOI. I would tell you that the Atlas facility that we've named is already interconnected to our system and taking supply from someone else. So less capital investment required there. The others may look different. But those are the things that are certainly incremental to the plan needs to hear.

Jonathan Reeder (Equities Research Associate Analyst)

Excellent. All right. Thanks so much for being patient with me and taking my questions.

Travis Meyer (Director of Corporate Development and Investor Relations)

Thanks, Jonathan.

Operator (participant)

Your next question is from the line of Alex Mortimer, Mizuho.

Alex Mortimer (Equity Research Associate)

Hi. Good afternoon.

Brian Bird (President and CEO)

Hey, Alex.

Alex Mortimer (Equity Research Associate)

So just to clarify Nick's question, I know you highlighted some of the lumpiness in earnings that we've seen, but do you expect to at least be within the 4%-6% for every year of the plan going forward, although it sounds potentially maybe towards the lower end in 2025 with the lack of interim rates?

Crystal Lail (CFO)

I would say, Alex, to your question, we do expect over the long term to certainly be within the 4%-6%. I would also 100% acknowledge that I didn't expect this year to conclude where it is from the impact of interim rates, etc. But certainly, that is our plan, is to stick to our commitments and to be able to deliver within that. I would also acknowledge that there may be years that were higher than that. And obviously, we've had years that were lower than that. That's the maybe inconsistency or lumpiness. But over that long range that we would deliver within the 4%-6%, we're working hard on that.

Alex Mortimer (Equity Research Associate)

Got it. And then with the historical test year and to Crystal, some of your comments around still using 2023 rate base here in 2025, especially with potentially some larger generation projects. And I know you'll be benefiting from incremental load, but could this potential increased spending also potentially increase some of these lag-related challenges as we get potentially later in the plan?

Crystal Lail (CFO)

I think there's a, it's part of trying to work with the Montana Commission to actually benefit economic development and growth in the state. This is a problem we really need to solve jointly. If you want to attract the types of things that are good, we all know that large load is good for customers broadly of spreading those fixed costs out. But if you're going to attract investment to the state and attract capital, that should be on everyone's list of things to do, is attract investment. You've got to provide mechanisms to allow for timely recovery of those costs. And these data centers have options. They can go elsewhere.

And so we want to work with the Montana Commission to find a way to make them choose Montana. And I think that'd be good for Montanans and good for our growth at the same time. That should all be positive. But acknowledge there's some work to do on that.

Alex Mortimer (Equity Research Associate)

All right. Perfect. Thank you so much.

Travis Meyer (Director of Corporate Development and Investor Relations)

Thanks, Alex.

Crystal Lail (CFO)

Thanks, Alex.

Operator (participant)

Your next question is from the line of Matthew Davis with Millennium.

Dylan Lipner (Equity Research Associate)

Good afternoon.

Brian Bird (President and CEO)

Hey, Matt.

Travis Meyer (Director of Corporate Development and Investor Relations)

Hey, guys. How are you doing?

Brian Bird (President and CEO)

Good.

Crystal Lail (CFO)

Hey, Matt.

Matthew Davis (Portfolio Manager)

I just have a question around your commentary regarding the ability to earn your allowed return or closer to your allowed return and how that plays into or how the data center or expected data center ramp plays into that when, I think, based on some of the rate structures that you have on your website, there could be significant benefit to kind of all customers but the enterprise as a whole from some of those customers coming on and using the capacity that you have via Colstrip.

Crystal Lail (CFO)

Matt, you're spot on. Customer growth absolutely helps reduce the regulatory lag and allows for the ability to maybe not have to file as frequently. I would say broadly benefits the system immensely. So when we think about our future growth trajectory and what's good for Montana and good for us, the ability to grow and not need to do that on the back of retail rate increases would be a fabulous thing.

And certainly, it would help to allow us to potentially either reduce the number of rate filings or make them a little less frequent via that growth. Organic growth does that anyways. But obviously, one of these data centers compared to a residential subdivision, these are quite different things and would be beneficial all the way around.

Brian Bird (President and CEO)

I'd add to that. I mean, we already acknowledge that adding 592 MW at zero upfront capital cost is great for customers and produces a lot of bill headroom for a lot of the other investments investing in kind of $500 million capital on an annual basis. But as Crystal points out, data centers also help in that regard too from a bill headroom perspective. And so I think it just makes great sense. And again, we look forward to the discussion with the commission on a going forward basis.

Matthew Davis (Portfolio Manager)

So when I circle that with the using of 2024 as the base for the growth rate and CapEx actually increased with no incremental equity, I would have expected that the data center could - the revenues coming in, the incremental revenues coming in from the data center over the longer term could have filled some of that gap such that the earnings power would at least stay flat, if not go higher. What in that kind of equation am I overlooking or missing?

Crystal Lail (CFO)

Well, I don't think you're overlooking anything except the backing up to when does it go into our financial plans. And right now, we are at an LOI stage with these folks. We're going to work them through the pipeline to get to a service agreement. And once we have a service agreement, that means we are both at a common understanding of what that means for both parties. And that's the point it would go into our financial plan. So that's why we consider it incremental upside to our plan today. And we're working hard here in 2025 to convert that from an LOI stage to an actual service agreement.

Matthew Davis (Portfolio Manager)

Okay. Okay. Thank you.

Brian Bird (President and CEO)

Thanks, Matt.

Operator (participant)

You have a follow-up question from the line of Dylan Lipner with Ladenburg.

Dylan Lipner (Equity Research Associate)

Hey, guys.

Brian Bird (President and CEO)

Dylan, welcome back.

Dylan Lipner (Equity Research Associate)

I just wanted to follow up on the wildfire talk and the strict liability you mentioned. But I wasn't aware that inverse condemnation exists in either state. What was the context of the strict liability you mentioned? And is the legal standard negligence for wildfires, or do states use inverse condemnation standard with strict liability?

Brian Bird (President and CEO)

Yeah. The inverse condemnation is not used in Montana for any wildfire-related issues to date. What we're trying to do, I think in all states, and many utilities are trying to do this, there's a responsibility, if you will, for economic damages. Been in business for 100 years, happy to any economic damages to provide that. And we and our insurance carriers should be able to provide that to people. What we're trying to avoid is non-economic damages and punitive damages. And that's the intent of what we're trying to do legislatively.

Travis Meyer (Director of Corporate Development and Investor Relations)

And Dylan, I think that it's also important to recognize the inverse condemnation statute is all around eminent domain. It's not around wildfire.

Dylan Lipner (Equity Research Associate)

Okay. Awesome. Yeah. That answered my point there. I appreciate it, guys.

Travis Meyer (Director of Corporate Development and Investor Relations)

Yep. Thank you.

Crystal Lail (CFO)

Thanks, Dylan.

Operator (participant)

At this time, we have come to the conclusion of our Q&A session. I will now hand the call back over to Brian Bird for any closing remarks.

Brian Bird (President and CEO)

Just hey, appreciate the questions today. It's helpful, obviously, for all investors to hear your questions and obviously give us a chance to continue to expand upon our presentation today. And again, we had a very, very good 2024. We have a lot of work to do in 2025, but we want to continue to provide good outcomes for obviously not just customers, employees, but our investors as well. Thank you guys very much.

This concludes today's call. Thank you for joining. You may now disconnect your lines.