NorthWestern Energy addresses hydro purchase, Dave Gates issues

NorthWestern Energy (NYSE:NWE) used a Feb. 12 quarterly earnings call to discuss its recent purchase of hydroelectric facilities from a PPL (NYSE:PPL) affiliate in Montana and a continuing legal dispute over cost recovery for new gas-fired generation.

Late last year NorthWestern completed the acquisition of 11 hydro facilities and one storage reservoir. The deal involved 633 MW of generation for an adjusted price of $904m, company officials noted.

The Montana Public Service Commission issued a final order approving the hydro purchase last September.

“Since the start of the hydro transaction process in 2013, shareholders have funded nearly $50 million of transaction related costs with the hope of seeing a successful transition of the hydro assets from PPL Montana to NorthWestern,” said President and CEO Bob Rowe.

“We are excited to report that 81 former PPL Montana employees are now integrated into the NorthWestern family and the electricity from these hydro facilities is flowing to power the homes, businesses and economy of our Montana customers,” Rowe said.

NorthWestern also continues to be involved in a dispute at the Federal Energy Regulatory Commission (FERC) over rate recovery for new gas-fired capacity at the Dave Gates generating station in Montana, company officials said.

In April of 2014, FERC issued a decision to allocate only a fraction of the costs to FERC jurisdictional customers. The following month NorthWestern filed a request for rehearing that is still spending at FERC.

“Consistent with the FERC decision, we have deferred $27.3 million of revenue through December 31, 2014,” the company said in its earnings material. “If unsuccessful in the rehearing, we may appeal to the U.S. Circuit Court of Appeals,” NorthWestern added.

Northwestern is spending between $95m and $105m as part of its contribution to the Big Stone power plant for an environmental upgrade project at the coal plant in South Dakota. NorthWestern has more than a 23% stake in Big Stone, which is majority-owned by Otter Tail (NASDAQ:OTTR).

The environmental project is designed to help Big Stone comply with the Regional Haze Rule. The new environmental controls should be operational in the first half of this year, officials said.

NorthWestern also filed updated resource planning documents in South Dakota, where it anticipates there will be a 50-MW need for new generation to come online in 2019.

The company is also spending extensively on its aging infrastructure for transmission and distribution, officials said.

NorthWestern reported financial results for the year ended December 31, 2014. Net income for the period was $120.7m, or $2.99 per diluted share, as compared with net income of $94m, or $2.46 per diluted share, for the same period in 2013.

This 22% increase in diluted earnings per share is primarily the result of gross margin improvements from energy supply acquisitions and income tax benefits realized during the year partially offset by increased operating costs and expense related to the hydro transaction.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.