Item 1. Business
ITEM 1. BUSINESS
OVERVIEW
NorthWestern Energy - Delivering a Bright Future
NorthWestern Energy Group, doing business as NorthWestern Energy, provides essential energy infrastructure and valuable services that enrich lives and empower communities while serving as long-term partners to our customers and communities. We work to deliver safe, reliable, and innovative energy solutions that create value for customers, communities, employees, and investors. We do this by providing low-cost and reliable service performed by highly-adaptable and skilled employees. We provide electricity and / or natural gas to approximately 775,300 customers in Montana, South Dakota, Nebraska, and Yellowstone National Park. Our operations in Montana and Yellowstone National Park are conducted through our subsidiary, NW Corp, and our operations in South Dakota and Nebraska are conducted through our subsidiary, NWE Public Service. We have provided service in South Dakota and Nebraska since 1923 and in Montana since 2002.
On October 2, 2023, NW Corp created a new public holding company, NorthWestern Energy Group, by initiating a holding company reorganization (the Reorganization), pursuant to an internal merger transaction through which NorthWestern Energy Group became the successor issuer to NW Corp under the Securities Exchange Act of 1934, as amended. On January 1, 2024, NorthWestern Energy Group, NW Corp, and NW Corp's wholly owned subsidiary, NWE Public Service, completed the final phase of its Reorganization by contributing the assets and liabilities of its South Dakota and Nebraska regulated utilities to NWE Public Service and distributing its equity interests in NWE Public Service and certain other unregulated subsidiaries to NorthWestern Energy Group. As a result of these transactions, (1) NW Corp owns and operates the Montana regulated utility; (2) NWE Public Service owns and operates the Nebraska and South Dakota regulated utilities; and (3) NW Corp and NWE Public Service are each direct, wholly owned subsidiaries of NorthWestern Energy Group.
We manage our businesses by the nature of services provided, and operate principally in two operating segments: electric utility operations and natural gas utility operations. Our electric utility operations include the generation, purchase, transmission and distribution of electricity, and our natural gas utility operations include the production, purchase, transmission, storage, and distribution of natural gas. Our customer base consists of a mix of residential, commercial, and diversified industrial customers.
Our electric and natural gas utility operations are not dependent on a single customer, or even a few customers, and the loss of any one or even a few of our largest customers is not reasonably likely to have a material adverse effect on our financial condition. Our utility operations are seasonal and weather patterns can have a material impact on operating performance. Consumption of electricity is often greater in the summer and winter months for cooling and heating, respectively. Because natural gas is used primarily for residential and commercial heating, the demand for this product depends heavily upon weather patterns throughout our service territory, and a significant amount of natural gas revenues are recognized in the first and fourth quarters related to the heating season.
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Environmental, Social and Governance
We are focused on meeting current energy infrastructure and service needs at a reasonable and fair cost for today’s customers while ensuring the ability to meet the needs of tomorrow’s customers. “Sustainability” requires meeting economic, societal, and environmental objectives. As a provider of essential infrastructure and service, a sustainable enterprise is vital to our customers and communities, as well as to our investors and employees.
Over the past 100 years, we have maintained our commitment to provide customers with reliable and affordable electric and natural gas services while also being good stewards of the environment. Over time, we have increased our environmental sustainability efforts and our access to carbon-free energy resources. In February 2022, we made a commitment to achieving Net-Zero by the year 2050 for Scope 1 and Scope 2 carbon and methane emissions. Our Scope 1 emissions are primarily from owned electric generation plants, fugitive emissions from our natural gas production, gathering, transmission and distribution systems and company owned transportation fleet. Our Scope 2 emissions are primarily from the electric and natural gas utilized to heat, cool and power our offices, warehouses and other facilities.
We currently own a mix of clean and carbon-free energy resources balanced with traditional energy sources that are necessary for us to deliver affordable and reliable electricity to our customers 24/7. In 2023, approximately 55 percent of our retail needs originated from carbon-free resources, compared to approximately 40 percent (Source: U.S. Energy Information Administration, Annual Energy Review, Electricity Net Generation: Electric Power Sector) for the total U.S. electric power industry in 2022. We do not receive all of the related Renewable Energy Credits (RECs) from our contracted electric supply resources and periodically sell RECs produced by our own carbon-free energy resources. The owner of the RECs claims the renewable attributes of the energy. Our resource mix does not represent the actual energy delivered to our customers. Market purchases and sales fill the gap between resources and customer demand.
We are a fully regulated provider of critical infrastructure and essential services. Therefore, our success in meeting our obligations to our customers and the communities we serve depends on public policy. We believe that policy makers in the states we serve are committed to reliable, adequate, and affordable service, and a strong customer focus. We support policies that enable investment in critical infrastructure and responsible stewardship.
We believe that technological advancements, along with decreasing costs of carbon-free generation and the regionalization of intermittent generation, will significantly contribute to our goal of Net-Zero carbon emissions by 2050. The pace of transition to Net-Zero will depend on the timing of technological advancements, costs, and retirement of our existing coal fleet.
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In South Dakota and Montana, we develop an IRP every two and three years, respectively. These IRPs, which are presented to our state regulatory commissions, identify resource needs, known and expected risks, as well as key variables to be used in evaluating resources. We then undertake a transparent resource solicitation process, run by a third party, to evaluate the least cost resources that address key risks and needs identified by the IRP. All generation types have the opportunity to participate in our RFP. Therefore, the specific resources that will be acquired to meet future needs are dependent upon our current and future IRPs and the RFP process, in conjunction with the actions of our regulators during the regulatory process.
For a more detailed description of our environmental, social, governance and sustainability activities, please visit our company website at https://www.northwesternenergy.com . References to our website in this report are provided as a convenience and do not constitute, and should not be viewed as, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this report.
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MONTANA ELECTRIC OPERATIONS
Our regulated electric utility business in Montana, which is conducted through NW Corp, includes generation, transmission and distribution. Our service territory covers approximately 107,600 square miles, representing approximately 73 percent of Montana's land area. During 2023, we delivered electricity to approximately 405,500 customers in 221 communities and their surrounding rural areas, 13 rural electric cooperatives and, in Wyoming, to the Yellowstone National Park. In 2023, by category, residential, commercial, industrial, and other sales accounted for approximately 45%, 47%, 5%, and 3%, respectively, of our Montana retail electric utility revenue.
Transmission and Distribution
Our electric system is composed of high voltage transmission lines and low voltage distribution lines as follows:
Electric Transmission Lines
Miles of 500 kV
497
Miles of 230 kV 988
Miles of 161 kV 1,184
Miles of 115 kV and lower voltage 3,931
Total Miles of Electric Transmission Lines 6,600
Electric Distribution Lines
Miles of overhead line
13,271
Miles of underground line
5,403
Total Miles of Electric Distribution Lines 18,674
Total Transmission and Distribution Substations 395
In addition to delivering energy to distribution systems to serve customers, we also transmit electricity for nonregulated entities owning generation, and utilities, cooperatives, and power marketers serving the Montana electricity market. Our total control area peak demand reached a peak of approximately 1,992 MWs on February 22, 2023. Our control area average demand for 2023 was approximately 1,376 MWs per hour, with total energy delivered of more than 12.05 million MWHs.
Our transmission system is directly interconnected with Avista Corporation; Idaho Power Company; PacifiCorp; the Bonneville Power Administration; WAPA; and Montana Alberta Tie. Such interconnections, coupled with transmission line capacity made available under agreements with some of the above entities, permit the interchange, purchase, and sale of power among all major electric systems in the west interconnecting with the winter-peaking northern and summer-peaking southern regions of the western power system. We provide wholesale transmission service and firm and non-firm transmission services for eligible transmission customers pursuant to our FERC OATT.
Electric Supply
Our annual retail electric supply load requirements average approximately 750 MWs, with a peak load of approximately 1,300 MWs, and are supplied by owned and contracted resources and market purchases with multiple counterparties.
Owned generation resources supplied approximately 71 percent of our retail load requirements for 2023. We expect that approximately 85 percent of our retail obligations will be met by owned generation resources in 2024, reflecting the addition of YCGS which is expected to be online no later than the end of the third quarter 2024. In addition, we have contracts with QFs totaling 549 MWs of nameplate capacity, including 87 MWs from waste petroleum coke and waste coal, 268 MWs from wind, 17 MWs from hydro, and 177 MWs from solar projects. We have several other long-term power purchase agreements including contracts for 135 MWs nameplate capacity from wind generation, 310 MWs from unspecified resources, 52 MWs of natural gas generation, and 20 MWs of hydro supply. On average, our owned and long-term contracted resources are expected to provide enough energy to meet our retail energy load requirements in 2024. Load requirements during peak demand in excess of our owned and long-term contracted resources will be satisfied with market purchases.
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Owned Generation Facilities
Details of these generating facilities are described in the following tables.
Hydro Facilities COD River
Source FERC
License
Expiration Owned MW
Black Eagle 1927 Missouri 2040 25
Cochrane 1958 Missouri 2040 62
Hauser 1911 Missouri 2040 21
Holter 1918 Missouri 2040 53
Madison 1906 Madison 2040 12
Morony 1930 Missouri 2040 49
Rowe (1)
1925 West Rosebud Creek 2050 12
Rainbow 1910/2013 Missouri 2040 64
Ryan 1915 Missouri 2040 72
Thompson Falls 1915/1995 Clark Fork 2025 94
Total (2)
464
(1) Formerly known as the Mystic Lake Dam.
(2) The Hebgen facility (0 MW net capacity) is excluded from the figures above. These are run-of-river dams except for Mystic, which is storage generation.
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Other Facilities Fuel Source Ownership
Interest Owned
MW
Colstrip Unit 4, located near Colstrip in southeastern Montana Sub-bituminous coal 30% 222
DGGS, located near Anaconda, Montana Natural Gas & Liquid Fuel 100% 150
Spion Kop Wind, located in Judith Basin County in Montana Wind 100% 40
Two Dot Wind, located in Wheatland County in Montana Wind 100% 11
Colstrip Unit 4 provides base-load supply and is operated by Talen Montana, LLC (Talen). Talen has a 30 percent ownership interest in Colstrip Unit 3. We have a reciprocal sharing agreement with Talen regarding the operation of Colstrip Units 3 and 4, in which each party receives 15 percent of the respective combined output and is responsible for 15 percent of the respective operating and construction costs, regardless of whether a particular cost is specified to Colstrip Unit 3 or 4. However, each party is responsible for its own fuel-related costs. Colstrip Unit 4 is supplied with fuel from adjacent coal reserves under a coal supply agreement in effect through 2025. See Item 1A Risk Factors "Regulatory, Legislative and Legal Risks" for further discussion regarding the service life of generation facilities.
Resource Planning
Resource planning is an important function necessary to meet our customers' future energy needs and is used to guide resource acquisition activities. We filed our latest resource plan with the MPSC in April of 2023. The filing showed a capacity adequate resource portfolio in the near term that included an online date of the Yellowstone County Generating Station in 2024 and the acquisition of an additional 222 MW of capacity in Colstrip in 2026. However, it also showed projected generation capacity deficits in future years.
In addition to our responsibility to meet peak demand, national NERC reliability standards increased the need for us to have greater dispatchable generation capacity available and be capable of increasing or decreasing output to address intermittent generation such as wind and solar. Our generation portfolio is a balanced mix of energy and capacity resources having different operating characteristics and fuel sources designed to provide energy at the lowest possible cost to meet our obligation to serve retail customers while maintaining reliability.
Western Energy Imbalance Market
We entered the Western Energy Imbalance Market (EIM), operated by the California Independent System Operator, on June 16, 2021. We have EIM transfer capability with PacifiCorp, Idaho Power Company, Bonneville Power Administration, Avista Corp, and Tacoma Power.
SOUTH DAKOTA ELECTRIC OPERATIONS
Our South Dakota electric utility business, which is conducted through NWE Public Service, operates as a vertically integrated generation, transmission and distribution utility. We have the exclusive right to serve an area in South Dakota comprised of 25 counties. We provide retail electricity to more than 64,800 in 116 communities in South Dakota. In 2023, by category, residential, commercial and other sales accounted for approximately 39%, 59%, and 2%, respectively, of our South Dakota retail electric utility revenue.
Transmission and Distribution
Our electric system includes high voltage transmission and low voltage distribution lines as follows:
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Electric Transmission Lines
Miles of 345 kV
25
Miles of 230 kV 18
Miles of 115 kV and lower voltages
1,267
Total Miles of Electric Transmission Lines 1,310
Electric Distribution Lines
Miles of overhead line
1,634
Miles of underground line
731
Total Miles of Electric Distribution Lines 2,365
Total Transmission and Distribution Substations 124
Our South Dakota system is interconnected with the transmission facilities of Otter Tail Power Company; Montana-Dakota Utilities Co.; Xcel Energy Inc.; and WAPA. We also have emergency interconnections with the transmission facilities of East River Electric Cooperative, Inc. and West Central Electric Cooperative.
We are a transmission-owning member in the SPP, with our transmission facilities residing in zone 19 of the SPP footprint. Each year, we review all new or modified transmission assets and transfer functional control of assets that qualify under the SPP Tariff to the SPP. This annual update goes into effect on April 1 st each year. To date, we have transferred control of 333 line miles of 115 kV facilities and over 158 line miles of 69 kV facilities. Along with SPP, our South Dakota facilities have ties to MISO. We have grandfathered agreements in MISO, which provide us the access to move the power from the Coyote, Big Stone, and Neal power plants to our customers. Along with operating the transmission system, SPP also coordinates regional transmission planning for all of its members on an annual basis through its Integrated Transmission Planning (ITP) process. Our annual participation in the ITP process includes model development, system needs assessment, and solution development to address identified needs.
Electric Supply
Our annual retail electric supply load requirements average approximately 200 MWs, with a peak load of approximately 340 MWs, and are supplied by owned and contracted resources and market purchases. We use market purchases and peaking generation to provide peak supply in excess of our base-load capacity. We are a member of the SPP. As a market participant in SPP, we buy and sell wholesale energy and reserves in both day-ahead and real-time markets through the operation of a single, consolidated SPP balancing authority. We and other SPP members submit into the SPP market both offers to sell our generation and bids to purchase power to serve our load. SPP optimizes next-day and real-time generation dispatch across the region and provides participants with greater access to economic energy. Marketing activities in SPP are handled for us by a third-party provider acting as our agent.
Electric supply resources include 211 MWs from jointly owned coal plants and 138 MWs from two natural gas-fired plants. Additional resources include several peaking units and an 80 MW wind facility. We also purchase the output of four wind projects, three of which are QFs, under power purchase agreements. Actual output for our wind resources varies based upon weather conditions.
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Owned Generation Facilities
Details of our generating facilities are described further in the following chart:
Generation Facilities Fuel Source Ownership
Interest Owned
MW
Big Stone Plant, located near Big Stone City in northeastern South Dakota Sub-bituminous coal 23.4% 111
Aberdeen Generating Units No. 1 and 2, located near Aberdeen, South Dakota Natural gas & Liquid Fuel 100.0% 80
Beethoven Wind Project, located near Tripp, South Dakota Wind 100.0% 80
BGGS, located near Huron, South Dakota Natural Gas 100.0% 58
Neal Electric Generating Unit No. 4, located near Sioux City, Iowa Sub-bituminous coal 8.7% 57
Coyote Electric Generating Station, located near Beulah, North Dakota Lignite coal 10.0% 43
Miscellaneous combustion turbine units and small diesel units (used only during peak periods) Combination of fuel oil and natural gas 100.0% 17
Total 446
The Big Stone, Coyote and Neal plants are owned jointly with unaffiliated parties. Each of the jointly owned plants is subject to a joint management structure, and we are not the operator of any of these plants. Based on our ownership interest, we are entitled to a proportionate share of the capacity of our jointly owned plants and are responsible for a proportionate share of the operating costs.
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The fuel for our jointly owned base-load generating plants is provided through supply contracts of various lengths with several coal companies. Coyote is a mine-mouth generating facility. Neal Unit No. 4 and Big Stone receive their fuel supply via rail. The average delivered cost by type of fuel burned varies between generation facilities due to differences in transportation costs and owner purchasing power for coal supply. Changes in our fuel costs are passed on to customers through the operation of the fuel adjustment clause in our South Dakota tariffs.
Resource Planning
We have a resource plan that includes estimates of customer usage and programs to provide for the economic, reliable and timely supply of energy. We continue to update our load forecast to identify the future electric energy needs of our customers, and we evaluate additional generating capacity requirements on an ongoing basis.
We submitted a plan to the SDPUC in September of 2022 that provided for the modernization of our generating fleet. That plan focused on improving reliability and flexibility. Following the competitive solicitation processes, we completed construction of the 58 MW BGGS in the summer of 2022. The BGGS plant includes flexible reciprocating internal combustion engines at a brownfield site near Huron, South Dakota. We plan to replace aging generation resources in the Aberdeen, South Dakota area by 2025 for a total projected cost of $70.0 million.
NATURAL GAS OPERATIONS
Montana
Our regulated natural gas utility business in Montana, which is conducted through NW Corp, includes production, storage, transmission and distribution. During 2023, we distributed natural gas to approximately 212,100 customers in 118 Montana communities over a system that consists of approximately 5,200 miles of underground distribution pipelines. We also serve several smaller distribution companies that provide service to approximately 34,000 customers. We transmit natural gas in Montana from production receipt points and storage facilities to distribution points and other nonaffiliated transmission systems. We transported natural gas volumes of approximately 48 Bcf during the year ended December 31, 2023.
Miles of Natural Gas Transmission 2,235
Miles of Natural Gas Distribution 5,155
City Gate Stations 133
We have connections in Montana with four major, unaffiliated transmission systems: Williston Basin Interstate Pipeline, NOVA Gas Transmission Ltd., Colorado Interstate Gas, and Spur Energy. Twelve compressor sites provide more than 48,600 horsepower on the transmission line and an additional 15,100 horsepower at our storage fields, capable of moving more than 364,000 dekatherms per day. In addition, we own and operate two transmission pipelines through our subsidiaries, Canadian-Montana Pipe Line Corporation and Havre Pipeline Company, LLC.
Natural gas is used primarily for residential and commercial heating, and as fuel for two electric generating facilities. The demand for natural gas largely depends upon weather conditions. Our Montana retail natural gas supply requirements for the year ended December 31, 2023, were approximately 22.5 Bcf. Our Montana natural gas supply requirements for electric generation fuel for the year ended December 31, 2023, were approximately 6.8 Bcf. We have contracted with several major producers and marketers with varying contract durations to provide the anticipated supply to meet ongoing requirements. Our natural gas supply requirements are fulfilled through third-party fixed-term purchase contracts, short-term market purchases and owned production. Our portfolio approach to natural gas supply is intended to enable us to maintain a diversified supply of natural gas sufficient to meet our supply requirements. We benefit from direct access to suppliers in significant natural gas producing regions in the United States, primarily the Rocky Mountains (Colorado), Montana, and Alberta, Canada.
Owned Production and Storage - Since 2010, we have acquired gas production and gathering system assets as a part of an overall strategy to provide rate stability and customer value: as we own these assets, which are regulated, our customers are protected from potential price spikes in the market. As of December 31, 2023, these owned reserves totaled approximately 31.5 Bcf and are estimated to provide approximately 2.8 Bcf in 2024, or approximately 12 percent of our expected annual retail natural gas load in Montana. In addition, we own and operate three working natural gas storage fields in Montana with aggregate working gas capacity of approximately 17.85 Bcf and maximum aggregate daily deliverability of approximately 194,000 dekatherms.
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South Dakota and Nebraska
Through NWE Public Service, we provide natural gas to approximately 49,800 customers in 80 South Dakota communities and approximately 43,100 customers in 4 Nebraska communities. In South Dakota, we also transport natural gas for nine gas-marketing firms and three large end-user accounts. In Nebraska, we transport natural gas for five gas-marketing firms and one large end-user account. We delivered approximately 31.1 Bcf of third-party transportation volume on our South Dakota distribution system and approximately 3.8 Bcf of third-party transportation volume on our Nebraska distribution system during 2023.
Miles of Natural Gas Transmission 55
Miles of Natural Gas Distribution - South Dakota
1,747
Miles of Natural Gas Distribution - Nebraska
826
Our South Dakota natural gas supply requirements for the year ended December 31, 2023, were approximately 6.3 Bcf. We contract with a third party under an asset management agreement to manage transportation and storage of supply to minimize cost and price volatility to our customers. In Nebraska, our natural gas supply requirements for the year ended December 31, 2023, were approximately 4.5 Bcf. We contract with a third party under an asset management agreement that includes pipeline capacity, supply, and asset optimization activities. To supplement firm gas supplies in South Dakota and Nebraska, we contract for firm natural gas storage services to meet the heating season and peak day requirements of our customers.
Municipal Natural Gas Franchise Agreements
We have municipal franchises to provide natural gas service in the communities we serve. The terms of the franchises vary by community. Our Montana franchises typically have a fixed 10-year term and continue for additional 10-year terms unless and until canceled, with 5 years notice. The maximum term permitted under Nebraska law for these franchises is 25 years while the maximum term permitted under South Dakota law is 20 years. Our policy generally is to seek renewal or extension of a franchise in the last year of its term. We continue to serve those customers while we obtain formal renewals. During the next five years, twelve of our Montana franchises could expire by action taken by the franchises' city or town, which account for approximately 83,947 or 40 percent of our Montana natural gas customers. Three of our South Dakota franchises and one franchise in Nebraska, which account for approximately 19,111 or 20 percent of our South Dakota and Nebraska natural gas customers, are scheduled to reach the end of their fixed term during the next five years. We do not anticipate termination of any of these franchises.
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GOVERNMENT REGULATION
Our provision of utility service is regulated by the MPSC, the SDPUC, the NPSC, and the FERC. We are also regulated by many other state and federal agencies. For example, because our operations impact land, waterways and the air, we are subject to a wide range of regulations administered by the federal EPA, the U.S. Fish & Wildlife Service, and parallel state agencies regulating environmental and natural resources in Montana, South Dakota and Nebraska. Another example relates to our provision of natural gas service. The U.S. Department of Transportation through the Pipeline and Hazardous Materials Safety Administration, along with its state partners, regulates natural gas pipeline and natural gas storage field safety. As a publicly-traded company, we are subject to the SEC’s requirements regarding financial reporting, disclosures, and laws and regulations protecting investors. We are subject to the Occupational Safety and Health Administration (OSHA), which regulates workplace safety. We are also subject to local zoning laws and regulations.
As detailed below, the rates we charge our utility customers are set through approval by the regulatory commission with jurisdiction in each of our respective service territories. Base rates are the rates that are intended to allow us the opportunity to collect from our customers total revenues (revenue requirements) equal to our cost of providing delivery and rate-based supply services, plus a reasonable rate of return on invested capital. We have both electric and natural gas base rates and cost tracking clauses. We may ask the respective regulatory commission to increase base rates from time to time. Rate increase requests are normally reviewed based on historical data and any resulting approvals may not always keep pace with increasing costs. For more information on current regulatory matters, see Note 3 - Regulatory Matters , to the Consolidated Financial Statements.
The following is a summary of our rate base (amounts we earn a return on) and authorized rates of return in each jurisdiction, estimated as of December 31, 2023:
Jurisdiction and Service Implementation Date Authorized Rate Base (millions) Year-end Estimated Rate Base (millions) Authorized Overall Rate of Return Authorized Return on Equity Authorized Equity Level
Montana electric delivery and production (1)
November 2023 $2,565.5 $2,874.8 6.72% 9.65% 48.02%
Montana - Colstrip Unit 4 November 2023 276.9 257.7 8.25% 10.00% 50.00%
Montana natural gas delivery and production (2)
November 2023 582.8 744.1 6.67% 9.55% 48.02%
Total Montana $3,425.2 $3,876.6
South Dakota electric (3) (4)
January 2024
$791.8 $810.3 6.81% n/a n/a
South Dakota natural gas (3)
December 2011 65.9 95.8 7.80% n/a n/a
Total South Dakota $857.7 $906.1
Nebraska natural gas (3)
December 2007 $24.3 $50.1 8.49% 10.40% n/a
$4,307.2 $4,832.8
(1) The revenue requirement associated with the FERC regulated portion of Montana electric transmission and ancillary services are included as revenue credits to our MPSC jurisdictional customers. Therefore, we do not separately reflect FERC authorized rate base or authorized returns.
(2) The Montana gas revenue requirement includes a step down which approximates annual depletion of our natural gas production assets included in rate base.
(3) For those items marked as "n/a," the respective settlement and/or order was not specific as to these terms.
(4) On June 15, 2023, we filed a South Dakota electric rate review filing (2022 test year) with the SDPUC. See Note 3 - Regulatory Matters for additional discussion of this rate review filing.
MPSC Regulation
Our Montana operations are subject to the jurisdiction of the MPSC with respect to rates, terms and conditions of service, accounting records, electric service territorial issues and other aspects of our operations, including when we issue, assume, or guarantee securities in Montana, or when we create liens on our regulated Montana properties. We have an obligation to provide service to our customers with an opportunity to earn a regulated rate of return.
Electric Supply Tracking Mechanism - The PCCAM tracks, for recovery through utility rates, the cost of power purchased and fuel used to generate electricity. The PCCAM incorporates sharing of a portion of the business risk or benefit associated with the energy supply costs with 90 percent of the variance above or below the established base revenues and actual costs collected from or refunded to customers. Certain PCCAM rates are adjusted on a quarterly basis for volumes and costs during each July to June 12-month tracking period based on the established base revenues and actual costs collected from or refunded
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to customers. Customer prices may be adjusted annually to absorb the difference for the annual tracking period. Annual filings are based on a July through June 12-month tracking period, and are subject to review by the MPSC to determine if electric supply procurement activities were prudent. If the MPSC subsequently determines that a procurement activity was imprudent, recovery of such costs may be disallowed.
Natural Gas Supply Tracker - Rates for our Montana natural gas supply are set by the MPSC. Certain supply rates are adjusted on a monthly basis for volumes and costs during each July to June 12-month tracking period based on the established base revenues and actual costs collected from or refunded to customers. Customer prices may be adjusted annually to absorb the difference for the annual tracking period. Annual filings are based on a July through June 12-month tracking period, and are subject to review by the MPSC to determine if natural gas supply procurement activities were prudent. If the MPSC subsequently determines that a procurement activity was imprudent, recovery of such costs may be disallowed.
Montana Property Tax Tracker - We file an annual property tax tracker (including other state/local taxes and fees) with the MPSC for an automatic rate adjustment, which reflects the incremental property taxes since our last base rate filing adjusted for the associated income tax benefit.
SDPUC Regulation
Our South Dakota operations are subject to SDPUC jurisdiction with respect to rates, terms and conditions of service, accounting records, electric service territorial issues and other aspects of our electric and natural gas operations. Our retail electric rates, approved by the SDPUC, provide several options for residential, commercial and industrial customers, including dual-fuel, interruptible, special all-electric heating, and other special rates. Our retail natural gas tariffs include gas transportation rates for transportation through our distribution systems by customers and natural gas marketers from the interstate pipelines at which our systems take delivery to the end-user. Such transporting customers nominate the amount of natural gas to be delivered daily. On a daily basis, we monitor usage for these customers and balance it against their respective supply agreements.
Adjustment Clauses - An electric adjustment clause provides for quarterly adjustment based on differences in the delivered cost of energy, delivered cost of fuel, ad valorem taxes paid and commission-approved fuel incentives. A purchased gas adjustment provision in our natural gas rate schedules permits the monthly adjustment of charges to customers to reflect increases or decreases in purchased gas, gas transportation, and ad valorem taxes. The adjustment clauses for both electric and gas utilities go into effect upon filing, and are deemed approved within 10 days after the information filing unless the SDPUC Staff requests changes during that period.
Phase In Rate Plan Rider - Effective January 2024, we received approval of a Phase in Rate Plan Rider, which may allow recovery of capital investments without filing a general electric rate review. SDPUC approval of the plan and associated project cost recovery are required.
NPSC Regulation
Our Nebraska natural gas rates and terms and conditions of service for residential and smaller commercial customers are regulated by the NPSC. High volume customers are not subject to such regulation, but can file complaints if they allege discriminatory treatment. Under the Nebraska State Natural Gas Regulation Act, a regulated natural gas utility may propose a change in rates to its regulated customers, if it files an application for a rate increase with the NPSC and with the communities in which it serves customers. The utility may negotiate with those communities for a settlement with regard to the proposed rate change if the affected communities representing more than 50 percent of the affected ratepayers agree to direct negotiations, or it may proceed to have the NPSC review the filing and make a determination. Our tariffs have been approved by the NPSC, and the NPSC has adopted certain rules governing the terms and conditions of service of regulated natural gas utilities. Our retail natural gas tariffs provide residential, general service and commercial and industrial options, as well as firm and interruptible transportation service. A purchased gas adjustment clause provides for biannual, or more often if needed, adjustments based on changes in gas supply and interstate pipeline transportation costs.
FERC Regulation
We are subject to FERC's jurisdiction and regulations with respect to rates for electric transmission service and electricity sold at wholesale, hydro licensing and operations, the issuance of certain securities, incurrence of certain long-term debt, and compliance with mandatory reliability standards, among other things. Under FERC's open access transmission policy, as owners of transmission facilities, we are required to provide open access to our transmission facilities under filed tariffs at cost-based rates. In addition, we are required to comply with FERC's Standards of Conduct for Transmission Providers.
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Our Montana wholesale transmission customers, such as cooperatives, industrial customers, and other customers that have third-party commodity supply providers, receive transmission delivery service under our OATT, which is on file with FERC. The OATT defines the terms, conditions, and rates of our Montana transmission service, including ancillary services. These transmission rates are adjusted annually through formula rates. Our South Dakota transmission operations are in the SPP, and transmission service is provided under the SPP OATT. These transmission rates are adjusted annually through formula rates.
Our natural gas transportation pipelines are generally not subject to FERC's jurisdiction, although we are subject to state regulation. We conduct limited interstate transportation in Montana and South Dakota that is subject to FERC jurisdiction, and FERC has allowed the MPSC and SDPUC to set the rates for this interstate service. We have capacity agreements in South Dakota and Nebraska with interstate pipelines that are also subject to FERC jurisdiction.
Our hydroelectric generating facilities are licensed by the FERC and operated under the terms of those licenses and FERC regulations. In connection with the relicensing of these generating facilities, applicable law permits the FERC to issue a new license to the existing licensee, to a new licensee, or alternatively allows the U.S. government to take over the facility. If the existing licensee is not relicensed, it is compensated for its net investment in the facility, not to exceed the fair value of the property taken, plus reasonable severance damages to other property affected by the lack of relicensing.
Reliability Standards - We must comply with the standards and requirements that apply to the NERC functions for which we have registered in both the MRO for our South Dakota operations and the WECC for our Montana operations. WECC and the MRO have responsibility for monitoring and enforcing compliance with the FERC-approved mandatory reliability standards within their respective regions. We expect that the reliability standards will continue to evolve and change as a result of modifications, guidance, and clarification following industry implementation and ongoing audits and enforcement.
COMPETITION
We are subject to public policies that promote competition and development of energy markets. Our industrial and large commercial customers have the ability to choose their electric supplier and may generate their own electricity. In addition, customers may have the option of substituting other fuels or relocating their facilities to a lower cost region. Customers have the opportunity to supply their own power with distributed generation including solar generation, and in Montana, can currently avoid paying for most of the fixed production, transmission and distribution costs incurred to serve them. These incentives and federal tax subsidies make distributed generating resources viable potential competitors to our electric service business.
The FERC has continued to promote competitive wholesale markets through open access transmission and other means. Our wholesale customers can purchase their output from generation resources of competing suppliers or non-contracted quantities and use our transmission systems to serve their load. There is also competition for available transmission capacity to meet our electric supply needs to serve customers.
ENVIRONMENTAL
The operation of electric generating, transmission and distribution facilities, and gas gathering, storage, transportation and distribution facilities, along with the development (involving site selection, environmental assessments, and permitting) and construction of these assets, are subject to extensive federal, state, and local environmental and land use laws and regulations. Our activities involve compliance with diverse laws and regulations that address emissions and impacts to the environment, including air and water, and protection of natural resources and wildlife. We monitor federal, state, and local environmental initiatives to determine potential impacts on our financial results. As new laws or regulations are issued, we assess their applicability and implement the necessary modifications to our facilities or their operation to maintain ongoing compliance.
To this end, the Biden Administration set ambitious goals to address climate change, including the goal of a carbon free power sector by 2035 and net zero carbon emissions by 2050. Executive Orders issued by the Biden Administration included initiatives and directives intended to reduce GHG emissions, address climate change and decarbonize the energy sector. These Executive Orders established climate considerations as key components of United States foreign policy and national security, established a White House Office of Domestic Climate policy as well as a National Climate Task Force, called for agency heads to identify any fossil fuel subsidies provided by their agencies and to take steps to ensure that federal funding is not directly subsidizing fossil fuels, and directed agencies to immediately review all regulations proposed or finalized by the Trump Administration that conflict with the Biden Administration’s objectives and to take action to rescind or revise those rules.
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President Biden's Infrastructure Investment and Jobs Act and Inflation Reduction Act of 2022 contain significant climate initiatives. These initiatives present opportunities for federal grants and tax incentives intended to hasten the future economy-wide deployment of various GHG reducing technologies and approaches.
Implementation of these initiatives and directives has the potential to limit or curtail our operations, including the burning of fossil fuels at our coal-fired and some natural gas power plants. While we strive to comply with all environmental regulations applicable to our operations, it is not possible to determine when or to what extent additional facilities or modifications of existing or planned facilities will be required as a result of changes to energy and environmental laws and regulations, or new administrative or judicial interpretations or enforcement decisions regarding them.
Estimated capital expenditures for environmental control facilities in 2024 and 2025 are not expected to be material. For more information on environmental regulations and contingencies and related capital expenditures, s e e Note 18 - Commitments and Contingencies , to the Consolidated Financial Statements.
CORPORATE INFORMATION AND WEBSITE
We were incorporated in Delaware on May 30, 2023. On October 2, 2023, pursuant to an internal merger transaction, NorthWestern Energy Group became the successor issuer to NW Corp (incorporated in Delaware in November 1923) under the Securities Exchange Act of 1934, as amended. Our Internet address is https://www.northwesternenergy.com . Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, along with our annual report to shareholders and other information related to us, are available, free of charge, on our Internet website as soon as reasonably practicable after we electronically file those documents with, or otherwise furnish them to, the SEC. This information is available in print to any shareholder who requests it. Requests should be directed to: Investor Relations, NorthWestern Energy Group, 3010 W. 69th Street, Sioux Falls, South Dakota 57108 and our telephone number is (605) 978-2900. References to our website in this report are provided as a convenience and do not constitute, and should not be viewed as, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this report.
HUMAN CAPITAL RESOURCES
Our ability to achieve the objectives of our business strategy and serve our customers within our service territory depends on employing and continually investing in the development of skilled individuals at all levels of our organization. We aspire to be an employer of choice by offering competitive salaries and benefits, providing a safe working environment, valuing diversity, fostering inclusion and encouraging a healthful work–life balance. Our success comes when employees feel empowered to take initiative, voice their opinions, and build on their experiences within our company and our communities.
As of December 31, 2023, we had 1,573 employees. Of these, 1,269 employees were in Montana and 304 were in South Dakota or Nebraska. Of our Montana employees, 462, or 36 percent, were covered by seven collective bargaining agreements involving five unions, which were renegotiated in 2022. Each of the Montana collective bargaining agreements will expire in 2026. Of our South Dakota and Nebraska employees, 171, or 56 percent, are covered by a collective bargaining agreement renegotiated in 2021 that expire in 2025. We consider our relations with employees to be good.
Talent Management
Attraction and retention of skilled employees is key to our ongoing success. We invest resources in maintaining a culture that supports the ongoing development of our workforce. This includes an integrated learning and performance management system which includes annual performance reviews that link goals and competencies together so that managers are able to provide a holistic view to employees in regards to their performance against goals as well as key competencies as they relate to their role in the organization. This process provides opportunities to develop and enhance skills and knowledge, and enables our employees to grow professionally and perform their duties in a safe and efficient manner. This structured training and development is intended to provide employees a consistent learning experience, and maximizes learning retention and background knowledge. We offer tuition reimbursement to promote continued professional growth for current employees, and a scholarship program for students attending universities, colleges, and technical schools in our service area to assist in developing current and future skills sets needed by our employees. We support annual pre-apprentice scholarships, recruit and hire suitable candidates from the program, serve as industry advisors on the program board and have donated training assets to support the program.
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Compensation and Benefits
Our overarching compensation philosophy is structured to be consistent with our peers, and to align the long term interests of our employees, executives, shareholders, and customers so the pay appropriately reflects performance in achieving financial and non-financial operating objectives. We offer a competitive pay and benefits package, which is benchmarked on an annual basis to external market data. Beyond base pay and incentive compensation, we offer competitive, cost-effective, and well-rounded benefits, which aligns with our desire to be an employer of choice. From considerable employer retirement contributions, to generous paid time off, to health care and well-being programs, our benefits are designed to meet the varied needs of our employees.
We are committed to internal pay equity, and the Human Resources Committee of the Board of Directors monitors the relationship between the pay our executive officers receive and the pay our non-managerial employees receive. During 2023 and 2022, the compensation for our Chief Executive Officer (CEO) was approximately 22 and 26 times, respectively, the compensation of our median employee.
We believe that a significant portion of an executive’s pay should be at risk in the form of performance-based incentive awards that are only paid if the individual and company performance targets are met. For 2023, approximately 75 percent of the targeted compensation of our CEO and about 56 percent of the targeted compensation of our other named executive officers is at risk in the form of performance-based incentive awards or time-based awards tied to the value of equity. Our Board of Directors establishes the metrics and targets for these incentive awards, based upon advice from the Board of Directors’ independent compensation consultant. In addition, our compensation practices have led to a relatively low CEO to median employee ratio of approximately 23 to 1.
We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our compensation and benefits programs and to provide benchmarking against our peers within the industry. We provide pay equity between our employees performing equal or substantially similar work. We engage a third party to review our pay equity and share the results with our Board of Directors. Our most recent study was performed in 2023, with no corrective action required.
Diversity
We believe a diverse and inclusive workforce adds value and helps us succeed in an ever-changing environment. By embracing diversity and fostering inclusion, we aim to enable each employee, executive, and director to contribute fully to the company. We believe diversity is important because varied perspectives expand our ability to bring unique professional experiences to our business. Diversity in the workforce will be considered when relevant to hiring, promotions, work assignments, or other decisions related to the terms and conditions of employment. Our workforce reflects the relative diversity of our available talent in the communities we serve. Our employment data is tested annually by a third party as part of our Affirmative Action plan development to identify any needed corrective placement goals that are required. This testing determined that there is no current need to establish corrective placement goals in our plan.
We continue to maintain a diverse workforce, with an executive team that is 50% female and a board of directors that is 40% female and has two ethnically diverse members (20%).
Health and Safety
As stewards of critical infrastructure, providers of energy service, and members of the communities we serve, our priority is the health and safety of our employees and customers. Safety and health are considered and integrated into all work activities. We monitor several different key areas relating to safety philosophies and policies. These key metrics include the recordable incident rate (number of work-related injuries per 100 employees for a one-year period) and lost time incident rate (number of employees who lost time due to work-related injuries per 100 employees for a one-year period). During the years ended December 31, 2023 and 2022, our recordable incident rates were 1.34 and 1.57 and lost time incident rates were 0.45 and 0.59 on a company wide basis. Our five-year average safety record for the year ended December 31, 2023 was better than our industry peer group's five-year average.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Executive Officer Current Title and Prior Employment Age (1)
Brian B. Bird President and Chief Executive Officer and Director of NorthWestern Energy Group, Inc., since October 2, 2023, and of NorthWestern Energy Public Service Corporation since January 1, 2024, and of NorthWestern Corporation since January 2023; formerly President and Chief Operating Officer of NorthWestern Corporation since February 2021 and Chief Financial Officer from December 2003 to February 2021.
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Crystal D. Lail Vice President and Chief Financial Officer of NorthWestern Energy Group, Inc., since October 2, 2023, and of NorthWestern Energy Public Service Corporation since January 1, 2024, and of NorthWestern Corporation since February 2021; formerly Vice President and Chief Accounting Officer of NorthWestern Corporation since April 2020; and Vice President and Controller from October 2015 to April 2020.
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Shannon M. Heim Vice President - General Counsel and Federal Government Affairs of NorthWestern Energy Group, Inc., since October 2, 2023, and of NorthWestern Energy Public Service Corporation since January 1, 2024, and of NorthWestern Corporation since January 2023; formerly Director, Regulatory Corporate Counsel of NorthWestern Corporation since June 2020; and formerly Equity Shareholder at the law firm of Moss & Barnett, P.A. from 2017 to 2020.
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Bleau J. Lafave Vice President - Asset Management & Business Development of NorthWestern Corporation since June 2023 and of NorthWestern Energy Public Service Corporation since January 1, 2024; formerly Director of Long-Term Resources of NorthWestern Corporation since 2003.
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Bobbi L. Schroeppel Vice President - Customer Care, Communications and Human Resources of NorthWestern Corporation since May 2009 and of NorthWestern Energy Public Service Corporation since January 1, 2024.
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Cyndee S. Fang Vice President - Regulatory Affairs of NorthWestern Corporation since January 2023 and of NorthWestern Energy Public Service Corporation since January 1, 2024; formerly Director - Regulatory Affairs of NorthWestern Corporation since March 2021; prior to joining the Company, she was Origination & Portfolio Design Manager from December 2020 to March 2021, Manager of Energy Research & Analysis from August 2018 to December 2020, and Manager of Customer Pricing from June 2017 to August 2018, in each case, for San Diego Gas and Electric Company, an electric and gas utility.
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Jason C. Merkel Vice President - Distribution of NorthWestern Corporation since September 2022 and of NorthWestern Energy Public Service Corporation since January 1, 2024; formerly General Manager - Operations and Construction of NorthWestern Corporation since 2007.
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Jeanne M. Vold Vice President - Technology of NorthWestern Corporation since February 2021 and of NorthWestern Energy Public Service Corporation since January 1, 2024; formerly Business Technology Officer of NorthWestern Corporation since 2012.
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John D. Hines Vice President - Supply and Montana Government Affairs of NorthWestern Corporation since January 2018 and of NorthWestern Energy Public Service Corporation since January 1, 2024; formerly Vice President - Supply of NorthWestern Corporation since May 2011. 65
Michael R. Cashell Vice President - Transmission of NorthWestern Corporation since May 2011 and of NorthWestern Energy Public Service Corporation since January 1, 2024.
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(1) As of February 9, 2024.
Officers are elected annually by, and hold office at the pleasure of the Board of Directors (Board), and do not serve a “term of office” as such.
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