Q4 2024 NorthWestern Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Northwestern Energy 2024 Year-End Financial Results Webinar.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, press star followed by the number one on your telephone keypad.
If you would like to withdraw your question, press star followed by the number one. 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: Thank you, Tameka. Good afternoon and thank you for joining Northwestern Energy Group's financial results webcast for the year ended December 31st, 2024.
Travis Meyer: 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.
Travis Meyer: Northwestern's results have been released and the release is available on our website at northwesternenergy.com. We also released our 10k pre-market this morning.
Travis Meyer: 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.
Travis Meyer: Also note this presentation includes non-GAAP financial measures. Please see the non-GAAP disclosures, definitions, and reconciliations included in the presentation as well.
Speaker Change: The presentation is being recorded. The archived replay will be available shortly after the event and remain active for one year. Please visit 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: Thanks, Travis. I'm going to start on page 3 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.
Brian Bird: 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 CutBank Gas assets.
Brian Bird: We have an agreement for incremental coal strip 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.
Brian Bird: Moving over to regulatory and operational performance, we filed rate reviews across all jurisdictions to recover necessary investment to provide safe and reliable service, and we refreshed our wildfire mitigation plan and implemented our public safety power shutoff plan.
Brian Bird: Lastly, from Strong Financial Performance and Outlook, we reported diluted gap EPS of $3.65, and we're affirming our long-term EPS and rate-based target growth rates of 4 to 6 percent.
Brian Bird: We're increasing our quarterly dividend by 1.5% to $0.66 per share payable March 31, 2025, and announcing a $2.74 billion 5-year capital plan, which is an 11% increase over our prior plan.
Moving into the next slide from a
Brian Bird: EPS growth rate and you add that to our 5% dividend yield You're looking at 9 to 11 percent total growth. That's off of the 2.74 billion capital plan. I just talked about
Brian Bird: If you think about other incremental opportunities, some of which I'll talk about today, think about data centers and new large load opportunities for regional transmission, incremental generating capacity, if we're able to do any of those things and some others not listed here,
Brian Bird: we'd see EPS growth rate greater than 6%. Obviously, our total growth rate is greater than 11%. Speaking of the $2.74 billion capital investment that's highly executable and low-risk capital investment over the next five years,
Brian Bird: and that investment is expected to drive annualized earnings rate base growth of four to six percent and again as I mentioned earlier that's 11% above the prior plan we shared with you last time we talked.
Crystal Lail: And with that, I'm going to hand it over to Crystal to go through the financial results.
Crystal Lail: Thank you, Brian. And good afternoon, everyone. As Brian started the call list, 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.
Crystal Lail: 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.
Crystal Lail: 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 do we conclude 2024 results?
Crystal Lail: As Brian mentioned, $1.31 for Q4 gap earnings as compared to $1.37 last year, and then from a full year basis, that's $3.65 of gap earnings as compared to $3.22.
Crystal Lail: To provide a bit more detail both on Q4 and year-to-date, I'll move to slide 7.
Crystal Lail: 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 for many utilities those
Crystal Lail: Q4 being much milder than any of us probably planned, delivering $1.31 on a gap basis.
Crystal Lail: Our Q4 results also include a tax benefit related to prior periods.
Crystal Lail: 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 10 cents.
Crystal Lail: and 4 cents versus the prior period. We are also adjusting out the release of a prior period unrecognized tax benefit of 28 cents.
So again, $1.31 on a gap basis.
Crystal Lail: You net out the 10 cents of unfavorable weather, 28 cents of favorable tax benefit gets you to $1.13 for Q4 this year. Last year we did have 5 cents of a tax benefit.
Crystal Lail: And that period is 6 cents of unfavorable weather. So comparatively, it's $1.13 on an adjusted basis.
Crystal Lail: versus $1.38 in the prior period. And again, 10 cents 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.
Crystal Lail: For 2024 on a full year basis, we delivered GAP earnings of $3.65.
Crystal Lail: 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.
Crystal Lail: 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...
Crystal Lail: 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 missing the left side of this bar chart, $0.85 of margin improvement.
Crystal Lail: over the prior period and 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.
Crystal Lail: Also 34 cents 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.
Crystal Lail: Highlighting the significant impact of a full year of new base rates. I just mentioned that but that 62.4 million is
Crystal Lail: 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.
Crystal Lail: 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.
Crystal Lail: 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 13 cents compared to normal and 8 cents versus the prior period.
Crystal Lail: We also have two one-time items that we talked about in prior quarters and that's a one cent.
Crystal Lail: Then you have the $0.39 of tax benefits between Q3 and Q4 here that are all related to prior appearance. 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 reported unrecognized tax benefits based off the lapse of statutes of limitations.
Crystal Lail: resulting in an overall adjusted basis EPS of $3.40 or again 4% improvement off of 2023 of $3.27.
Crystal Lail: Moving from the detail of earnings here to a bit of our
credit quality and financing plans.
We have previously talked about the importance of...
Crystal Lail: improving our FFO and our commitment to credit quality and being above
Crystal Lail: Downgrade Threshold. 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%.
Crystal Lail: 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 sheets and the ability to track low-cost capital. We remain focused on this and improving it such that we have a cushion.
Crystal Lail: and making sure we are effectively communicating to our commissions the importance of...
Crystal Lail: 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 turn out some debt that we have.
Crystal Lail: and to fund our capital plan, which is a good transition to thinking about how do we look forward and what's the next steps with our plan of closing the books on 24 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.
Brian Bird: 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.
Brian Bird: Building on what we believe is a solid financial position and the growing opportunity for regional transmission and large load development
Brian Bird: 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 APS growth target of 4-6%.
Brian Bird: 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.
Brian Bird: While you'll note an increase to capital plan and Brian started off with talking about that 11% overall increase
Brian Bird: 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.
Brian Bird: Slide 16 gives you more detail on that capital investment plan from 2025 to 2029.
Brian Bird: 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, an 11% increase over the five-year plan we showed you before.
Brian Bird: and again self-funded. That increase is driven by low-risk highly executable projects and as a reminder our prior and current forecast includes the addition of a dispatchable generational resource in South Dakota.
Brian Bird: and again any of the opportunities that Brian's going to talk to you about in a bit here are incremental to this plan. So with that I would also move you to an update on slide 17 regarding regulatory matters.
Brian Bird: So, 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
It's pretty fantastic there.
Meanwhile, the Montana Rape Review progresses.
Brian Bird: and we received intervener 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, you know, the testimony from the primary interveners that address revenue requirements.
Brian Bird: is that that testimony is reasonable and I think sets the base for constructive settlement negotiations.
Brian Bird: 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.
Brian Bird: So with that, I will turn it back to Brian to talk about the next few slides.
Speaker Change: Well, here we sit in February 2025, so we're about 300 days away from taking on some incremental coal strip. And so as I bring that up, you know, the Avista and Puget Sound pieces.
Speaker Change: which allows us to reliably and affordably serve our existing customers, provides energy independence, improves system reliability and integrity, it moves our portfolio from a short capacity position to a long capacity, which is critical in these cold days of February.
Speaker Change: help us maintain affordability while insulating customers from volatile capacity and energy market pricing.
Speaker Change: and Coal Strip and provide Montana control to keep the plant open beyond the Washington and Oregon mandated closure deadlines.
Speaker Change: And last, I'd just say significant capacity surplus provides opportunity for new large load customers from our total portfolio, spreading fixed costs over more kilowatt hours, lowering stabilizing the cost per unit for all of our customers.
Speaker Change: So just a reminder regarding cold strip but when I mentioned large large load customers I moved to that page and I think in December
Speaker Change: Well, I know in December, December 17th actually, we announced a data center expecting to come to Montana at the initial load about 50 megawatts to grow to 200-250.
Shortly thereafter, we announced Atlas Power, which...
Speaker Change: is currently one of our largest customers in Montana on the transmission side.
Speaker Change: But on 1-126, we'll become a customer on our generation side as well.
Speaker Change: and they expect to grow their facility from 75 megawatts to 150 over time and so...
Speaker Change: 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.
Speaker Change: We want to serve under our existing Montana tariffs as regulated customers.
Speaker Change: As I think about incremental load in Montana, you know, we want to be able to serve these customers.
Speaker Change: with any access capacity that we have, certainly want to protect our existing customers.
Speaker Change: 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.
Speaker Change: If any data center demand interest develops beyond their 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.
Speaker Change: In South Dakota, we also have significant indications of interest. 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.
Speaker Change: will work with the South Dakota PUC. We have established a process already for large load customers with a deviated rate tariff.
Speaker Change: Last night we just say, you know, a lot of discussion around data centers.
Speaker Change: I mentioned earlier that one great thing for customers is the ability to moderate.
Speaker Change: rates and be able to spread those incremental kill a lot overs
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: So with that, I'd also point out on the next page, we mentioned in the December timetable as well, regional transmission opportunities.
Speaker Change: I think many on this call 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's certainly dead ends at Coal Strip.
Speaker Change: on the western side, and it also extends over into North Dakota where it will interconnect, if you will, with both MISO and SPP. We are the only utility, by the way, in both.
Speaker Change: 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
Speaker Change: transmission investments. The Coal Strip owners are certainly looking forward to expanding the capacity in the Coal Strip transmission system.
Speaker Change: line and earlier innings associated with that, but we're excited about all the activity that's happening in Montana from a transmission perspective and ability.
Speaker Change: 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 open things up for Q&A.
Speaker Change: If you would like to ask a question at this time, press star followed by the number one on your telephone keypad.
Speaker Change: If your question hasn't been answered and you would like to remove yourself from the queue, press star 1. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question is from the line of Nicholas Campanella with Barclays.
Speaker Change: Hey, morning or good afternoon. Good afternoon. I'm Tom. How are you doing? Hey.
Speaker Change: So, um, hey, I just wanted to ask about, you know, the four to six percent growth rate off of
2024, you know, 24 and 25.
Speaker Change: 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.
Speaker Change: So, why is 24 kind of the right year to base growth off of from this point out, and 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.
Speaker Change: Hi Nick, Crystal, I'll take the first part of this question then I have no doubt Brian will back clean up for me here. But you know the question of rolling forward to 24 versus 22, no magic to 24, 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 22 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
the most recent period concluded? The answer is no.
Speaker Change: As to our long-term commitments, which is, I think, the fundamental underlying question as to what does that mean, because certainly our 24 results were impacted by the lack of
Speaker Change: constructive interim rate support in Montana, being in historic rate making and needing the opportunity to, you know, I think about that filing we're in 2025 and we're still talking about 23 rate base to get reasonable interim rate treatment would have certainly put our earnings in 24 where we believe they should be and delivering.
Speaker Change: shareholder value in a way that attracts capital. However, obviously that did did not conclude 24 in that manner, but there's no magic to it being 24 versus some other period. Your question then...
Speaker Change: extends on to 25 certainly impacted by that decision on an interim rate perspective as well and while we have not released guidance in 25 I can tell you that we are thinking an awful lot about how we
Speaker Change: mitigate the impacts of that and still deliver on the shareholder front. So 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 four to six percent growth range.
Your next question was...
Speaker Change: Gee, it sounds like you've got a lot of good opportunities that are incremental to your good plan, which...
Speaker Change: 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 her earring.
Speaker Change: And we expect those kinds of opportunities to push us upward in that growth rate.
Speaker Change: 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. Yeah, I think I'd just say this. I think Crystal made a good point earlier in the call in light of a very poor outcome.
Speaker Change: on interim rates, particularly a utility that's earning substantially below its authorized rate of return.
Brian Bird: to still be able to achieve 4% earnings growth on a year-to-year basis on that gap I think is a good outcome.
but it's
Brian Bird: 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.
Brian Bird: to have an easier growth path to grow our earnings and put less pressure on our earnings on a going forward basis. It should be easier and allows us to maybe stay out of rate cases on an every year basis. So hopefully we'll see better outcomes from an interim on a going forward basis.
Brian Bird: Incremental to that, I would just say this, I think we need to be more consistent.
Brian Bird: certainly from an earnings perspective, and four percent, our range is four to six percent. We'd like to certainly be able to 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 an earnings growth rate.
Brian Bird: and 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 earnings growth rate at this point in time, but first we need to deliver on our four to six percent as we sit here today.
Speaker Change: When I think about the, just to follow up on that, I appreciate the context there. When I think about just growth into 25 though, are you, with the lumpiness, are you still within this growth rate range or could you be outside of it, like more flattish growth?
Nick, I feel like you're asking me for 25 guidance.
but I will say
Speaker Change: Okay, okay. I appreciate it. Sorry to ask so many ways. On the data centers, just one follow-up, you know, the Commission did open an inquiry in Montana, it seems, so...
Speaker Change: 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.
Speaker Change: Yeah I think it's a it's a fair question that's asked and again I think the Commission and many commissions are want to understand a couple things you know what does this mean
Speaker Change: to, you know, our system overall and how does it impact existing customers. And because of our opportunity...
Speaker Change: is adding incremental coal strip in our portfolio in its entireties.
Speaker Change: allowing us to serve these large or low customers. We don't see that impact on customers.
Speaker Change: 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.
All right, thanks so much. Talk soon.
See you next week.
Your next question is from a line of
with Jeffrey.
Yeah, good afternoon, it's Brian Riso on for Julian.
Hey Brian!
Speaker Change: Hey, just quickly, I'm just curious, what is attracting these large data centers?
Speaker Change: to Montana versus some of the surrounding areas where we've seen a lot more activity, you know, either from a state level perspective or, you know, even from a Northwestern utility specific level.
Brian Bird: I think, first of all, Brian, we have capacity, you know, and one of the issues for data centers today is, is there sufficient capacity that exists already?
Brian Bird: And I mentioned, you know, Montana's overall portfolio, one of the few utilities that can point to a 60% carbon free. So I think first and foremost I'd say that. Weather certainly, you know, obviously cooler climates make sense. We have certainly good latency in terms of
Brian Bird: from a communications perspective. So I think Montana brings a lot. I'd argue that South Dakota does as well. So, you know...
Brian Bird: You think of all of those characteristics, including fiber, we're actually in pretty good shape in Montana and South Dakota to attract those.
Brian Bird: 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 just have discussions with the Montana Commission, we kind of move down that path as well.
Speaker Change: Okay, great. And then just to segue into South Dakota, actually, I think you said any large customers would require a new generation. I'm just curious, what makes your system different than some of your peer utilities that are pursuing more of a...
Speaker Change: quote-unquote capital light type strategy just, you know, generating a fee to distribute the capacity to the customer versus, you know, the supply side.
Speaker Change: One thing, Brian, I would point out that's unique about what I'm aware of, that capital-like 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 opportunities still in South Dakota. So while it might look a little bit different, we already have a backdrop in South Dakota
Speaker Change: Secondly, the South Dakota Commission has been very favorable to economic development that's supported in the state, so we've used a tariff that's a contract with deviation.
Speaker Change: that allows you to fit that contract to the needs of
whatever large load it is.
Speaker Change: But it's important to attracting them to the state of South Dakota and provides a very quick regulatory mechanism That would allow for again interconnection and SCP or you know for others might be MISO But to be able to build that generation and serve them so I While I'm aware of the capital light opportunity, I think that's unique to a certain jurisdiction
Speaker Change: And then, you know, South Dakota has some things that are very favorable to attraction, including already existing care that's been used to serve other large load customers before data centers are supposed to think. And secondly, there's an infrastructure writer in South Dakota, so lots of.
Speaker Change: All of it I guess would fundamentally say where is the regulatory support that is allowed for that type of thing and that's why it's a little bit different but I would say just as constructive.
Speaker Change: Okay, great. And this is lastly on the North Points Connector. Are there any like 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?
Speaker Change: Oh it's not outside the five-year planning horizon on the financial commitments but it's certainly in the back data. I think what's main thing in 2025 is
Speaker Change: 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 third quarter.
Okay, thank you very much.
Speaker Change: Thanks, Brian. Thanks, Brian. Your next question is from the line of Dylan Lippner with Landenburg.
Hey, how are you guys?
Hey Dylan.
Speaker Change: 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?
Dylan, that's your question for me out of the gate?
Wonderful question, I would tell you.
Speaker Change: We're in the midst of a, 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 23. We have some known immeasurable adjustments into 24, but I would tell you because of that, there will always be regulatory lag, so your question was, when will you earn your return?
Speaker Change: And I would tell you we're working to close the gap on those earned returns, but I won't over promise in the sense of
Speaker Change: saying that we would actually earn our authorized return in the state because of the nature of that regulatory lag now if you could...
Speaker Change: give me the trifecta of decreasing interest rates, decreasing taxes, and, you know, 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 the Fontana Rate Review to closing that gap.
Speaker Change: Dillon, I can't help but take the bait here, Dillon. I would say this, I think from, I think about South Dakota which also has historic test years.
and the efficiency in terms of how
Speaker Change: 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.
Speaker Change: We need to come to something similar like that in Montana.
Speaker Change: 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'd certainly rather come up with...
outcomes with the Montana Commission and others.
Speaker Change: So we wouldn't have to do that. There are so many jurisdictions in this country.
Speaker Change: 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.
Speaker Change: Gotcha, thank you for that. And in the case that, you know, Montana, were it necessary to build any additional plant, would the company seek to change its rate structure in the state?
Speaker Change: I would say Dylan it we we certainly you know we 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
Speaker Change: Next phase of that, and again, the Commission is open to investigation, and I think if you look around commissions elsewhere, they want to know the impact these large loan customers are going to have, and I think it's a great opportunity to think about, should there be a separate tariff for this type of customer?
Speaker Change: 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.
Speaker Change: Gotcha. But even for data centers, you guys would, you know, maybe change your type of rate that you would charge.
Speaker Change: I would say two pieces what I maybe didn't say as directly as I should is a we have a
Speaker Change: I would say a large customer rate today that we believe works to serve those customers.
Speaker Change: 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's 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 an 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.
Speaker Change: Right, gotcha. OK, that makes sense. Yeah, thank you very much guys. Appreciate it.
Thanks, Dylan.
Questions from the line of Jonathan Render with Wells Fargo
Speaker Change: Hey Jonathan, how are you doing? I'm doing well, thanks for asking.
So...
Speaker Change: I think you said you know that you thought the intervener testimony was constructive starting point for the settlement negotiations and you know you're currently preparing rebuttal testimony.
Speaker Change: Can you walk us through the settlement negotiation process from here? Like, when might we see, you know, those, if I recall, I think last time around, the settlement pretty much at the deadline.
Speaker Change: Yeah, Jonathan, Crystal, I'll take that one. So step one, we have to file rebuttal testimony and that'll set, you know, 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.
Speaker Change: And so we will be in active conversations with interveners 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.
Speaker Change: 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 time frame seems a little potentially challenging to get it done.
Speaker Change: I would say this, you know, the primary intervenors that file revenue requirements
Speaker Change: testimony. We've worked with them in the past. They're very well prepared and they're...
Speaker Change: They know what they're doing when it comes to our revenue requirement. They are running their model, I can tell you right now.
Speaker Change: 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 file 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
You know, the
Speaker Change: 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 that they know what those are just as much as we do. And again, they're, you know, the Consumer Council, 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.
Speaker Change: 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, you know, have the best chance of getting across the finish line?
Yeah, we have...
Speaker Change: From our perspective, there's quite a few bills that certainly are in play, too, of course, that are of interest to us.
Speaker Change: 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 will be bills associated with that. Obviously, we're not the only utility interested in that, but we, 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...
Speaker Change: come together to make sure we get legislation associated to address that issue for us. That's first and foremost. Also in Montana and other important bills.
Speaker Change: 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.
Speaker Change: Has there been a strict liability bill proposed in Montana and in South Dakota or are they still kind of in the works?
Speaker Change: The one I think in South Dakota is already out and on the floor. Montana's is coming here shortly.
Speaker Change: of the Public Service Commission in Montana. Is that something that has legs or...?
Speaker Change: I have no idea if that has legs or not and we're certainly not behind that bill.
Speaker Change: Okay, fair enough. And then I hopped on a little last, so I apologize.
Speaker Change: If I missed this, but the drivers of the CapEx increases, can you kind of walk through a little bit of that like, it looks like the Montana electric spend, you know, drives the uplift in 2025 to 2028. Is any of that associated with these data centers?
Speaker Change: that are kind of in the works. And then, you know, in 2029 it looks like there's a big jump in the Montana gas spend, you know, which may be electric.
Speaker Change: 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
Speaker Change: in the same spot. The engineers would like to build a lot more of that.
Speaker Change: In the fifth year of 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.
Speaker Change: to being able to serve our customers and to enable the rest of the system.
Speaker Change: 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.
Speaker Change: 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's still nuts and bolts.
of Capital to serve our customers.
Speaker Change: Yeah, Jonathan, I would just pile on. I mean, obviously what we've done here at Coal Strip, it certainly helps on electric
Speaker Change: generation capacity, but as we've talked about in the past, we still have a tremendous amount of investment both in the electric
Speaker Change: and gas transmission system. And 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.
Speaker Change: Okay, so nothing really specific on the electric side, just kind of the reliability, kind of hardening stuff. Everything above.
Speaker Change: Jonathan, everything and everything above. It's a mix of all the both the transmission and distribution side of the house.
Speaker Change: Okay, but it doesn't have any... Jonathan, we use the word highly executable and low-risk capital.
OK.
But there's nothing tied specifically to those data centers.
Speaker Change: 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.
Speaker Change: So, less capital investment required there. The others may look different, but those are the things that are certainly incremental to the plan you see here.
Speaker Change: Excellent. All right, thanks so much for being patient with me and taking my questions.
Thanks, Jonathan.
Speaker Change: Your next question is from the line of Alex Morma of Mizzeo.
Hi, good afternoon.
Hey, Alec.
Speaker Change: So just to clarify Nick's question, I know you highlighted some of the lumpiness and earnings that we've seen, but do you expect to at least be within the four to six percent, you know, for every year of the plan going forward, although it sounds, you know, potentially maybe towards the lower end in 2025 with the lack of interim rates?
Speaker Change: I would say, Alex, to your question, we do expect over the long term to certainly be within the 4 to 6 percent. I would also 100 percent 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, it's to stick to our commitments.
Speaker Change: 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 four to six, we're working hard on that.
Got it.
Speaker Change: And then, you know, with the historical test year, and, you know, Crystal, some of your comments around still using 2023 rate base here in 2025.
especially with potentially some, you know, larger generation projects.
And I know you'll be benefiting from incremental load, but...
Speaker Change: You know, could this potential increased spending also potentially increase, you know, some of these lag related challenges as we get potentially later in the plan?
Speaker Change: I think there's a, and it's part of trying to work with the Montana Commission to actually benefit economic development and growth in the state. You know, 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 and
Speaker Change: It's good for customers broadly of spreading those fixed costs out. 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.
Speaker Change: you know, provide mechanisms that allow for timely recovery of those costs and, you know, 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. That's it.
acknowledge there's some work to do on that.
All right. Perfect. Thank you so much.
Thanks, Alex.
Speaker Change: Your next question is from the line of Matthew Davis with Millennium.
Good afternoon.
Hey Matt. Hey guys, how you doing?
Hey Matt!
Speaker Change: So, I just have a question around your commentary regarding the ability to earn your allowed return or closer to your allowed return.
Speaker Change: 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 you have via cold strip.
Speaker Change: 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 and I would say broadly benefits the system immensely. So when we think about
Speaker Change: our future growth trajectory and what's good for Montana and good for us the ability to
Speaker Change: grow and not need to do that on the backs of retail.
rate increases.
would be a fabulous thing, and certainly it would...
Speaker Change: help to allow us to potentially either reduce the number of rape filings or make them a little less frequent via that growth. Organic growth does that anyways, but obviously...
Speaker Change: great for customers and produces a lot of Bill Hedren 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 Hedren perspective and so I think
Speaker Change: It just makes great sense and again we look forward to the discussion with the Commission on a going forward basis.
Speaker Change: So, when I circle that with the using of 2024 as the base for the growth rate,
CAPEX actually increased with no incremental equity.
I would have expected that the data center could...
Speaker Change: 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?
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: and we're working hard here in 25 to convert that from an LOI stage to an actual service agreement.
Okay.
Okay, thank you.
Thanks Matt.
Speaker Change: Do you have a follow-up question from the line of Dylan Lipner with Lindenburg?
Hey guys, welcome back.
Speaker Change: So I want to follow up on the wildfire talk and the strict liability you mentioned. So I wasn't aware that inverse condemnation exists in either state. So 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?
Speaker Change: 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, many utilities are trying to do this, you know, there's a responsibility, if you will, for economic damages.
Speaker Change: been in business for a hundred years, happy to any economic damages.
Speaker Change: 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.
Speaker Change: 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.
Thank you. Thank you.
Speaker Change: Okay, awesome. Yeah, that answers my point there. I appreciate it, guys.
Yep, thank you.
Speaker Change: 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: Just, hey, appreciate the questions today. It's helpful, obvious, 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 and employees, but our investors as well. Thank you guys very much.
Thanks for watching!