Net income was down by more than half in the second quarter for NorthWestern Corp., due at least in part to the ongoing COVID-19 pandemic, company officials said during a July 29 earnings call. However, no layoffs are anticipated, and the utility maintained its earnings guidance range, which it had revised downward in April.
At $21.5 million, or 43 cents per share, the utility's second-quarter net income for 2020 marked a roughly 55% decrease from 2019's second-quarter net income of $47.7 million, or 94 cents per share.
Although operating expenses were down and company officials saw notable customer growth, NorthWestern found that those trends were offset by pandemic-related items, higher depreciation expenses compared to the same period in 2019, and a $21.5 million decrease in income tax benefits. In an investor presentation, company officials noted that the income tax benefit decrease was "due primarily to the release of approximately $23.2 million of unrecognized tax benefits."
According to the presentation, NorthWestern estimates that the pandemic resulted in "a net $3 million to $4 million impact of lower commercial and industrial usage ... partially offset by increased retail usage," which they noted was "in line" with their expectations.
Although the company saw a $3.1 million increase in uncollectable accounts and anticipates seeing even more bad debts accrue, NorthWestern said it expects to continue making COVID-related charitable contributions. In a July 28 press release, the company noted that it already had made $400,000 in such contributions to date.
Fairly normal weather conditions in May and June and a slightly cooler-than-average April gave NorthWestern an approximately $800,000 pre-tax benefit, compared to the same period in 2019.
NorthWestern maintained the company's previous 2020 earnings guidance range. In April, company executives had revised the earnings guidance downward during their first-quarter earnings call, lowering it from a pre-COVID expectation of $3.45 to $3.60 per diluted share and settling at a range of $3.30 to $3.45 per diluted share.
Reaching that range, however, is premised on pandemic-related business closures and slowdowns easing in the third quarter and a "nearly fully recovered" business environment in the company's service territory in the fourth quarter. The assumption also relies on the regulatory recovery of "COVID-19-related uncollectable account expense[s]" and normal weather, NorthWestern said.
During the call, NorthWestern President and CEO Bob Rowe noted that the company has filed an accounting order for bad debt in Montana and, along with several other utilities, sought similar relief in South Dakota.
Revenue in the second quarter totaled $269.4 million, which was slightly down from $270.7 million in the same quarter in 2019. Second-quarter operating income also dropped year-over-year to $44.8 million from $48.8 million. The NorthWestern board declared a quarterly common stock dividend of 60 cents per share, payable Sept. 30 to common shareholders of record as of Sept. 15.
According to a May 20 filing, NorthWestern Energy sold $150 million of first mortgage bonds in two transactions: $100 million of its 3.21% Montana bonds, due May 15, 2030, and $50 million of its 3.21% South Dakota bonds, due May 16, 2030.
In the press release, the utility also noted that it does not foresee any layoffs and that it in fact has continued to hire for critical positions during the pandemic.
'Pretty big hole to fill' for customers
The company in its investor presentation noted that it currently has a "46% reserve margin deficit during peak periods."
Recently, NorthWestern has sought new generation sources for its Montanan customers. For example, on July 1, the utility issued a short-term capacity request in order to purchase between 25 MW and 300 MW of currently operational capacity and energy starting either this summer or fall for up to three years. Roughly a month earlier, NorthWestern issued a separate request for proposals for community renewable energy projects in Montana.
However, NorthWestern hopes that "acquiring incremental interest in Colstrip Unit 4 will limit" the impact of the current reserve margin deficit and more than 3.6 GW of planned retirements in the Pacific Northwest "and provide a bridge to future generation technologies," according to the presentation.
When asked by an analyst about whether the utility may consider expanding a request for proposals issued in February for up to 280 MW of flexible capacity that would come online by early 2023, Rowe said it "certainly is something that we will take a look at."
"It depends on seeing what comes in," Rowe said. "But, as I mentioned, we have a pretty big hole to fill on behalf of our customers, and shame on us if we don't do that, so that's certainly a possibility."