NorthWestern Energy Group, Inc. Investment Guide

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1. Business Overview

NorthWestern Energy operates as a regulated utility, generating, transmitting, and distributing electricity and natural gas. The company serves approximately 531,000 electricity and natural gas customers across Montana and about 153,300 in South Dakota. Over the past three years, its customer base has remained stable, underscoring the essential nature of its services in these core regions.

2. Financial Performance

NorthWestern Energy delivered a steady financial performance in 2025. The company reported total revenues of approximately $2.2 billion, a modest increase from $2.1 billion in 2024. Net income reached around $100 million in 2025, up from $95 million in 2024. However, Earnings Per Share (EPS) slightly decreased to approximately $1.54 in 2025 from $1.55 in 2024. This dip primarily resulted from an increase in outstanding shares. While revenue and net income demonstrated stable growth, a closer look at other financial metrics offers deeper insights:

• Share Count & Dilution: The number of common shares outstanding grew from 61.3 million in 2024 to 64.8 million in 2025. This 5.7% increase diluted EPS, meaning the company's profits must grow faster than its share count to boost per-share value.
• Retained Earnings Growth: Retained earnings, which represent accumulated profits reinvested in the business, grew by 3.3% from $980 million in 2024 to $1,012.5 million in 2025. This growth signals consistent profitability and a commitment to internal funding.
• Additional Capital: The company's "additional paid-in capital" (funds received from share issuances above their par value) also increased by 5.1%, rising from $980 million in 2024 to $1.03 billion in 2025. This reflects capital successfully raised from investors.
• Accumulated Other Comprehensive Income (AOCI): Accumulated Other Comprehensive Income (AOCI), which tracks certain gains and losses not included in net income (such as changes in pension liabilities or unrealized investment gains/losses), became more negative. It shifted from -$200 million in 2024 to -$250 million in 2025. While AOCI does not directly affect current earnings, a worsening trend can signal potential future liabilities or a reduction in equity value, meriting closer scrutiny.

3. Risk Factors

• Interest Rate Risk: Increased debt and maturing loans expose NorthWestern Energy to rising interest rates. This could lead to higher interest expenses and negatively impact profitability.
• Regulatory Risk: As a heavily regulated utility, NorthWestern Energy faces risks from changes in regulatory policies, rate-setting decisions, or the inability to recover costs (such as those for wildfire mitigation or environmental compliance). These factors could significantly impact financial performance and investor returns.
• Environmental and Climate Risks: The company faces inherent risks from extreme weather events, wildfires, and evolving environmental regulations. While some costs are recoverable, these events can disrupt service, cause property damage, and require substantial capital expenditures for mitigation and adaptation.
• Operational Risks: Maintaining aging infrastructure, potential plant outages, fuel price volatility, and supply chain disruptions all pose operational risks that can impact efficiency and costs.
• Accumulated Other Comprehensive Income (AOCI) Trend: The increasingly negative trend in AOCI could signal underlying issues related to pension obligations, fair value adjustments of derivatives, or other non-operating items. These could ultimately affect the company's equity or future financial flexibility.

4. Management Discussion and Analysis (MD&A) Highlights

NorthWestern Energy's strategic focus centers on asset expansion and modernization. A significant move includes the planned acquisition of additional ownership in the Colstrip Unit 3 and 4 power plants from Avista and Puget, effective January 1, 2026. This acquisition will expand the company's generation capacity, enhance long-term energy reliability, and potentially reduce its reliance on market purchases.

The company is heavily investing in its physical assets. Its total Property, Plant, and Equipment (PP&E), which represents tangible assets like power plants and infrastructure, surged from $5.15 billion in 2024 to $6.17 billion in 2025. This includes a substantial increase in Construction Work in Progress (CWIP), from $600 million to $700 million, signaling active development of new power plants, transmission lines, and gas infrastructure. Specifically, electric plant assets grew from $5.4 billion to $5.6 billion, and natural gas plant assets increased from $1 billion to $1.1 billion. While essential for future growth and reliability, this significant infrastructure investment demands substantial capital and could strain financial resources, particularly in a rising interest rate environment. Successfully recovering these investment costs from customers through regulated rates remains an ongoing challenge, requiring favorable rate case outcomes.

NorthWestern Energy operates within a dynamic regulatory and market landscape. Growing pressure for cleaner energy sources and decarbonization initiatives will continue to influence its investment decisions and operational strategies. Population and economic growth in its service areas will drive demand for electricity and natural gas, necessitating ongoing infrastructure expansion. The company will continue to engage in regular rate cases to recover costs and earn a fair return on investment. The outcomes of these rate cases, alongside evolving environmental regulations and mandates (e.g., for wildfire mitigation and renewable energy standards), will critically determine future financial performance. Fluctuations in natural gas and electricity market prices can also impact operating costs, even with regulatory mechanisms designed to manage some of this risk.

5. Financial Health

• Increased Debt Load: Total secured debt rose from $2.3 billion in 2024 to $2.4 billion in 2025. This increase primarily stemmed from issuing a new $100 million bond in South Dakota in May 2025, which carries a 5.49% interest rate and matures in 2035. The company also faces upcoming maturities of $100 million in term loans in 2025 and an additional $100 million in 2026, requiring either refinancing or repayment.
• Strong Liquidity: Despite its increased debt, NorthWestern Energy maintains a healthy liquidity position. Its $400 million revolving credit facility remained completely unused in both 2024 and 2025, providing a substantial buffer for short-term needs and unexpected events.
• Regulatory Assets & Liabilities: NorthWestern Energy holds regulatory assets, including $50 million for "Wildfire Mitigation" and $10 million for "Environmental Restoration Costs." These assets represent costs the company incurred that regulators have deemed recoverable from customers through future rate adjustments, underscoring the regulated nature of its cost recovery mechanisms.

6. Future Outlook

NorthWestern Energy is poised for continued infrastructure investment. With $700 million in Construction Work in Progress (CWIP), the company plans substantial capital expenditures for the coming years. The Colstrip acquisition, effective in early 2026, will significantly alter its generation portfolio. Management anticipates these investments will drive future rate base growth (the value of assets on which the company can earn a regulated return), support stable earnings, and enable continued dividend payments, consistent with a regulated utility business model. The company remains focused on providing reliable service while navigating the energy transition.

7. Competitive Position

NorthWestern Energy operates as a regulated monopoly within its service territories in Montana and South Dakota, which provides a stable and predictable revenue stream. While this regulatory framework limits direct competition for utility services, the company faces indirect competitive pressures from:

• Distributed Generation: Customers generating their own power (e.g., rooftop solar) can reduce demand for grid electricity.
• Energy Efficiency: Increased energy efficiency among customers can slow demand growth.
• Commodity Price Volatility: Although regulated, the cost of fuel (natural gas, coal) can impact operational expenses and the company's ability to recover costs.