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NorthWestern CEO content with planned new Colstrip ownership stake

NorthWestern Corp. CEO Robert Rowe in a Feb. 13 earnings call said he is "comfortable" with the utility's plan to hike its ownership stake in Unit 4 of the Colstrip coal-fired power plant in Montana from 30% to 55%.

That comment was made in response to an analyst's question about whether Rowe thought his company would be interested in increasing its stake even further.

A recent deal between the Sioux Falls, S.D.-based utility and Puget Sound Energy would, if approved by regulators, result in NorthWestern purchasing for $1.00 Puget Sound's interest in Unit 4. That would raise NorthWestern's total ownership stake in the unit to 407 MW from its current stake of 222 MW.

The agreement came despite recent commitments by the company to reduce the carbon intensity of its Montana electric energy portfolio 90% by 2045 compared to a 2010 baseline. But the deal would allow NorthWestern to trim its 46% reserve margin deficit and reduce customer exposure that the utility considers to be immense compared to its "regional peers," according to an investor presentation.

"Acquiring [this additional] interest in Colstrip Unit 4 will limit this impact and provide a bridge to future generation technologies," NorthWestern said.

NorthWestern on Feb. 12 reported fourth-quarter 2019 adjusted net income of $60.5 million, or $1.15 per share. That is an increase of 11.2% from the comparable quarter of 2018, when adjusted net income was $54.4 million, or $1.07 per share.

For the full year, the multiutility notched adjusted net income of $173.8 million, or $3.42 per share, in 2019, up from $170.1 million, or $3.39 per share, in 2018. Revenues totaled $1.26 billion in 2019, rising from $1.19 billion in 2018, while gross margin increased to $939.9 million from $919.1 million.

According to a 10K the utility filed with the U.S. Securities and Exchange Commission, NorthWestern has "significant generation capacity deficits and negative reserve margins." The reserve margin deficit, Rowe said during the earnings call, leaves NorthWestern "uniquely exposed" to prices in the western power market.

Total peak demand in Montana hit approximately 1,904 MW on Aug. 5, 2019, "an all-time high" for Northwestern's balancing authority area "over the record 2018 peak demand," according to the 10K. The utility's average 2019 demand in Montana was roughly 1,412 MW per hour.

NorthWestern in a Dec. 12 news release said it has a capacity deficit that is nominally 450 MW but, taking into account unexpected outages and demand events, is closer to about 650 MW. That figure is expected to grow to 725 MW by 2025 due to expiring power purchase agreements and modest customer growth.

To narrow the deficit, the utility recently issued a request for proposals for about 280 MW of dispatchable resources, including generation, storage and demand-side products, that will be ready to operate in 2023.

NorthWestern made hay while the sun shone

Although NorthWestern's third-quarter earnings in 2019 were weighed down by milder weather and subsequently tepid demand, full-year earnings were positively impacted by weather conditions in the rest of 2019, particularly in February.

A chart demonstrating average monthly temperature deviations in the investor presentation highlighted a particularly frigid February 2019. The same chart showed a mild, verging on cooler, summer period.

"We estimate overall favorable weather in 2019 resulted in a $7.3 million pretax benefit as compared to normal and a $6.0 million benefit compared to 2018," the presentation noted.