Q1 2024 NorthWestern Corp Earnings Call

six-cent swing and earnings impact to us versus the two quarters.

Unnamed Speaker: And also, you see that we had a tax item that we had adjusted last year. All that being said, just say $1.09 of earnings compared to $1.05 of adjusted earnings in the prior quarter, which is a 4 cent increase or 3.8%. Moving to slide 10.

Crystal Dawn Lail: A key strategic objective for us has been further strengthening our balance sheet. We have been very disciplined about our regulatory execution, which we talked about, and the impact of that on our utility margin and, importantly, on our cash flows, in addition to disciplined capital allocation, such that I am happy to say here at the end of Q1, closing out the quarter, that our FFO to debt metric, as we concluded, is over 14%. And many of you that follow us know that that is our downside threshold from a credit rating agency perspective.

Crystal Dawn Lail: So we're really happy to see the disciplined execution in the last couple of years leading us to a point where we're very happy about where we are from a balance sheet perspective. In addition to that, during Q1, we announced our financing plans for the year, which include no equity but some debt financing needs. We have executed on that and have closed out our financing needs for 2024. I will turn you to slide 11 and reiterate, as Brian has already noted earlier, that we are affirming our guidance for the year.

Crystal Dawn Lail: So, in Q1, we are reaffirming our 2024 guidance of $3.42 to $3.62, and that is consistent with our long-term earnings guidance of 4 to 6% from an earnings per share growth rate, and we feel good about where we are from those targets and where we are with solid execution in Q1, setting up a base for the rest of 2024. Slide 12.

Crystal Dawn Lail: I'll highlight our capital forecast for 2024 includes over $500 million of investment driven by our base system and really supporting our customer needs and making sure we're serving them well, but also, and importantly, the completion of the Yellowstone County generating station. We've talked about this many times, but resources such as Yellowstone are incredibly critical to our ability to serve our customers when they need it most. We're happy to say that our capital forecast here is on track, and importantly, on track for what we think are the most critical investments to serve our customers. So with that, I will turn it back to Brian.

Brian B. Bird: Thanks, Crystal. You know, just one page here just to talk about the wildfire plan, and when we meet many of you at AGA and beyond, we'll talk in more detail about the plan after we release it here in early May. I think the main thing to talk about first and foremost before this plan, I think our last plan we just put in front of the Commission not too long ago in our last rate review, really captured everything we've been doing from a wildfire mitigation perspective for decades, actually, in terms of system system hardening in the 2010 through kind of 2020 time period, hazard trees, and dealing with many other forest related issues, and just putting in place very, very good procedures to deal with that.

Brian B. Bird: The one area where we thought we needed more work was in system monitor situational awareness, if you will, and we have done a tremendous amount within the last year, adding technologies and other processes to do a much better job on that, and we continue to think about public communication and outreach, and that'll all be addressed in this upcoming plan. One major difference between this plan that you'll see here shortly and the plan from a couple years ago is we are now going to be executing public safety power shutoffs on a going forward basis, and again, we have our segments down to very, very, I would say there are so many segments. The amount of customers potentially impacted by PSPS is going to be significantly different than you might see from some other utilities. We'll manage that pretty fine detail.

Brian B. Bird: One other thing I should point out on this particular page is that we assess each of our segments in terms of risk, and as we sit here today, only six percent of our distribution and about seven percent of our transmission are in the highest risk category for a Montana electric asset, so that's also helpful, but we know that wildfires can start in many different spots, and we'll continue to really look at our system as a whole and manage that accordingly. We look forward to talking about this more in May after we release the plan.

Brian B. Bird: One of the reasons we're waiting to release it is that we will be meeting with the Montana Public Service Commission on May 6th, as well as the Montana Governor, to get a preview of the plan we'll be releasing shortly after that. So we're very excited about the steps we've taken thus far and continued progress on this, and obviously, we, like the rest of the industry, are trying to mitigate this risk as best we can, not just for And with that, just from a concluding standpoint, again, I appreciate the support for the company, and we're making great strides in 23, and we continue, as you've noted here, thinking about rate reviews.

Brian B. Bird: From our perspective, we're just really trying to capture and recover the investment we're making to serve our customers, and I think making sure that those increased customers are seeing are going to be manageable in line with inflation on a going forward basis.

Travis Meyer: And with that, we'll turn it over to Mr. Meyer to handle any questions. Thank you, Brian. Thank you, Crystal.

Operator: If you're joining us by computer today and would like to ask a question, please signal your intent by using the raise hand button, typically found within the toolbar at the bottom of your screen. You can also press Alt-Y on a PC or Option-Y on a Mac to raise your hand. Please ensure your microphone is unmuted if you're in a queue to ask a question. If you're dialed in by phone, you can press star nine to raise your hand and star six to unmute your line. Again, that's star nine to raise your hand or star six to unmute your line.

Operator: If you haven't provided your name and your Zoom ID or dialed in by phone, please be listening.

Operator: Please be listening for us to announce your Zoom ID or the last four-digit telephone number to notify you that your line is open and ready for a question. With that, we'll just give it a minute.

Operator: Thank you. We'll take our first call from Jeremy Tonette at JP Morgan. Jeremy, your line should be open. Hello, can you hear me?

Brian B. Bird: Hi, good afternoon. I'm glad to connect here. Just wanted to start off, I guess, you know, EPA made some new announcements yesterday and wanted to just, you know, follow up on, you know, the thoughts that you provided in the press release there. You know, how do you think this impacts NWE going forward at this point, given what's known? Yeah, I would say this. I think from our perspective, when you say impacts NWE, I'm primarily concerned about how this impacts our customers, to start.

Brian B. Bird: From our perspective, we have a capacity shortfall in Montana as we start, and adding incremental coal stripping was going to certainly help us drive that, and we believe that still makes great sense. But I think this news obviously was not good.

Brian B. Bird: I think the decision puts a significant risk on our ability to reliably serve our customers, and I think it could ultimately force us to make short-term decisions that could impact the affordability of our customers instead of long-term cost-effective solutions to provide more capacity for our customers. And again, I think I want to make sure everyone's aware here that, like every other company in the utility space, we obviously want to go down the direction to promote cleaner generation resources to serve our customers, but we want to be able to do that in a way with proven technology that's cost-effective.

Brian B. Bird: And unfortunately, these rules, and I think, by the way, to be able to do that, be it small modular reactors or what have you, that's 10 years in the making. From my perspective, those resources are available and certainly cost effective. But making us make changes here is probably going to result in short-term decisions that, again, are going to impact customers from a reliability standpoint and an affordability standpoint. And trying to have anybody do anything within four years around these rules makes absolutely no sense.

Brian B. Bird: So, Jeremy, if you think I feel strongly about this, you're absolutely right. That is, that's helpful there. I'm just curious, to the extent you might be able to comment whether you think there could be, I guess, legal challenges here and, you know, how, you know, how that might unfold if you were able to comment. Yeah, I think from our perspective, we feel very strongly, particularly around the mats, that we expect litigation around that. I believe, based upon the first blush of the rules, I think the industry as a whole is So it will be interesting to see how this plays. Got it. Thank you. Thank you very much for that.

Brian B. Bird: And then, I guess, you know, pivoting back to just Montana itself, and I just wanted to get your thoughts, I guess, for the next, for the next rate case, you know, it seems like there's, there's going to be some changes in the commission, just wondering, with elections and turnouts, what have you, if the next rate case will be under the current composition, or changes in composition, or any thoughts, I guess, on Montana, you know, regulatory strategy at this point, given, given the moving, Now, I think when you say regulatory strategy and again, we appreciate the current commission and obviously there can be changes. We certainly know there's two positions that will change.

Brian B. Bird: President Brown's not seeking re-election, and Commissioner O'Donnell is leaving. The commission is termed out. So there's going to be change, but that doesn't change our regulatory strategy in one iota. It doesn't necessarily matter to the people sitting in those chairs.

Brian B. Bird: From our perspective, we want to come up with what we believe makes sense, obviously for us, but also for our customers. And that's a point of also working with commissioners to ultimately achieve good outcomes regardless of sitting on those. Got it. That makes sense there. And then just finally, in addition to the wildfire mitigation filings, are there any key state or federal legislative changes that could that you're watching with regard to, you know, wildfire risk in your service territory and how conversations and stakeholders are trending, and really do you see, I guess, the potential for national policy coordination?

Brian B. Bird: Great question, Jeremy. I would tell you this, I think... Obviously, the industry has been focused on this quite a bit, and I appreciate EEI and many of the electric utilities trying to address this issue at the federal level. We mentioned the state as well. We will be working with other utilities and co-ops in Montana regarding legislation around wildfire mitigation. It's early innings to determine what that would look like, but we certainly plan for the 2025 session to be bringing that forward. And, obviously, I think we'll be working through many different means to try to mitigate this risk on a going forward basis. But yeah, you expect to see something in early January around that issue.

Brian B. Bird: Got it. That's very helpful. I'll leave it there. Thanks. Thanks, Jeremy. Thanks, Jeremy. We'll take our next question from Alex Mortimer at Mizzou Hall. Alex, your line should be open. So there could be Anthony, too, just dialed in under Alex.

Operator: So there could be Anthony too, just dialed in under Alex.

Operator: Hi, good afternoon.

Operator: There we go, we got you. Yep, we sure can. Sorry about that.

Crystal Dawn Lail: I guess, just given load growth sort of being the topic of the year right now, sort of industry-wide, can you touch on anything you're seeing in that perspective? And then, as well as given potentially incremental load, sort of any upside to CapEx in your, or potentially in your plan?

Crystal Dawn Lail: It's Crystal. I'll take that question. I think a couple of things when it comes to low growth come to mind. First of all, I would go back to Brian's comments on the EPA and the importance of getting our Yellowstone County facility done, which is that we sit in a unique position of being at a deficit to be able to serve our existing customers. So, the criticality of executing on completing our Yellowstone County facility and addressing these issues with the EPA, I think, would enable the next steps of investment that would allow us to become resource adequate.

Crystal Dawn Lail: And then to be thinking about what the options are around low growth. Obviously, there's a lot of commentary in the sector on what's going to happen with the things that are driving the broader trends, whether that's on-shoring or AI or EVs or all those things. We're very focused on capital execution to support our current load, and then also working with the governors of Montana and South Dakota, both economic development drivers, and we want to be a partner in that.

Crystal Dawn Lail: So, we think there is a lot of opportunity there, but our first blocking and tackling is serving our existing load, and we're obviously pretty short of that. And the EPA may have just made us far shorter of that in a very short amount of time.

Brian B. Bird: And then pivoting back to wildfire and the upcoming rate case, you mentioned attaching the wildfire plan to the case or filing it, in addition to it. Does the commission approve the wildfire plan or accept or reject it, like can you can you just go through sort of the fundamentals of what that process is going to look like?

Brian B. Bird: Yeah, I think it's too early to say whether they'll effectively approve the plan or not. I mean, obviously, we want support for the plan, and if that's an approval, that'd be fantastic. But we want to make sure that all the stakeholders that are going to be involved with this, be it Forest Service and many, many other stakeholders that we're going to need to work with on our fire mitigation plan and the commission as well, obviously, recovery of costs associated with that. We're going to need people to support the plan.

Crystal Dawn Lail: And I would just add to that, as you're probably aware, we filed our plan previously in our last Montana Electric Rate Review. We achieved deferral of incremental O&M costs in that plan, so support of spending as it related to executing upon and accelerating spending in that plan. Obviously, that discussion of, as Brian alluded to, cost recovery will continue in our upcoming filing.

Operator: Perfect. Thanks so much. I'll leave it there.

Operator: And we do not have any other questions in our queue. So with that, I'll turn it back to Brian for some closing remarks. Well, hold on one moment. It looks like Mr. Crowdell snuck in and wants to ask a follow-up question, possibly.

Operator: I don't know if you can hear me, just a quick follow-up, and you may not want to answer it, just curious if the company has an embedded interest rate forecast as we go through the year. We're not too afraid to go lower, to go a little higher. I'm just curious if you guys have any embedded rate forecasts.

Operator: And then, just again, I apologize for the wait.

Operator: Effectively, we'll, we'll, we'll submit this and then start talking with stakeholders associated with that around those issues.

Operator: Great. Well, thanks a lot. I hope you guys have a great weekend. Nice work. Thanks, Anthony.

Brian B. Bird: And with that, we have no other questions in the queue. And so, Brian, any closing remarks? No, I just appreciate the continued support, and we're going to forge ahead and obviously plan to hit our guidance here for the end of the year. Thank you. Thank you.