NorthWestern Energy reported a second quarter 2020 net income of $21.5 million, or $0.43 per diluted share, a dramatic drop from the $47 million, or $0.94 per diluted share, for the same period in 2019.
The utility attributed the decrease in net income to an income tax benefit it received in 2019, lower gross margins due to impacts of the COVID-19 pandemic, and higher depreciation expenses. Those were partially offset by a decrease in operating, general and administrative expenses.
Brian Bird, CFO at NorthWestern Energy, told analysts on the company's July 29 earnings call that the quarter wasn't as bad as it looked. The company recorded a $21.5 million income tax benefit in 2019, which masked the utility's second quarter 2020 performance.
Gross margin was off $6.7 million, or about 3 percent, Bird said, all of it attributed to NorthWestern's electric business.
Removing the 2019 benefits, NorthWestern's 2020 Q2 net income would have been up $4 million on a year-over-year basis, and coupled with $3 million "of an after-tax detriment that we received in 2020 associated with COVID," the utility would be up $7 million for the quarter, Bird said.
"So, obviously, from a headline perspective it didn't look like a great quarter. But from our perspective, we feel good knowing what we know regarding COVID and where we're going forward," he said.
The utility recorded lower commercial and industrial electric sales during the quarter related to the COVID-19 pandemic, which were partially offset by residential sales. Bird said customer growth and favorable weather were effectively offset to "a great extent by a $3 million to $4 million negative impact on revenues associated with COVID."
Bob Rowe, president and CEO, told analysts NorthWestern is "in the process of modifying" its application with Montana regulators to reflect Talen Energy's "right of first refusal" on NorthWestern's deal to acquire 92.5 MW of Colstrip Unit 3 power, then sell it back to Puget Sound Energy.
Rowe said "the $21.5 million negative variance in income taxes is all attributed to the 2019 favorable impact, of course on a year-over-year basis. So, taking those things in consideration, we feel we actually had a very good quarter in line with our expectations from a COVID perspective."