NorthWestern Energy Group, Inc.NWE
NorthWestern Energy Group, Inc. Income Taxes Disclosure
| (14) Income Taxes | ||||||||||||||
Income tax expense (benefit) is comprised of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | |||||||||||||||||
| Current | $ | (13,760) | $ | (8,121) | $ | 2,925 | |||||||||||
| Deferred | 21,494 | (3,807) | 2,929 | ||||||||||||||
| Investment tax credits | 1,146 | 1,970 | (129) | ||||||||||||||
| State and other | |||||||||||||||||
| Current | 37 | (41) | (1,971) | ||||||||||||||
| Deferred | (2,444) | 560 | 3,785 | ||||||||||||||
| Income Tax Expense (Benefit) | $ | 6,473 | $ | (9,439) | $ | 7,539 | |||||||||||
Deferred income tax expense (benefit) is comprised of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Deferred tax expense excluding items below | $ | 54,506 | $ | 54,950 | $ | 61,537 | |||||||||||
| Adjustments to other noncurrent liabilities, regulatory assets, and liabilities | (48,328) | (65,596) | (54,732) | ||||||||||||||
| Tax benefit allocated to other comprehensive income | (206) | (293) | (91) | ||||||||||||||
| Adjustments to deferred income taxes for production tax credit cash transfer | 13,078 | 7,692 | — | ||||||||||||||
| Investment tax credits | 1,146 | 1,970 | (129) | ||||||||||||||
| Deferred Tax Expense (Benefit) | $ | 20,196 | $ | (1,277) | $ | 6,585 | |||||||||||
Our effective tax rate typically differs from the federal statutory tax rate primarily 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 table below reconciles our effective income tax rate to the federal statutory rate and summarizes the significant differences in income tax expense (benefit) based on the differences between our effective tax rate and the federal statutory rate (in thousands). Our income from continuing operations is primarily from domestic operations.
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
(in dollars) | (in percent) | (in dollars) | (in percent) | (in dollars) | (in percent) | |||||||||||||||||||||
| Income before income taxes | $ | 187,565 | $ | 214,672 | $ | 201,670 | ||||||||||||||||||||
| Income tax calculated at federal statutory rate | 39,389 | 21.0 | % | 45,081 | 21.0 | % | 42,350 | 21.0 | % | |||||||||||||||||
State income tax, net of federal provision(1) | (1,500) | (0.8) | 374 | 0.2 | 606 | 0.3 | ||||||||||||||||||||
| Tax Credits | ||||||||||||||||||||||||||
| Production tax credits | (5,946) | (3.2) | (11,069) | (5.2) | (10,274) | (5.1) | ||||||||||||||||||||
| Reduction to previously claimed alternative minimum tax credit | — | — | — | — | 3,186 | 1.6 | ||||||||||||||||||||
| Other | 656 | 0.4 | 695 | 0.3 | (129) | (0.1) | ||||||||||||||||||||
Impact of utility ratemaking on income taxes | ||||||||||||||||||||||||||
| Flow-through repairs deductions | (30,956) | (16.5) | (23,132) | (10.8) | (25,922) | (12.9) | ||||||||||||||||||||
| Amortization of excess deferred income taxes | (3,169) | (1.7) | (2,930) | (1.4) | (2,184) | (1.1) | ||||||||||||||||||||
AFUDC, net | (1,349) | (0.7) | (2,570) | (1.2) | (2,122) | (1.1) | ||||||||||||||||||||
| Plant and depreciation of flow through items | 16,827 | 9.0 | 9,360 | 4.4 | 6,595 | 3.3 | ||||||||||||||||||||
| Gas repairs safe harbor method change | — | — | (6,994) | (3.3) | — | — | ||||||||||||||||||||
| Changes in Unrecognized Tax Benefits | ||||||||||||||||||||||||||
| Release of unrecognized tax benefits | (7,407) | (4.0) | (16,888) | (7.9) | (3,241) | (1.6) | ||||||||||||||||||||
Interest and penalties | (3,039) | (1.6) | (1,500) | (0.7) | 1,500 | 0.7 | ||||||||||||||||||||
| Nontaxable and nondeductible items | 2,878 | 1.5 | 367 | 0.2 | 354 | 0.2 | ||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Unregulated Tax Cuts and Jobs Act excess deferred income taxes | — | — | — | — | (3,385) | (1.7) | ||||||||||||||||||||
| Other | 89 | 0.1 | (233) | 0.0 | 205 | 0.2 | ||||||||||||||||||||
| (32,916) | (17.5) | (54,520) | (25.4) | (34,811) | (17.3) | |||||||||||||||||||||
| Income Tax Expense (Benefit) and Effective Tax Rate | $ | 6,473 | 3.5 | % | $ | (9,439) | (4.4) | % | $ | 7,539 | 3.7 | % | ||||||||||||||
(1) For all years presented, the state of Montana comprises the majority of the domestic state income taxes, net of federal provisions.
The components of the net deferred income tax liability recognized in our Consolidated Balance Sheets are related to the following temporary differences (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| NOL carryforward | $ | 114,031 | $ | 123,043 | |||||||
| Production tax credit | 89,511 | 97,695 | |||||||||
| Customer advances | 36,406 | 32,455 | |||||||||
| Compensation accruals | 13,033 | 12,717 | |||||||||
| Pension / postretirement benefits | — | 9,078 | |||||||||
| Unbilled revenue | 9,431 | 6,477 | |||||||||
| Environmental liability | 6,154 | 5,415 | |||||||||
| Interest rate hedges | 2,777 | 2,985 | |||||||||
| Reserves and accruals | 1,482 | 2,252 | |||||||||
Other | 4,291 | 3,369 | |||||||||
| Deferred Tax Asset | 277,116 | 295,486 | |||||||||
| Excess tax depreciation | (742,797) | (713,416) | |||||||||
| Flow through depreciation | (143,300) | (132,944) | |||||||||
| Goodwill amortization | (92,009) | (89,827) | |||||||||
| Pension / postretirement benefits | (1,885) | — | |||||||||
| Regulatory assets and other | (30,189) | (22,729) | |||||||||
| Deferred Tax Liability | (1,010,180) | (958,916) | |||||||||
| Deferred Tax Liability, net | $ | (733,064) | $ | (663,430) | |||||||
As of December 31, 2025, our total federal NOL carryforward was approximately $452.2 million. Our federal NOL carryforward does not expire. Our state NOL carryforward as of December 31, 2025 was approximately $357.5 million. If unused, our state NOL carryforwards will expire in 2033. We believe it is more likely than not that sufficient taxable income will be generated to utilize these NOL carryforwards.
At December 31, 2025, our total production tax credit carryforward was approximately $89.5 million. If unused, our production tax credit carryforwards will expire as follows: $0.8 million in 2035, $10.9 million in 2036, $11.0 million in 2037, $10.9 million in 2038, $11.4 million in 2039, $13.1 million in 2040, $11.5 million in 2041, $13.2 million in 2042, $2.6 million in 2043, $2.3 million in 2044, and $1.8 million in 2045. We believe it is more likely than not that sufficient taxable income will be generated to utilize these production tax credit carryforwards.
Unrecognized Tax Benefits
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. The change in unrecognized tax benefits is as follows (in thousands):
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized Tax Benefits at January 1 | $ | 9,612 | $ | 28,074 | $ | 30,330 | |||||||||||
| Gross increases - tax positions in prior period | — | — | — | ||||||||||||||
| Gross increases - tax positions in current period | — | — | — | ||||||||||||||
| Gross decreases - tax positions in current period | — | (1,574) | (2,256) | ||||||||||||||
| Lapse of statute of limitations | (9,612) | (16,888) | — | ||||||||||||||
| Unrecognized Tax Benefits at December 31 | $ | — | $ | 9,612 | $ | 28,074 | |||||||||||
During the years ending December 31, 2025 and 2024, due to the expiration of the statute of limitations we decreased our unrecognized tax benefits by $9.6 million and $16.9 million, respectively. On April 14, 2023, the Internal Revenue Service (IRS) issued Revenue Procedure 2023-15, which provides a safe harbor method of accounting for gas repairs expenditures. During the year ended December 31, 2023, we adopted this method and decreased our total unrecognized tax benefits by $0.5 million and recognized an income tax benefit of approximately $3.2 million for previously unrecognized tax benefits.
Our policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2025, we have no accrual for the payment of interest and penalties in the Consolidated Balance Sheets. As of December 31, 2024, we had $3.0 million accrued for the payment of interest and penalties.
Tax years 2022 and forward remain subject to examination by the IRS and state taxing authorities. During the first quarter of 2023 the IRS commenced and concluded a limited scope examination of our 2019 amended federal income tax return. This examination resulted in a reduction to our previously claimed alternative minimum tax credit refund that is reflected in the effective income tax rate reconciliation table above.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 12, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Feb 15, 2024 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.