NorthWestern (US:NWE)2019-04-23 22:18Financial Performance - Consolidated net income for Q1 2019 was $72.8 million, an increase of 24.4% from $58.5 million in Q1 2018, primarily driven by higher retail volumes and revenue growth [104]. - Total operating revenues increased to $384.2 million in Q1 2019 from $341.5 million in Q1 2018, reflecting a growth of 12.4% [123]. - Gross margin for Q1 2019 was $268.5 million, up 9.4% from $245.4 million in Q1 2018, with electric gross margin increasing by 8.3% and natural gas gross margin increasing by 12.6% [124]. - Consolidated operating income for Q1 2019 increased to $97.0 million from $84.5 million in Q1 2018, driven by higher gross margin despite increased operating expenses [130]. - Total retail electric revenues for Q1 2019 were $273.0 million, a 14.6% increase from $238.3 million in Q1 2018, with retail revenues specifically rising by 4.1% [137]. - Retail natural gas revenues for Q1 2019 were $106.8 million, a 7.6% increase from $99.3 million in Q1 2018, contributing to total revenues of $111.2 million [142]. - Consolidated interest expense for Q1 2019 was $23.8 million, up from $23.0 million in Q1 2018, primarily due to higher borrowings [131]. - Property and other taxes increased to $44.8 million in Q1 2019 from $42.8 million in Q1 2018, attributed to plant additions and higher property valuations [129]. - Depreciation and depletion expense rose to $45.6 million in Q1 2019 from $43.8 million in Q1 2018, mainly due to plant additions [130]. - Effective tax rate for Q1 2019 was 2.1%, down from 3.2% in Q1 2018, with an expected range of 0% - 5% for the full year [133]. - Consolidated other income improved to $1.1 million in Q1 2019 from a loss of $1.1 million in Q1 2018, driven by an increase in the value of deferred shares [132]. - Gross margin impacting net income rose by $7.7 million, primarily due to increased retail volumes and the impact of the Tax Cuts and Jobs Act [144]. Rate Increases and Regulatory Actions - The company filed for an electric rate increase of approximately $34.9 million, representing a 6.6% increase in annual base revenues, based on a return on equity of 10.65% [108]. - An interim rate increase of approximately $10.5 million was approved by the MPSC effective April 1, 2019, with a final order expected after a hearing scheduled for May 13, 2019 [109]. Operational Challenges and Strategies - The Montana Resource Plan indicates a forecasted energy portfolio shortfall of 725 MW by 2025, prompting plans to solicit competitive proposals for peaking capacity [113]. - The company is currently 630 MW short of peak needs, which it procures from the market, and expects to address this through future solicitations [113]. - The company is exploring alternative coal supply sources due to the bankruptcy of Western Energy Company, which may result in higher costs [116]. - The company aims to enhance grid reliability and safety through infrastructure investments, including automation in distribution and substations [102]. - The company experienced colder weather in 2019, with Montana being 14% colder than 2018, which contributed to increased retail volumes [143]. Cash Flow and Liquidity - Cash provided by operating activities decreased to $111.4 million in Q1 2019 from $173.0 million in Q1 2018, a decline of about 35.6% [159]. - Cash used in investing activities increased by approximately $13.6 million, totaling $65.6 million in Q1 2019 compared to $52.0 million in Q1 2018 [160]. - Cash used in financing activities decreased to $50.1 million in Q1 2019 from $122.1 million in Q1 2018, reflecting a significant reduction in net repayments of commercial paper [161]. - As of March 31, 2019, total net liquidity was approximately $142.8 million, including $4.0 million in cash and $138.8 million in revolving credit facility availability [152]. - As of March 31, 2019, the company had under collected supply costs by approximately $26.1 million, impacting cash flows from operations [156]. Debt and Financial Obligations - The company plans to maintain a debt to total capital ratio of 50-55% and a long-term dividend payout ratio of 60-70% of earnings per share [150]. - Total long-term debt amounts to $2,092,637,000, with a significant portion of $1,822,637,000 due thereafter [163]. - Estimated pension and other postretirement obligations total $63,235,000, with annual contributions expected to exceed minimum funding requirements [164]. - The company has contractual obligations related to qualifying facilities (QFs) estimated at approximately $691,000,000, with recoverable costs totaling about $552,500,000 [165]. - Total commitments amount to $6,380,626,000, with a significant portion of $4,607,444,000 due thereafter [166]. - The company has approximately $286,000,000 in borrowings under revolving credit facilities, with a 1.0% increase in interest rates potentially raising annual interest expenses by about $2,900,000 [173]. - The average interest rate on outstanding balances for revolving credit facilities is assumed to be 3.74% [166]. - Contractual interest payments on debt total $1,493,321,000, with varying rates based on the type of facility [166]. Risk Management - The company employs market purchases and sales, including forward contracts, to manage commodity price volatility risk [175]. - Counterparty credit risk is managed through policies that limit transactions to high-quality counterparties and require letters of credit or prepayment terms [176]. - The company has entered into various purchase commitments for energy supply, which range from one to 25 years [166].