NorthWestern Energy Group, Inc. [NWE] Filings

10-Q 1 nwe-20240630.htm 10-Q nwe-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(mark one)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended		June 30, 2024

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-56598

NORTHWESTERN ENERGY GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

93-2020320

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

3010 W. 69th Street

Sioux Falls

South Dakota

57108

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: 605-978-2900

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	NWE	Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, Par Value $0.01, 61,300,497 shares outstanding at July 26, 2024

NORTHWESTERN ENERGY GROUP

FORM 10-Q

INDEX


		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
PART I. FINANCIAL INFORMATION		5
Item 1.	Financial Statements	5
	Condensed Consolidated Statements of Income — Three and Six Months Ended June 30 , 2024 and 2023	5
	Condensed Consolidated Statements of Comprehensive Income — Three and Six Months Ended June 30, 2024 and 2023	6
	Condensed Consolidated Balance Sheets — June 30 , 2024 and December 31, 2023	7
	Condensed Consolidated Statements of Cash Flows — Three and Six Months Ended June 30, 2024 and 2023	8
	Condensed Consolidated Statements of Shareholders ’ Equity — Three and Six Months Ended June 30 , 2024 and 2023	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	50
PART II. OTHER INFORMATION		51
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 5.	Other Information	51
Item 6.	Exhibits	52
SIGNATURES		53

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

On one or more occasions, we may make statements in this Quarterly Report on Form 10-Q regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. All statements other than statements of historical facts, included or incorporated by reference in this Quarterly Report, relating to our current expectations of future financial performance, continued growth, changes in economic conditions or capital markets and changes in customer usage patterns and preferences are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Words or phrases such as “anticipates," “may," “will," “should," “believes," “estimates," “expects," “intends," “plans," “predicts," “projects," “targets," “will likely result," “will continue" or similar expressions identify forward-looking statements. Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. We caution that while we make such statements in good faith and believe such statements are based on reasonable assumptions, including without limitation, our examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that we will achieve our projections. Factors that may cause such differences include, but are not limited to:

•adverse determinations by regulators, as well as potential adverse federal, state, or local legislation or regulation, including costs of compliance with existing and future environmental requirements, and wildfire damages in excess of liability insurance coverage, could have a material effect on our liquidity, results of operations and financial condition;

•the impact of extraordinary external events and natural disasters, such as a wide-spread or global pandemic, geopolitical events, earthquake, flood, drought, lightning, weather, wind, and fire, could have a material effect on our liquidity, results of operations and financial condition;

•acts of terrorism, cybersecurity attacks, data security breaches, or other malicious acts that cause damage to our generation, transmission, or distribution facilities, information technology systems, or result in the release of confidential customer, employee, or Company information;

•supply chain constraints, recent high levels of inflation for product, services and labor costs, and their impact on capital expenditures, operating activities, and/or our ability to safely and reliably serve our customers;

•changes in availability of trade credit, creditworthiness of counterparties, usage, commodity prices, fuel supply costs or availability due to higher demand, shortages, weather conditions, transportation problems or other developments, may reduce revenues or may increase operating costs, each of which could adversely affect our liquidity and results of operations;

•unscheduled generation outages or forced reductions in output, maintenance or repairs, which may reduce revenues and increase operating costs or may require additional capital expenditures or other increased operating costs; and

•adverse changes in general economic and competitive conditions in the U.S. financial markets and in our service territories.

We have attempted to identify, in context, certain of the factors that we believe may cause actual future experience and results to differ materially from our current expectation regarding the relevant matter or subject area. In addition to the items specifically discussed above, our business and results of operations are subject to the uncertainties described under the caption “Risk Factors” which is part of the disclosure included in Part II, Item 1A of this Quarterly Report on Form 10-Q.

From time to time, oral or written forward-looking statements are also included in our reports on Forms 10-K, 10-Q and 8-K, Proxy Statements on Schedule 14A, press releases, analyst and investor conference calls, and other communications released to the public. We believe that at the time made, the expectations reflected in all of these forward-looking statements are and will be reasonable. However, any or all of the forward-looking statements in this Quarterly Report on Form 10-Q, our reports on Forms 10-K and 8-K, our other reports on Form 10-Q, our Proxy Statements on Schedule 14A and any other public statements that are made by us may prove to be incorrect. This may occur as a result of assumptions, which turn out to be inaccurate, or as a consequence of known or unknown risks and uncertainties. Many factors discussed in this Quarterly Report on Form 10-Q, certain of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of any of our forward-looking statements in this Quarterly Report on Form 10-Q or other public communications as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent reports filed with the Securities and Exchange Commission (SEC) on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

Unless the context requires otherwise, references to “we,” “us,” “our,” “NorthWestern Energy Group,” “NorthWestern Energy,” and “NorthWestern” refer specifically to NorthWestern Energy Group, Inc. and its subsidiaries.

PART 1. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

NORTHWESTERN ENERGY GROUP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues
Electric	$	260,134	$	229,266	$	603,320	$	524,574
Gas	59,795		61,236		191,951		220,470
Total Revenues	319,929		290,502		795,271		745,044
Operating expenses
Fuel, purchased supply and direct transmission expense (exclusive of depreciation and depletion shown separately below)	76,480		67,578		251,201		233,070
Operating and maintenance	57,367		54,840		111,549		110,701
Administrative and general	31,281		29,955		71,726		64,703
Property and other taxes	36,256		40,129		83,427		89,280
Depreciation and depletion	56,933		52,380		113,676		105,628
Total Operating Expenses	258,317		244,882		631,579		603,382
Operating income	61,612		45,620		163,692		141,662
Interest expense, net	(31,875)		(28,411)		(62,854)		(56,419)
Other income, net	6,160		4,062		10,479		8,799
Income before income taxes	35,897		21,271		111,317		94,042
Income tax expense	(4,243)		(2,147)		(14,577)		(12,388)
Net Income	$	31,654	$	19,124	$	96,740	$	81,654

Average Common Shares Outstanding	61,289		59,804		61,277		59,790
Basic Earnings per Average Common Share	$	0.52	$	0.32	$	1.58	$	1.37
Diluted Earnings per Average Common Share	$	0.52	$	0.32	$	1.58	$	1.37
Dividends Declared per Common Share	$	0.65	$	0.64	$	1.30	$	1.28

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN ENERGY GROUP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net Income	$	31,654	$	19,124	$	96,740	$	81,654
Other comprehensive income, net of tax:
Foreign currency translation adjustment	(1)		(1)		(2)		(3)
Postretirement medical liability adjustment	—		(167)		—		(334)
Reclassification of net losses on derivative instruments	113		113		226		226
Total Other Comprehensive Income (Loss)	112		(55)		224		(111)
Comprehensive Income	$	31,766	$	19,069	$	96,964	$	81,543

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN ENERGY GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)


	June 30, 2024		December 31, 2023
ASSETS
Current Assets:
Cash and cash equivalents	$	6,398	$	9,164
Restricted cash	24,640		16,023
Accounts receivable, net	149,500		212,257
Inventories	114,956		114,539
Regulatory assets	42,024		29,626
Prepaid expenses and other	26,527		25,397
Total current assets	364,045		407,006
Property, plant, and equipment, net	6,193,234		6,039,801
Goodwill	357,586		357,586
Regulatory assets	748,857		743,945
Other noncurrent assets	50,097		52,314
Total Assets	$	7,713,819	$	7,600,652
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of finance leases	$	3,462	$	3,338
Current portion of long-term debt	224,926		99,950
Short-term borrowings	100,000		—
Accounts payable	91,258		124,340
Accrued expenses and other	244,000		246,167
Regulatory liabilities	36,164		61,103
Total current liabilities	699,810		534,898
Long-term finance leases	3,730		5,461
Long-term debt	2,569,553		2,684,635
Deferred income taxes	629,311		600,520
Noncurrent regulatory liabilities	658,857		657,452
Other noncurrent liabilities	345,301		332,372
Total Liabilities	4,906,562		4,815,338
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Common stock, par value $0.01; authorized 200,000,000 shares; issued and outstanding 64,803,261 and 61,299,477 shares, respectively; Preferred stock, par value $0.01; authorized 50,000,000 shares; none issued	648		648
Treasury stock at cost	(97,776)		(97,926)
Paid-in capital	2,082,857		2,078,753
Retained earnings	828,960		811,495
Accumulated other comprehensive loss	(7,432)		(7,656)
Total Shareholders' Equity	2,807,257		2,785,314
Total Liabilities and Shareholders' Equity	$	7,713,819	$	7,600,652

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN ENERGY GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Six Months Ended June 30,
	2024		2023
OPERATING ACTIVITIES:
Net income	$	96,740	$	81,654
Items not affecting cash:
Depreciation and depletion	113,676		105,628
Amortization of debt issuance costs, discount and deferred hedge gain	2,337		2,636
Stock-based compensation costs	3,797		4,868
Equity portion of allowance for funds used during construction	(9,397)		(7,812)
Loss (gain) on disposition of assets	21		(20)
Impairment of alternative energy storage investment	4,659		—
Deferred income taxes	12,953		(10,005)
Changes in current assets and liabilities:
Accounts receivable	62,757		97,779
Inventories	(417)		(218)
Other current assets	(1,130)		2,474
Accounts payable	(20,693)		(63,127)
Accrued expenses and other	(2,157)		(3,029)
Regulatory assets	(12,398)		83,139
Regulatory liabilities	(24,939)		7,299
Other noncurrent assets and liabilities	(1,866)		(7,201)
Cash Provided by Operating Activities	223,943		294,065
INVESTING ACTIVITIES:
Property, plant, and equipment additions	(247,361)		(263,362)
Investment in equity securities	(917)		(2,426)
Cash Used in Investing Activities	(248,278)		(265,788)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net	—		10,802
Dividends on common stock	(79,275)		(76,085)
Issuance of long-term debt	215,000		300,000
Issuances of short-term borrowings	100,000		—
Repayments on long-term debt	(100,000)		—
Line of credit repayments, net	(105,000)		(259,000)
Other financing activities, net	(539)		(2,437)
Cash Provided by (Used in) Financing Activities	30,186		(26,720)
Increase in Cash, Cash Equivalents, and Restricted Cash	5,851		1,557
Cash, Cash Equivalents, and Restricted Cash, beginning of period	25,187		22,463
Cash, Cash Equivalents, and Restricted Cash, end of period	$	31,038	$	24,020
Supplemental Cash Flow Information:
Cash (received) paid during the period for:
Income taxes	$	(4,669)	$	3,204
Interest	59,995		51,047
Significant non-cash transactions:
Capital expenditures included in accounts payable	27,144		20,938
Refinancing of Pollution Control Revenue Refunding Bonds	—		144,660

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN ENERGY GROUP

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(in thousands, except per share data)


	Three Months Ended June 30,
	Number of Common Shares	Number of Treasury Shares	Common Stock		Treasury Stock		Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
Balance at March 31, 2023	63,326	3,533	$	633	$	(98,471)	$	2,002,839	$	795,903	$	(7,904)	$	2,693,000

Net income	—	—	—		—		—		19,124		—		19,124
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		(1)		(1)
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		113		113
Postretirement medical liability adjustment, net of tax	—	—	—		—		—		—		(167)		(167)
Stock-based compensation	3	—	—		—		1,378		—		—		1,378
Issuance of shares	189	(6)	2		169		11,150		—		—		11,321
Dividends on common stock ($0.640 per share)	—	—	—		—		—		(38,044)		—		(38,044)
Balance at June 30, 2023	63,518	3,527	$	635	$	(98,302)	$	2,015,367	$	776,983	$	(7,959)	$	2,686,724

Balance at March 31, 2024	64,798	3,515	$	648	$	(97,990)	$	2,080,953	$	836,951	$	(7,544)	$	2,813,018

Net income	—	—	—		—		—		31,654		—		31,654
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		(1)		(1)
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		113		113
Stock-based compensation	5	—	—		—		1,732		—		—		1,732
Issuance of shares	—	(11)	—		214		172		—		—		386
Dividends on common stock ( $0.650 per share)	—	—	—		—		—		(39,645)		—		(39,645)
Balance at June 30, 2024	64,803	3,504	$	648	$	(97,776)	$	2,082,857	$	828,960	$	(7,432)	$	2,807,257


	Six Months Ended June 30,
	Number of Common Shares	Number of Treasury Shares	Common Stock		Treasury Stock		Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
Balance at December 31, 2022	63,278	3,534	$	633	$	(98,392)	$	1,999,376	$	771,414	$	(7,848)	$	2,665,183

Net income	—	—	—		—		—		81,654		—		81,654
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		(3)		(3)
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		226		226
Postretirement medical liability adjustment, net of tax	—	—	—		—		—		—		(334)		(334)
Stock-based compensation	51	—	—		—		4,672		—		—		4,672
Issuance of shares	189	(7)	2		90		11,319		—		—		11,411
Dividends on common stock ($1.280 per share)	—	—	—		—		—		(76,085)		—		(76,085)
Balance at June 30, 2023	63,518	3,527	$	635	$	(98,302)	$	2,015,367	$	776,983	$	(7,959)	$	2,686,724

Balance at December 31, 2023	64,762	3,513	$	648	$	(97,926)	$	2,078,753	$	811,495	$	(7,656)	$	2,785,314

Net income	—	—	—		—		—		96,740		—		96,740
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		(2)		(2)
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		226		226
Postretirement medical liability adjustment, net of tax	—	—	—		—		—		—		—		—
Stock-based compensation	41	—	—		(272)		3,771		—		—		3,499
Issuance of shares	—	(9)	—		422		333		—		—		755
Dividends on common stock ($1.300 per share)	—	—	—		—		—		(79,275)		—		(79,275)
Balance at June 30, 2024	64,803	3,504	$	648	$	(97,776)	$	2,082,857	$	828,960	$	(7,432)	$	2,807,257

See Notes to Condensed Consolidated Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Reference is made to Notes to Financial Statements included in the NorthWestern Energy Group's Annual Report)

(Unaudited)

(1) Nature of Operations and Basis of Consolidation

NorthWestern Energy Group, doing business as NorthWestern Energy, provides electricity and/or natural gas to approximately 775,300 customers in Montana, South Dakota, Nebraska and Yellowstone National Park, through its subsidiaries NorthWestern Corporation (NW Corp) and NorthWestern Energy Public Service Corporation (NWE Public Service). We have generated and distributed electricity in South Dakota and distributed natural gas in South Dakota and Nebraska since 1923 and have generated and distributed electricity and distributed natural gas in Montana since 2002.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires us to make estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates. The unaudited Condensed Consolidated Financial Statements (Financial Statements) reflect all adjustments (which unless otherwise noted are normal and recurring in nature) that are, in our opinion, necessary to fairly present our financial position, results of operations and cash flows. The actual results for the interim periods are not necessarily indicative of the operating results to be expected for a full year or for other interim periods. Events occurring subsequent to June 30, 2024 have been evaluated as to their potential impact to the Financial Statements through the date of issuance.

The Financial Statements included herein have been prepared by NorthWestern, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, we believe that the condensed disclosures provided are adequate to make the information presented not misleading. We recommend that these Financial Statements be read in conjunction with the audited financial statements and related footnotes included in the NorthWestern Energy Group Annual Report on Form 10-K for the year ended December 31, 2023.

Holding Company Reorganization

On January 1, 2024, we completed the second and final phase of our holding company reorganization. NW Corp contributed the assets and liabilities of its South Dakota and Nebraska regulated utilities to NWE Public Service, and then distributed its equity interest in NWE Public Service and certain other subsidiaries to NorthWestern Energy Group, resulting in NW Corp owning and operating the Montana regulated utility and NWE Public Service owning and operating the Nebraska and South Dakota utilities, each as a direct subsidiary of NorthWestern Energy Group.

Supplemental Cash Flow Information

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):


	June 30,		December 31,		June 30,		December 31,
	2024		2023		2023		2022
Cash and cash equivalents	$	6,398	$	9,164	$	7,757	$	8,489
Restricted cash	24,640		16,023		16,263		13,974
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	31,038	$	25,187	$	24,020	$	22,463

Goodwill

We completed our annual goodwill impairment test as of April 1, 2024, and no impairment was identified. We calculate the fair value of our reporting units by considering various factors, including valuation studies based primarily on a discounted cash flow analysis, with published industry valuations and market data as supporting information. Key assumptions in the determination of fair value include the use of an appropriate discount rate and estimated future cash flows. In estimating cash

flows, we incorporate expected long-term growth rates in our service territory, regulatory stability, and commodity prices (where appropriate), as well as other factors that affect our revenue, expense and capital expenditure projections.

(2) Regulatory Matters

Montana Rate Review

On July 10, 2024, we filed a Montana electric and natural gas rate review with the Montana Public Service Commission (MPSC). The filing requests a base rate annual revenue increase of $156.5 million ($69.4 million net with Property Tax and Power Cost and Credit Adjustment Mechanism (PCCAM) tracker adjustments) for electric and $28.6 million for natural gas. Our request is based on a return on equity of 10.80 percent with a capital structure including 46.81 percent equity, and forecasted 2024 electric and natural gas rate base of $3.45 billion and $731.9 million, respectively. The electric rate base investment includes the 175-megawatt natural gas-fired Yellowstone County Generating Station ("YCGS"), which is expected to be in service during the third quarter of 2024. We requested interim base rates to be effective October 1, 2024.

South Dakota Natural Gas Rate Review

On June 21, 2024, we filed a natural gas rate review (2023 test year) with the South Dakota Public Utilities Commission. The filing requests a base rate annual revenue increase of $6.0 million. Our request is based on a return on equity of 10.70 percent, a capital structure including 53.13 percent equity, and rate base of $95.6 million. If a final order is not received by December 21, 2024, interim base rates may go into effect.

Nebraska Natural Gas Rate Review

On June 6, 2024, we filed a natural gas rate review (2023 test year) with the Nebraska Public Service Commission. The filing requests a base rate annual revenue increase of $3.6 million. Our request is based on a return on equity of 10.70 percent, a capital structure including 53.13 percent equity, and rate base of $47.4 million. Interim base rates are not anticipated to be implemented prior to October 1, 2024.

(3) Income Taxes

We compute income tax expense for each quarter based on the estimated annual effective tax rate for the year, adjusted for certain discrete items. Our effective tax rate typically differs from the federal statutory tax rate due to the regulatory impact of flowing through the federal and state tax benefit of repairs deductions, state tax benefit of accelerated tax depreciation deductions (including bonus depreciation when applicable) and production tax credits. The regulatory accounting treatment of these deductions requires immediate income recognition for temporary tax differences of this type, which is referred to as the flow-through method. When the flow-through method of accounting for temporary differences is reflected in regulated revenues, we record deferred income taxes and establish related regulatory assets and liabilities.

The following table summarizes the differences between our effective tax rate and the federal statutory rate (in thousands):


	Three Months Ended June 30,
	2024				2023
Income before income taxes	$	35,897			$	21,271

Income tax calculated at federal statutory rate	7,539		21.0	%	4,467		21.0	%

Permanent or flow-through adjustments:
State income tax, net of federal provisions	49		0.1		273		1.3
Flow-through repairs deductions	(3,069)		(8.5)		(1,708)		(8.0)
Production tax credits	(2,004)		(5.6)		(1,147)		(5.4)
Amortization of excess deferred income tax	(196)		(0.5)		(233)		(1.1)
Plant and depreciation flow-through items	1,060		3.0		201		0.9
Other, net	864		2.3		294		1.4
	(3,296)		(9.2)		(2,320)		(10.9)

Income tax expense	$	4,243	11.8	%	$	2,147	10.1	%


	Six Months Ended June 30,
	2024				2023
Income before income taxes	$	111,317			$	94,042

Income tax calculated at federal statutory rate	23,377		21.0	%	19,749		21.0	%

Permanent or flow through adjustments:
State income, net of federal provisions	688		0.6		1,232		1.3
Flow-through repairs deductions	(9,243)		(8.3)		(7,553)		(8.0)
Production tax credits	(4,987)		(4.5)		(4,346)		(4.6)
Amortization of excess deferred income tax	(556)		(0.5)		(1,032)		(1.1)
Reduction to previously claimed alternative minimum tax credit	—		—		3,186		3.4
Plant and depreciation flow through items	4,139		3.7		889		0.9
Share-based compensation	298		0.3		388		0.4
Other, net	861		0.8		(125)		(0.1)
	(8,800)		(7.9)		(7,361)		(7.8)

Income tax expense	$	14,577	13.1	%	$	12,388	13.2	%

Uncertain Tax Positions

We recognize tax positions that meet the more-likely-than-not threshold as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. We had unrecognized tax benefits of approximately $27.3 million as of June 30, 2024, including approximately $24.3 million that, if recognized, would impact our effective tax rate. In the next twelve months we expect the statute of limitations to expire for certain uncertain tax benefits, which would result in a decrease to our total unrecognized tax benefits of approximately $16.9 million.

Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2024, we have accrued $6.0 million for the payment of interest and penalties on the Condensed Consolidated Balance Sheets. As of December 31, 2023, we had accrued $4.5 million for the payment of interest and penalties on the Condensed Consolidated Balance Sheets.

Tax years 2020 and forward remain subject to examination by the Internal Revenue Service and state taxing authorities.

(4) Comprehensive (Loss) Income

The following tables display the components of Other Comprehensive Income (Loss), after-tax, and the related tax effects (in thousands):


	Three Months Ended
	June 30, 2024						June 30, 2023
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount
Foreign currency translation adjustment	$	(1)	$	—	$	(1)	$	(1)	$	—	$	(1)
Reclassification of net income on derivative instruments	153		(40)		113		153		(40)		113
Defined benefit pension plan and postretirement medical liability adjustment	—		—		—		(212)		45		(167)
Other comprehensive income (loss)	$	152	$	(40)	$	112	$	(60)	$	5	$	(55)


	Six Months Ended
	June 30, 2024						June 30, 2023
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount
Foreign currency translation adjustment	$	(2)	$	—	$	(2)	$	(3)	$	—	$	(3)
Reclassification of net income on derivative instruments	306		(80)		226		306		(80)		226
Defined benefit pension plan and postretirement medical liability adjustment	—		—		—		(424)		90		(334)
Other comprehensive income (loss)	$	304	$	(80)	$	224	$	(121)	$	10	$	(111)

Balances by classification included within accumulated other comprehensive loss (AOCL) on the Condensed Consolidated Balance Sheets are as follows, net of tax (in thousands):


	June 30, 2024		December 31, 2023
Foreign currency translation	$	1,435	$	1,437
Derivative instruments designated as cash flow hedges	(9,147)		(9,373)
Defined benefit pension plan	280		280
Accumulated other comprehensive loss	$	(7,432)	$	(7,656)

The following tables display the changes in AOCL by component, net of tax (in thousands):


		Three Months Ended
		June 30, 2024
	Affected Line Item in the Condensed Consolidated Statements of Income	Interest Rate Derivative Instruments Designated as Cash Flow Hedges		Defined Benefit Pension Plan		Foreign Currency Translation		Total
Beginning balance		$	(9,260)	$	280	$	1,436	$	(7,544)
Other comprehensive loss before reclassifications		—		—		(1)		(1)
Amounts reclassified from AOCL	Interest Expense	113		—		—		113
Net current-period other comprehensive income (loss)		113		—		(1)		112
Ending balance		$	(9,147)	$	280	$	1,435	$	(7,432)


		Three Months Ended
		June 30, 2023
	Affected Line Item in the Condensed Consolidated Statements of Income	Interest Rate Derivative Instruments Designated as Cash Flow Hedges		Postretirement Medical Plans		Foreign Currency Translation		Total
Beginning balance		$	(9,712)	$	375	$	1,433	$	(7,904)
Other comprehensive loss before reclassifications		—		—		(1)		(1)
Amounts reclassified from AOCL	Interest Expense	113		—		—		113
Amounts reclassified from AOCL		—		(167)		—		(167)
Net current-period other comprehensive income (loss)		113		(167)		(1)		(55)
Ending balance		$	(9,599)	$	208	$	1,432	$	(7,959)


		Six Months Ended
		June 30, 2024
	Affected Line Item in the Condensed Consolidated Statements of Income	Interest Rate Derivative Instruments Designated as Cash Flow Hedges		Defined Benefit Pension Plan and Postretirement Medical Plans		Foreign Currency Translation		Total
Beginning balance		$	(9,373)	$	280	$	1,437	$	(7,656)
Other comprehensive loss before reclassifications		—		—		(2)		(2)
Amounts reclassified from AOCL	Interest Expense	226		—		—		226
Net current-period other comprehensive income (loss)		226		—		(2)		224
Ending balance		$	(9,147)	$	280	$	1,435	$	(7,432)


		Six Months Ended
		June 30, 2023
	Affected Line Item in the Condensed Consolidated Statements of Income	Interest Rate Derivative Instruments Designated as Cash Flow Hedges		Pension and Postretirement Medical Plans		Foreign Currency Translation		Total
Beginning balance		$	(9,825)	$	542	$	1,435	$	(7,848)
Other comprehensive loss before reclassifications		—		—		(3)		(3)
Amounts reclassified from AOCL	Interest Expense	226		—		—		226
Amounts reclassified from AOCL		—		(334)		—		(334)
Net current-period other comprehensive income (loss)		226		(334)		(3)		(111)
Ending balance		$	(9,599)	$	208	$	1,432	$	(7,959)

(5) Financing Activities

On March 28, 2024, NW Corp issued and sold $175.0 million aggregate principal amount of Montana First Mortgage Bonds at a fixed interest rate of 5.56 percent maturing on March 28, 2031. These bonds were issued in transactions exempt from the registration requirements of the Securities Act of 1933. Proceeds were used to redeem NW Corp's $100.0 million of Montana First Mortgage Bonds due this year and for other general utility purposes. The bonds are secured by NW Corp's electric and natural gas assets associated with its Montana utility operations.

On March 28, 2024, NWE Public Service issued and sold $33.0 million aggregate principal amount of South Dakota First Mortgage Bonds at a fixed interest rate of 5.55 percent maturing on March 28, 2029 and $7.0 million aggregate principal amount of South Dakota First Mortgage Bonds at a fixed interest rate of 5.75 percent maturing on March 28, 2034. These bonds were issued in transactions exempt from the registration requirements of the Securities Act of 1933. Proceeds were used for general utility purposes. The bonds are secured by NWE Public Service's electric and natural gas assets associated with its South Dakota and Nebraska utility operations.

On April 12, 2024, NorthWestern Energy Group entered into a $100.0 million Term Loan Credit Agreement (Term Loan) with a maturity date of April 11, 2025. Borrowings may be made at a variable interest rate equal to the Secured Overnight Financing Rate plus an applicable margin as provided in the Term Loan. These proceeds were used to repay a portion of our outstanding revolving credit facility borrowings and for general corporate purposes. The Term Loan provides for prepayment of the principal and interest; however, amounts prepaid may not be reborrowed. The Term Loan requires us to maintain a consolidated indebtedness to total capitalization ratio of 65 percent or less. It also contains covenants which, among other things, limit our ability to engage in any consolidation or merger or otherwise liquidate or dissolve, dispose of property, and restricts certain affiliate transactions. A default on the South Dakota or Montana First Mortgage Bonds would trigger a cross default on the Term Loan; however a default on the Term Loan would not trigger a default on the South Dakota or Montana First Mortgage Bonds.

(6) Segment Information

Our reportable business segments are primarily engaged in the electric and natural gas business. The remainder of our operations are presented as other, which primarily consists of unallocated corporate costs and unregulated activity.

We evaluate the performance of these segments based on utility margin. The accounting policies of the operating segments are the same as the parent except that the parent allocates some of its operating expenses to the operating segments according to a methodology designed by us for internal reporting purposes and involves estimates and assumptions.

Financial data for the business segments are as follows (in thousands):


Three Months Ended
June 30, 2024	Electric		Gas		Other		Eliminations		Total
Operating revenues	$	260,134	$	59,795	$	—	$	—	$	319,929
Fuel, purchased supply and direct transmission expense (exclusive of depreciation and depletion shown separately below)	60,887		15,593		—		—		76,480
Utility margin	199,247		44,202		—		—		243,449
Operating and maintenance	43,467		13,900		—		—		57,367
Administrative and general	23,294		7,821		166		—		31,281
Property and other taxes	28,006		8,251		(1)		—		36,256
Depreciation and depletion	47,546		9,387		—		—		56,933
Operating income (loss)	56,934		4,843		(165)		—		61,612
Interest expense, net	(23,298)		(7,147)		(1,430)		—		(31,875)
Other income, net	4,031		927		1,202		—		6,160
Income tax (expense) benefit	(3,891)		304		(656)		—		(4,243)
Net income (loss)	$	33,776	$	(1,073)	$	(1,049)	$	—	$	31,654
Total assets	$	6,172,704	$	1,525,851	$	15,264	$	—	$	7,713,819
Capital expenditures	$	112,258	$	26,349	$	—	$	—	$	138,607


Three Months Ended
June 30, 2023	Electric		Gas		Other		Eliminations		Total
Operating revenues	$	229,266	$	61,236	$	—	$	—	$	290,502
Fuel, purchased supply and direct transmission expense (exclusive of depreciation and depletion shown separately below)	42,363		25,215		—		—		67,578
Utility margin	186,903		36,021		—		—		222,924
Operating and maintenance	41,368		13,472		—		—		54,840
Administrative and general	21,635		8,321		(1)		—		29,955
Property and other taxes	31,022		9,104		3		—		40,129
Depreciation and depletion	43,319		9,061		—		—		52,380
Operating income (loss)	49,559		(3,937)		(2)		—		45,620
Interest expense, net	(21,724)		(4,490)		(2,197)		—		(28,411)
Other income (expense), net	2,954		1,144		(36)		—		4,062
Income tax (expense) benefit	(3,515)		(373)		1,741		—		(2,147)
Net income (loss)	$	27,274	$	(7,656)	$	(494)	$	—	$	19,124
Total assets	$	5,878,433	$	1,406,068	$	9,741	$	—	$	7,294,242
Capital expenditures	$	94,690	$	32,068	$	—	$	—	$	126,758


Six Months Ended
June 30, 2024	Electric		Gas		Other		Eliminations		Total
Operating revenues	$	603,320	$	191,951	$	—	$	—	$	795,271
Fuel, purchased supply and direct transmission expense (exclusive of depreciation and depletion shown separately below)	176,228		74,973		—		—		251,201
Utility margin	427,092		116,978		—		—		544,070
Operating and maintenance	83,766		27,783		—		—		111,549
Administrative and general	51,213		17,867		2,646		—		71,726
Property and other taxes	64,306		19,120		1		—		83,427
Depreciation and depletion	94,850		18,826		—		—		113,676
Operating income (loss)	132,957		33,382		(2,647)		—		163,692
Interest expense, net	(47,955)		(13,396)		(1,503)		—		(62,854)
Other income (expense), net	9,492		1,981