Hot Stock in the Spotlight: NorthWestern Corporation (NYSE: NWE)

BUTTE, Mont. and SIOUX FALLS, S.D, May 16, 2020 – Shares of NorthWestern Corporation (NYSE: NWE) showed the bearish trend with a lower momentum of -1.35% to $54.25. The company traded total volume of 1.154M shares as contrast to its average volume of 483.44K shares. The company has a market value of $2.74B and about 50.51M shares outstanding.

NorthWestern Corporation (NYSE: NWE) reported financial results for the three months ended September 30, 2019. Net income for the period of $21.70M, or $0.42 per diluted share, as contrast with net income of $28.20M, or $0.56 per diluted share, for the same period in 2018. This $6.50M decrease was mainly because of higher operating, general and administrative costs, lower transmission revenue and mild weather, offset in part by the impacts of the Tax Cuts and Jobs Act settlement in 2018, recovery of Montana electric supply costs, and a boost in Montana electric retail rates, subject to refund.

Noteworthy Trends and Regulation:

Montana General Electric Rate Case:

In September 2018, we filed an electric rate case with the Montana Public Service Commission (MPSC) requesting an annual increase to electric rates of about $34.90M. The MPSC issued an order approving an interim increase in revenue of about $10.50M effective April 1, 2019, which remains in effect until the MPSC issues a final order. In May 2019, we reached a settlement counting all parties who filed comprehensive revenue requirement, cost allocation, and rate design testimony in our Montana electric rate case. If the MPSC approves the settlement, it will result in an annual increase to electric revenue of about $6.50M (based upon a 9.65% return on equity and rate base and capital structure as filed) and an annual decrease in depreciation expense of about $9.0M. A hearing was held in May 2019 and briefing was accomplished in late August 2019. In September 2019, the MPSC staff recommended that the MPSC approve and adopt the settlement as filed. We expect a final order from the MPSC during the fourth quarter of 2019.

During the three and nine months ended September 30, 2019, we recognized revenue of about $1.60M and $2.80M, respectively, and reduced depreciation expense by about $2.20M and $6.70M, respectively, in the Condensed Consolidated Statement of Income consistent with the projected settlement above. As of September 30, 2019, we have deferred about $1.80M of the interim revenues. Any difference between interim and final approved rates will be refunded to customers.

The Condensed Consolidated Statements of Income during the nine months ended September 30, 2019, include the recovery of about $4.60M of electric supply costs consistent with the change in statute. Our cumulative under collection of electric supply costs is about $25.70M as of September 30, 2019, and is reflected in regulatory assets in the Condensed Consolidated Balance Sheets. We presented a filing in September 2019 requesting recovery of costs above the base for the period July 1, 2018 to June 30, 2019 with the under recovery collected over the next 12-month period. We began collecting the requested rate increase October 1, 2019. The MPSC has not established a procedural plan in this docket.

Financing Activities:

In June 2019, we priced $150.0M aggregate principal amount of Montana First Mortgage Bonds, at a fixed interest rate of 3.98% maturing in 2049. We issued $50.0M of these bonds in June 2019 and the remaining $100.0M of these bonds in September 2019 in transactions exempt from the registration requirements of the Securities Act of 1933, as amended. Proceeds were used to repay a portion of our outstanding borrowings under our revolving credit facilities and for other general corporate purposes. The bonds are secured by our electric and natural gas assets in Montana.

Noteworthy Earnings Drivers:

Gross Margin:

Consolidated gross margin for the three months ended September 30, 2019 was $210.60M contrast with $207.70M for the same period in 2018.  This $2.90M increase was a result of a $0.30M increase to items that have an impact on net income and $2.60M increase to items that are offset in operating expenses, property tax expense and income tax expense with no impact to net income.

Consolidated gross margin for items impacting net income increased $0.30M, counting:

  • $2.80M reduction in revenue in 2018 because of the impact of the Tax Cuts and Jobs Act one-time settlements offset in part by the associated ongoing decrease to natural gas retail rates.
  • $1.90M lower Montana electric supply costs in 2019 as contrast with 2018 because of market prices and an intermittent outage at Colstrip Unit 4 in the third quarter of 2018.
  • $1.60M increase in Montana electric revenue recognized consistent with the projected electric rate case settlement, effective with interim rates April 1, 2019 and subject to refund.
  • $0.30M increase in natural gas volumes because of customer growth and higher usage by our commercial customers offset in part by lower residential usage.

These increases were partly offset by the following items:

  • $1.90M decrease in electric residential retail volumes due mainly to milder summer weather, offset in part by customer growth;
  • $1.80M lower demand to transmit energy across our transmission lines because of market conditions and pricing;
  • $0.30M decrease in Montana natural gas rates associated with the annual step down for our Montana gas production assets; and
  • $2.30M other miscellaneous margin decreases.

The change in consolidated gross margin for items that had no impact on net income represented a $2.60M increase mainly because of the following:

  • $1.60M increase in revenues for property taxes included in trackers, offset by increased property tax expense;
  • $1.40M increase in revenue because of the decrease in production tax credit benefits passed through to customers in our tracker mechanisms, which are offset by increased income tax expense; and
  • $0.40M decrease in revenues for operating costs included in trackers, offset by a decrease in associated operating expense.

Consolidated gross margin for the nine months ended September 30, 2019 was $694.10M contrast with $682.70M for the same period in 2018.  This $11.40M increase was a result of a $6.50M increase to items that have an impact on net income and $4.90M increase to items that are offset in operating expenses and income tax expense with no impact to net income.

Operating, General and Administrative Expenses:

Consolidated operating, general and administrative expenses for the three months ended September 30, 2019 were $77.00M contrast with $73.80M for the same period in 2018. This $3.20M increase was a result of a $6.20M increase to items that have an impact on net income and $3.00M decrease to items that are offset in gross margin and other income (expense) with no impact to net income.

Consolidated operating, general and administrative expenses for items impacting net income increased $6.20M, counting:

  • $2.70M higher employee benefit costs due mainly to increased pension expense;
  • $1.20M higher hazard tree line clearance costs;
  • $0.50M increased labor costs due mainly to compensation increases;
  • $0.40M higher general legal costs; and
  • $2.40M higher other miscellaneous costs.

These increases were offset by $1.00M lower costs in 2019 for maintenance at our electric generation facilities.

The change in consolidated operating, general and administrative expenses for items that had no impact on net income reduced $3.00M mainly because of the following:

  • $2.50M decrease because of the regulatory treatment of the non-service cost components of pension and postretirement benefit expense, which is offset in other income;
  • $0.40M lower operating expenses included in trackers recovered through revenue; and
  • $0.10M lower because of a change in value of non-employee directors deferred compensation because of changes in our stock price, offset in other income.

Consolidated operating, general and administrative expenses for the nine months ended September 30, 2019 were $238.90M contrast with $222.00M for the same period in 2018.  This $16.90M increase was a result of a $21.40M increase to items that have an impact on net income and $4.50M decrease to items that are offset in gross margin and other income (expense) with no impact to net income.

Property and Other Taxes:

Property and other taxes were $44.10M for the three months ended September 30, 2019, as contrast with $42.50M in the same period of 2018. This increase was mainly because of plant additions and higher estimated property valuations in Montana. We estimate property taxes throughout each year, and update based on valuation reports received from the Montana Department of Revenue. Under Montana law, we are allowed to track the increases in the actual level of state and local taxes and fees and adjust our rates to recover the increase between rate cases less the amount allocated to FERC-jurisdictional customers and net of the associated income tax benefit.

Property and other taxes were $133.20M for the nine months ended September 30, 2019, as contrast with $128.30M in the same period of 2018.

Depreciation and Depletion Expense:

Depreciation and depletion expense was $43.20M for the three months ended September 30, 2019, as contrast with $43.60M in the same period of 2018. This decrease was mainly because of the depreciation adjustment consistent with the projected Montana electric rate case settlement, as discussed above, partly offset by plant additions.

Depreciation and depletion expense was $129.80M for the nine months ended September 30, 2019, as contrast with $130.90M in the same period of 2018.

Operating Income (Expense):

Consolidated operating income for the three months ended September 30, 2019 was $46.40M as contrast with $47.80M in the same period of 2018. This decrease was mainly because of higher operating expenses.

Consolidated operating income for the nine months ended September 30, 2019 was $192.20M as contrast with $201.50M in the same period of 2018.

Interest Expense:

Consolidated interest expense for the three months ended September 30, 2019 was $23.70M, as contrast with $22.00M in the same period of 2018, due mainly to higher borrowings.

Consolidated interest expense for the nine months ended September 30, 2019 was $71.00M, as contrast with $68.20M in the same period of 2018.

Other Income:

Consolidated other expense was $0.40M for the three months ended September 30, 2019 as contrast to other income $2.10M during the same period of 2018. This change includes a $0.10M decrease in the value of deferred shares held in trust for non-employee directors deferred compensation and a $2.50M increase in other pension expense, both of which are offset in operating, general, and administrative expense with no impact to net income. These decreases were partly offset by higher capitalization of Allowance for Funds Used  During Construction (AFUDC).

Consolidated other income for the nine months ended September 30, 2019, was $0.90M, as contrast with $1.80M in the same period of 2018.

Income Tax:

Consolidated income tax expense for the three months ended September 30, 2019 was $0.60M as contrast with income tax benefit of $0.40M in the same period of 2018. Our effective tax rate for the three months ended September 30, 2019 was 2.5% as contrast with (1.3)% for the same period of 2018. We expect our 2019 GAAP effective tax rate to range between negative 7% to negative 12%.

Net Income:

Consolidated net income for the three months ended September 30, 2019 was $21.70M as contrast with $28.20M for the same period in 2018. This decrease was mainly because of higher operating costs.

Consolidated net income for the nine months ended September 30, 2019 was $142.10M as contrast with $130.50M for the same period in 2018.

Liquidity and Capital Resources:

As of September 30, 2019, our total net liquidity was about $198.00M, counting $5.00M of cash and $193.00M of revolving credit facility availability. This compares to total net liquidity one year ago at September 30, 2018 of $209.90M.

The Company offered net profit margin of 14.90% while its gross profit margin was 75.70%. ROE was recorded as 8.90% while beta factor was 0.37. The stock, as of recent close, has shown the weekly downbeat performance of -6.51% which was maintained at -24.31% in this year.

Robert  Campbell

I am Robert Campbell and I’m passionate about capitalism and news with over 4 years in the industry starting as a writer working my way up into senior positions. I am the driving force behind Liberty Headquarters with a vision to broaden the company’s readership throughout 2016. I am an editor and reporter of free markets, conservative news and gun rights category. Address: 3516 Candlelight Drive, Houston, TX 77042, USA Phone: (+1) 281-430-8376 Email: robertcampbell@libertyheadquarters.com

Robert  Campbell

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