NORTHWESTERN CORP (Form: 10-Q, Received: 11/02/2017 06:02:28)

Location of amount reclassified from AOCL to Income

Amount Reclassified from AOCL into Income during the Nine Months Ended September 30, 2017

Interest rate contracts

Interest Expense

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, 2017

OR

o		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: 1-10499

NORTHWESTERN CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		46-0172280
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
3010 W. 69 ^th Street, Sioux Falls, South Dakota		57108
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code: 605-978-2900

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 x	Accelerated Filer o	Non-accelerated Filer o	Smaller Reporting Company o	Emerging Growth Company o
		(Do not check if smaller reporting 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. Yes o No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

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

48,594,516 shares outstanding at October 27, 2017

NORTHWESTERN CORPORATION

FORM 10-Q

INDEX



		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
PART I. FINANCIAL INFORMATION		4
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Statements of Income — Three and Nine Months Ended September 30, 2017 and 2016	4
	Condensed Consolidated Statements of Comprehensive Income — Three and Nine Months Ended September 30, 2017 and 2016	5
	Condensed Consolidated Balance Sheets — September 30, 2017 and December 31, 2016	6
	Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2017 and 2016	7
	Condensed Consolidated Statements of Shareholders' Equity — Nine Months Ended September 30, 2017 and 2016	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	56
PART II. OTHER INFORMATION		57
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 6.	Exhibits	63
SIGNATURES		65

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 management's 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, management's 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, could have a material effect on our liquidity, results of operations and financial condition;


•	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 cost of sales 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 Corporation,” “NorthWestern Energy,” and “NorthWestern” refer specifically to NorthWestern Corporation and its subsidiaries.



PART 1. FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues
Electric	$	274,785		$	266,629		$	774,890		$	756,374
Gas	35,148			34,369			186,214			170,283
Total Revenues	309,933			300,998			961,104			926,657
Operating Expenses
Cost of sales	97,507			96,156			301,324			293,283
Operating, general and administrative	70,244			68,290			226,394			220,730
Property and other taxes	39,111			40,673			118,520			111,302
Depreciation and depletion	41,525			39,763			124,481			119,551
Total Operating Expenses	248,387			244,882			770,719			744,866
Operating Income	61,546			56,116			190,385			181,791
Interest Expense, net	(23,149		)	(21,049		)	(69,957		)	(71,979		)
Other Income (Loss)	790			(121		)	4,413			4,176
Income Before Income Taxes	39,187			34,946			124,841			113,988
Income Tax (Expense) Benefit	(2,775		)	9,659			(10,032		)	6,053
Net Income	$	36,412		$	44,605		$	114,809		$	120,041

Average Common Shares Outstanding	48,487			48,315			48,441			48,289
Basic Earnings per Average Common Share	$	0.75		$	0.92		$	2.37		$	2.49
Diluted Earnings per Average Common Share	$	0.75		$	0.92		$	2.37		$	2.48
Dividends Declared per Common Share	$	0.525		$	0.50		$	1.575		$	1.50

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net Income	$	36,412		$	44,605		$	114,809		120,041
Other comprehensive (loss) income, net of tax:
Foreign currency translation	(144		)	26			(197		)	(84		)
Reclassification of net losses (gains) on derivative instruments	92			(1,506		)	278			(1,432		)
Total Other Comprehensive (Loss) Income	(52		)	(1,480		)	81			(1,516		)
Comprehensive Income	$	36,360		$	43,125		$	114,890		$	118,525

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)



	September 30, 2017			December 31, 2016
ASSETS
Current Assets:
Cash and cash equivalents	$	7,868		$	5,079
Restricted cash	7,052			4,426
Accounts receivable, net	129,671			159,556
Inventories	56,527			49,206
Regulatory assets	40,940			50,041
Other	11,655			11,887
Total current assets	253,713			280,195
Property, plant, and equipment, net	4,309,293			4,214,892
Goodwill	357,586			357,586
Regulatory assets	658,623			602,943
Other noncurrent assets	49,740			43,705
Total Assets	$	5,628,955		$	5,499,321
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital leases	2,093			$	1,979
Short-term borrowings	269,738			300,811
Accounts payable	62,686			79,311
Accrued expenses	252,037			205,370
Regulatory liabilities	15,226			26,361
Total current liabilities	601,780			613,832
Long-term capital leases	22,767			24,346
Long-term debt	1,794,083			1,793,338
Deferred income taxes	634,278			575,582
Noncurrent regulatory liabilities	411,523			396,225
Other noncurrent liabilities	438,336			419,771
Total Liabilities	3,902,767			3,823,094
Commitments and Contingencies (Note 13)
Shareholders' Equity:
Common stock, par value $0.01; authorized 200,000,000 shares; issued and outstanding 52,175,549 and 48,563,559 shares, respectively; Preferred stock, par value $0.01; authorized 50,000,000 shares; none issued	522			520
Treasury stock at cost	(96,462		)	(95,769		)
Paid-in capital	1,395,666			1,384,271
Retained earnings	436,095			396,919
Accumulated other comprehensive loss	(9,633		)	(9,714		)
Total Shareholders' Equity	1,726,188			1,676,227
Total Liabilities and Shareholders' Equity	$	5,628,955		$	5,499,321

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



	Nine Months Ended September 30,
	2017			2016
OPERATING ACTIVITIES:
Net income	$	114,809		$	120,041
Items not affecting cash:
Depreciation and depletion	124,481			119,551
Amortization of debt issue costs, discount and deferred hedge gain	3,585			907
Stock-based compensation costs	4,998			4,474
Equity portion of allowance for funds used during construction	(4,098		)	(3,053		)
Gain on disposition of assets	(391		)	(15		)
Deferred income taxes	9,520			(6,533		)
Changes in current assets and liabilities:
Restricted cash	(2,626		)	(72		)
Accounts receivable	29,885			37,589
Inventories	(7,321		)	(853		)
Other current assets	232			(2,107		)
Accounts payable	(12,985		)	(16,568		)
Accrued expenses	46,667			60,852
Regulatory assets	9,101			6,847
Regulatory liabilities	(11,135		)	(56,831		)
Other noncurrent assets	(12,625		)	(4,234		)
Other noncurrent liabilities	8,454			(2,007		)
Cash Provided by Operating Activities	300,551			257,988
INVESTING ACTIVITIES:
Property, plant, and equipment additions	(196,985		)	(203,998		)
Proceeds from sale of assets	379			1,352
Cash Used in Investing Activities	(196,606		)	(202,646		)
FINANCING ACTIVITIES:
Treasury stock activity	899			(727		)
Proceeds from issuance of common stock, net	4,807			—
Dividends on common stock	(75,633		)	(71,816		)
Issuance of long-term debt	—			249,660
Repayments on long-term debt	—			(225,205		)
Repayments of short-term borrowings, net	(31,073		)	(7,563		)
Financing costs	(156		)	(6,608		)
Cash Used in Financing Activities	(101,156		)	(62,259		)
Increase (Decrease) in Cash and Cash Equivalents	2,789			(6,917		)
Cash and Cash Equivalents, beginning of period	5,079			11,980
Cash and Cash Equivalents, end of period	$	7,868		$	5,063
Supplemental Cash Flow Information:
Cash paid (received) during the period for:
Income taxes	$	61		$	(2,922	)
Interest	51,254			56,118
Significant non-cash transactions:
Capital expenditures included in accounts payable	9,973			11,803

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(in thousands, except per share data)



	Number of Common Shares	Number of Treasury Shares		Common Stock		Paid in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
Balance at December 31, 2015	51,789	3,617		$	518	$	1,376,291		$	(93,948	)	$	325,909		$	(8,596	)	$	1,600,174

Net income	—	—		—		—			—			120,041			—			120,041
Accounting standard adoption	—	—		—		—			—			2,603			—			2,603
Foreign currency translation adjustment	—	—		—		—			—			—			(84		)	(84		)
Reclassification of net gains on derivative instruments from OCI to net income, net of tax	—	—		—		—			—			—			(1,432		)	(1,432		)
Stock-based compensation	168	13		—		5,650			(1,904		)	—			—			3,746
Issuance of shares	—	—		2		(11		)	—			—			—			(9		)
Dividends on common stock ($1.50 per share)	—	—		—		—			—			(71,816		)	—			(71,816		)
Balance at September 30, 2016	51,957	3,630		$	520	$	1,381,930		$	(95,852	)	$	376,737		$	(10,112	)	$	1,653,223

Balance at December 31, 2016	51,958	3,626		$	520	$	1,384,271		$	(95,769	)	$	396,919		$	(9,714	)	$	1,676,227

Net income	—	—		—		—			—			114,809			—			114,809
Foreign currency translation adjustment	—	—		—		—			—			—			(197		)	(197		)
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—		—		—			—			—			278			278
Stock-based compensation	134	(14	)	2		6,588			(693		)	—			—			5,897
Issuance of shares	84	—		—		4,807						—			—			4,807
Dividends on common stock ($1.575 per share)	—	—		—		—			—			(75,633		)	—			(75,633		)
Balance at September 30, 2017	52,176	3,612		$	522	$	1,395,666		$	(96,462	)	$	436,095		$	(9,633	)	$	1,726,188

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Reference is made to Notes to Financial Statements included in NorthWestern Corporation’s Annual Report)

(Unaudited)


(1)	Nature of Operations and Basis of Consolidation

NorthWestern Corporation, doing business as NorthWestern Energy, provides electricity and natural gas to approximately 709,600 customers in Montana, South Dakota and Nebraska.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management 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 the opinion of management, 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 September 30, 2017 , 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, management believes that the condensed disclosures provided are adequate to make the information presented not misleading. Management recommends that these unaudited Financial Statements be read in conjunction with the audited financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2016 .

Variable Interest Entities

A reporting company is required to consolidate a variable interest entity (VIE) as its primary beneficiary, which means it has a controlling financial interest, when it has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. An entity is considered to be a VIE when its total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, or its equity investors, as a group, lack the characteristics of having a controlling financial interest. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance.

Certain long-term purchase power and tolling contracts may be considered variable interests. We have various long-term purchase power contracts with other utilities and certain qualifying co-generation facilities and qualifying small power production facilities (QF). We identified one QF contract that may constitute a VIE. We entered into a 40-year power purchase contract in 1984 with this 35 Megawatt (MW) coal-fired QF to purchase substantially all of the facility's capacity and electrical output over a substantial portion of its estimated useful life. We absorb a portion of the facility's variability through annual changes to the price we pay per Megawatt Hour (MWH). After making exhaustive efforts, we have been unable to obtain the information from the facility necessary to determine whether the facility is a VIE or whether we are the primary beneficiary of the facility. The contract with the facility contains no provision which legally obligates the facility to release this information. We have accounted for this QF contract as an executory contract. Based on the current contract terms with this QF, our estimated gross contractual payments aggregate approximately $226.3 million through 2024 .

(2) New Accounting Standards

Accounting Standards Adopted

Stock Compensation - During the fourth quarter of 2016, we early adopted the provisions of Accounting Standards Update No. 2016-09 (ASU 2016-09), Improvements to Employee Share-Based Payment Accounting, revising certain elements of the accounting for share-based payments. As a result of this adoption, during the fourth quarter of 2016, excess tax benefits of $1.8 million related to vested share-based compensation awards were recorded as a decrease in income tax expense and a $ 0.04 increase in our earnings per share in the Consolidated Statements of Income. In addition, we recorded a cumulative-effect adjustment to retained earnings as of the date of adoption of $2.6 million in the Consolidated Balance Sheets. The guidance also requires that in future filings that include the previously issued interim financial information, the interim financial information is presented on a recast basis to reflect the adoption of ASU 2016-09 as of January 1, 2016. The Condensed

Consolidated Financial Statements for nine months ended September 30, 2016 , have been recast to reflect this adoption, resulting in an increase in net income and earnings per share.

Accounting Standards Issued

Revenue Recognition - In May 2014, the Financial Accounting Standards Board (FASB) issued accounting guidance on the recognition of revenue from contracts with customers, which will supersede nearly all existing revenue recognition guidance under GAAP. Under the new standard, entities will recognize revenue to depict the transfer of goods and services to customers in amounts that reflect the payment to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows from an entity’s contracts with customers.

We expect to adopt this standard for interim and annual periods beginning January 1, 2018, as required, and plan to use the modified retrospective method of adoption. We have also elected to utilize certain practical expedients, which allow us to apply the standard to open contracts at the date of adoption and to reflect the aggregate effect of all modifications when identifying performance obligations and allocating the transaction price for contracts modified before the effective date. Under the modified retrospective method of adoption, prior year reported results are not restated; however, a cumulative-effect adjustment to retained earnings at January 1, 2018 is recorded, if applicable, as if the standard had always been in effect. In addition, disclosures in 2018 will include a reconciliation of results under the new revenue recognition guidance compared with what would have been reported in 2018 under the old revenue recognition guidance in order to help facilitate comparability with the prior periods.

Our revenues are primarily from tariff based sales, which are in the scope of the guidance. We provide gas and/or electricity to customers under these tariffs without a defined contractual term (‘at-will’). We expect that the revenue from these arrangements will be equivalent to the electricity or gas supplied and billed in that period (including estimated billings). As such, we do not expect that there will be a significant shift in the timing or pattern of revenue recognition for such sales. The evaluation of other revenue streams is ongoing, including those tied to longer term contractual commitments. In our evaluation, we are also monitoring unresolved implementation issues for our industry, including the impacts of the guidance on our ability to recognize revenue for certain contracts where collectability is uncertain. The final resolution of these issues and completion of our assessment could impact our current accounting policies and revenue recognition.

Retirement Benefits - In March 2017, the FASB issued new guidance on the presentation of net periodic costs related to benefit plans. The new guidance requires the service cost component of net periodic benefit cost to be included within operating income within the same line as other compensation expenses. All other components of net periodic costs must be outside of operating income. In addition, the updated guidance permits only the service cost component of net periodic costs to be capitalized to inventory or property, plant and equipment. This represents a change from current accounting and financial reporting, with presentation of the aggregate net periodic benefit costs on the income statement within operating income, and which permits all components of net periodic costs to be capitalized.

This guidance is effective for interim and annual periods beginning January 1, 2018. These amendments will be applied retrospectively for the presentation of the various components of net periodic costs and prospectively for the change in eligible costs to be capitalized. We have not yet fully determined the impacts of adoption of the standard, but expect that as a result of application of accounting principles for rate regulated entities, a similar amount of pension cost, including non-service components, will be recognized consistent with the current ratemaking treatment.

Leases - In February 2016, the FASB issued revised guidance on accounting for leases. The new standard requires a lessee to recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term for all leases with terms longer than 12 months. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The new guidance will be effective for us for interim and annual periods beginning January 1, 2019 and early adoption is permitted. A modified retrospective transition approach is required for lessees for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the impact of adoption of this guidance. We do not have a significant amount of capital or operating leases. Therefore, based on our initial analysis we do not expect this guidance to have a significant impact on our Financial Statements and disclosures other than an expected increase in assets and liabilities.

Statement of Cash Flows - In August 2016, the FASB issued guidance that addresses eight classification issues related to the presentation of cash receipts and cash payments in the statement of cash flows. The new guidance will be effective for us in

our first quarter of 2018, with early adoption permitted. We are currently evaluating the impact of adoption of this guidance on our Statement of Cash Flows.

In November 2016, the FASB issued guidance that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The new guidance will be effective for us in our first quarter of 2018, with early adoption permitted. We are currently evaluating the impact of adoption of this guidance on our Statement of Cash Flows.

(3) Regulatory Matters

Montana Natural Gas General Rate Filing

In June 2017, we reached a settlement agreement with intervenors in our natural gas rate case. This settlement included an overall increase in delivery services and production charges of approximately $5.7 million , based upon a 6.96 percent rate of return ( 9.55 percent return on equity, 4.67 percent cost of debt and 53.2 percent debt to rate base). In our initial filing in September 2016, we requested an annual increase to natural gas rates of approximately $10.9 million , with rebuttal testimony filed in April 2017 supporting a revised requested annual increase to rates of approximately $9.4 million . The natural gas production part of this filing included a request for cost-recovery and permanent inclusion in base rates of fields acquired in August 2012 and December 2013 in northern Montana's Bear Paw Basin. Actual production costs were recovered in customer rates on an interim basis through our supply tracker.

The Montana Public Service Commission (MPSC) issued an order in August 2017, accepting the settlement with modifications resulting in an annual increase in delivery services and production charges of approximately $5.1 million , and including an annual reduction in production rates to reflect depletion until our next rate filing. Rates were effective September 1, 2017.

Montana QF Tariff Filing

Under the Public Utility Regulatory Policies Act (PURPA), electric utilities are required, with exceptions, to purchase energy and capacity from independent power producers that are QFs. The MPSC held a work session in June 2017 to discuss our application for approval of a revised tariff for standard rates for small QFs (3 MW or less). In July 2017, the MPSC issued an order establishing a maximum 10-year contract length with a rate adjustment after the first five years, and approving rates that do not include costs associated with the risk of future carbon dioxide emissions regulations. In this same order, the MPSC indicated it would apply the 10-year contract term to us for future electric supply resource transactions. We and other parties filed motions for reconsideration of this decision. Although the MPSC voted in October 2017 to revise the initial order extending the contract length to 15 years and to continue to apply the contract term to both QF contracts and our future electric supply resource, the MPSC has not yet issued a final order. Based on the MPSC’s October 2017 vote, we expect that the decision will result in substantially lower rates for future QF contracts.

As a result of the MPSC’s July order, we suspended our competitive solicitation process to determine the lowest-cost / least-risk approach for addressing our intermittent capacity and reserve margin needs in Montana. We have significant generation capacity deficits and negative reserve margins, and our 2016 resource plan identified price and reliability risks to our customers if we rely solely upon market purchases to address these capacity needs. In addition to our responsibility to meet peak demand, national reliability standards effective July 2016 require us to have even greater dispatchable generation capacity available and be capable of increasing or decreasing output to address the irregular nature of intermittent generation such as wind or solar. A final determination regarding the competitive solicitation will be dependent upon reviewing the MPSC's final order. We expect the order to be issued during the fourth quarter of 2017.

Montana House Bill 193 / Electric and Natural Gas Tracker Filings

House Bill 193 - In April 2017, the Montana legislature passed House Bill 193 (HB 193), repealing the statutory language that provided for mandatory recovery of our prudently incurred electric supply costs effective July 1, 2017. The enacted legislation gives the MPSC discretion whether to approve an electric supply cost adjustment mechanism. In May 2017, the MPSC issued a Notice of Commission Action (NCA) initiating a process to develop a replacement electric supply cost adjustment mechanism. We filed a motion for reconsideration of the May 2017 NCA. On July 7, 2017, the MPSC issued an additional NCA addressing the arguments in our motion for reconsideration and identifying three replacement mechanism alternatives for consideration. Two of the MPSC's replacement mechanism alternatives include updating the fixed rate portion of the recovery of our electric supply assets in addition to the variable costs that were recovered through the prior electric tracker.

On July 14, 2017, responsive to the NCA, we filed a proposed electric Power Cost and Credit Adjustment Mechanism (PCCAM) with the MPSC. The MPSC held work sessions to consider whether to require us to make a filing similar to a rate case filing by September 30, 2017, regarding electric supply costs and generation assets. On August 1, 2017, the MPSC concluded its work session. The MPSC declined to require us to submit the additional filing, and requested staff to establish a procedural schedule in the docket. In September 2017, the MPSC established a procedural schedule, with a hearing scheduled in March 2018. We believe our July 2017 PCCAM filing is consistent with the MPSC's advocacy for HB 193, the MPSC's May and July 2017 NCAs, and the Montana-Dakota Utilities (MDU) adjustment mechanism used in Montana that allows for recovery of 90 percent of the increases or decreases in fuel and purchased energy costs from an established baseline. However, we cannot guarantee how the MPSC may apply the statute in establishing a revised mechanism for us. If the MPSC approves a new mechanism, we expect the MPSC will apply the mechanism to variable costs on a retroactive basis to the effective date of HB 193 (July 1, 2017).

Electric Tracker Open Dockets - 2015/2016 - 2016/2017 - Under the previous statutory tracker mechanism, each year we submitted an electric tracker filing for recovery of supply costs for the 12-month period ended June 30 and for the projected supply costs for the next 12-month period, which were subject to a prudency review. In June 2017, the MPSC consolidated the supply costs portion of the 2016/2017 docket with the 2015/2016 docket. The rates for this consolidated docket were approved on an interim basis. The MPSC has not established a schedule regarding this docket under the prior statutory tracker. In addition, the MPSC consolidated the projected supply costs portion of the 2016/2017 docket with the PCCAM docket, discussed above.

Natural Gas Tracker - 2016/2017 - In May 2017, we filed our annual natural gas tracker filing for the 2016/2017 tracker period, which the MPSC approved on an interim basis. The MPSC issued a Procedural Order in this docket, which provides for a hearing commencing in December 2017. HB 193 does not impact our natural gas recovery mechanism.

Electric Tracker Litigation - 2012/2013 - 2013/2014 (Consolidated Docket) and 2014/2015 (2015 Tracker) - In 2016, we received final electric tracker orders from the MPSC in the Consolidated Docket and 2015 Tracker, resulting in a $12.4 million disallowance of costs, including interest. In June 2016, we filed an appeal in Montana District Court (Lewis & Clark County) of the MPSC decision in our 2015 Tracker docket to disallow certain portfolio modeling costs. Also, in September 2016, we appealed the MPSC’s decisions in the Consolidated Docket regarding the disallowance of replacement power costs from a 2013 outage at Colstrip Unit 4 and the modeling/planning costs, arguing that these decisions were arbitrary and capricious, and violated Montana law. We brought this action in Montana District Court, as well (Yellowstone County). In the Consolidated Docket appeal, we abandoned our appeal of the modeling costs (approximately $0.3 million ) reserving the issue for our 2015 Tracker appeal. We expect a decision in the Consolidated Docket within the next 12 months, and a decision in the 2015 Tracker appeal in the next three to six months.

Montana Property Tax Tracker

Under Montana law, we are allowed to track the changes in the actual level of state and local taxes and fees and recover 60 percent of the change in rates. We submit an annual property tax tracker filing with the MPSC for an automatic rate adjustment, with rates typically effective January 1st of each year. The MPSC identified concerns with the amount of annual increases proposed by the Montana Department of Revenue. In June 2017, the MPSC adopted new rules to establish minimum filing requirements for our statutory property tax tracker filing. Some of the rules appear to be based on a narrow interpretation of the statutory language and suggest that the MPSC will challenge the amount and allocation of these taxes to customers. We expect to submit our annual property tax tracker filing in December 2017, with resolution during the first quarter of 2018.

FERC Filing - Dave Gates Generating Station at Mill Creek (DGGS)

In May 2016, we received an order from the Federal Energy Regulatory Commission (FERC) denying a May 2014 request for rehearing and requiring us to make refunds. The request for rehearing challenged a September 2012 FERC Administrative Law Judge's (ALJ) initial decision regarding cost allocation at DGGS between retail and wholesale customers. This decision concluded that only a portion of these costs should be allocated to FERC jurisdictional customers. We had cumulative deferred revenue of approximately $27.3 million , consistent with the ALJ's initial decision, which was refunded to wholesale and choice customers in June 2016 in accordance with the FERC order.

In June 2016, we filed a petition for review of the FERC's May 2016 order with the United States Circuit Court of Appeals for the District of Columbia Circuit (D.C. Circuit). The matter is fully briefed, and oral argument is scheduled for December 1, 2017. We do not expect a decision in this matter until the first quarter of 2018, at the earliest.

(4) Income Taxes

The following table summarizes the significant differences in income tax expense based on the differences between our effective tax rate and the federal statutory rate (in thousands):



	Three Months Ended September 30,
	2017					2016
Income Before Income Taxes	$	39,187				$	34,946

Income tax calculated at 35% federal statutory rate	13,715			35.0	%	12,231			35.0	%

Permanent or flow through adjustments:
State income, net of federal provisions	(678		)	(1.7	)	(615		)	(1.8	)
Flow-through repairs deductions	(7,014		)	(17.9	)	(18,995		)	(54.4	)
Production tax credits	(2,254		)	(5.8	)	(2,218		)	(6.3	)
Plant and depreciation of flow through items	(77		)	(0.2	)	(243		)	(0.7	)
Prior year permanent return to accrual adjustments	(850		)	(2.2	)	—			—
Other, net	(67		)	(0.1	)	181			0.6
	(10,940		)	(27.9	)	(21,890		)	(62.6	)

Income Tax Expense (Benefit)	$	2,775		7.1	%	$	(9,659	)	(27.6	)%



	Nine Months Ended September 30,
	2017					2016
Income Before Income Taxes	$	124,841				$	113,988

Income tax calculated at 35% federal statutory rate	43,694			35.0	%	39,896			35.0	%

Permanent or flow through adjustments:
State income, net of federal provisions (1)	(2,004		)	(1.6	)	(2,907		)	(2.6	)
Flow-through repairs deductions	(20,564		)	(16.5	)	(32,640		)	(28.6	)
Production tax credits	(7,544		)	(6.0	)	(7,317		)	(6.4	)
Plant and depreciation of flow through items	(2,203		)	(1.8	)	(1,427		)	(1.3	)
Share-based compensation (1)	(399		)	(0.3	)	(1,646		)	(1.4	)
Prior year permanent return to accrual adjustments	(850		)	(0.7	)	(128		)	(0.1	)
Other, net	(98		)	(0.1	)	116			0.1
	(33,662		)	(27.0	)	(45,949		)	(40.3	)

Income Tax Expense (Benefit)	$	10,032		8.0	%	$	(6,053	)	(5.3	)%

(1) We adopted the provisions of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, during the fourth quarter of 2016, which resulted in the recognition of $1.8 million in excess tax benefits. In accordance with the guidance, the impact of this adoption is reflected as of January 1, 2016, and included in the state income, net of federal provisions, and share-based compensation lines, resulting in a reduction in tax expense for the nine months ended September 30, 2016 .

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 of 35% 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.

In 2013, the Internal Revenue Service (IRS) issued guidance related to the repair and maintenance of utility generation assets. During the third quarter of 2016, we filed a tax accounting method change with the IRS consistent with the guidance for generation property. This enabled us to take a current tax deduction for a significant amount of repair costs that were previously capitalized for tax purposes. As discussed above, we flow this current tax deduction through to our customers in rate cases. Consistent with this regulatory treatment, we recorded an income tax benefit of approximately $15.5 million during the three months ended September 30, 2016, of which approximately $12.5 million related to 2015 and prior tax years and is reflected in the flow-through repairs deductions line above.

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 have unrecognized tax benefits of approximately $82.3 million as of September 30, 2017 , including approximately $66.1 million that, if recognized, would impact our effective tax rate. We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits or the expiration of statutes of limitation within the next twelve months.

Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. During the nine months ended September 30, 2017 and 2016 , we recognized $0.6 million and $0.5 million , respectively, of expense for interest and penalties in the Condensed Consolidated Statements of Income. As of September 30, 2017 and December 31, 2016 , we had $1.3 million and $0.7 million , respectively, of interest accrued in the Condensed Consolidated Balance Sheets.

Our federal tax returns from 2000 forward remain subject to examination by the IRS.

(5) Goodwill

We completed our annual goodwill impairment test as of April 1, 2017, 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.

There were no changes in our goodwill during the nine months ended September 30, 2017 . Goodwill by segment is as follows for both September 30, 2017 and December 31, 2016 (in thousands):



Electric	$	243,558
Natural gas	114,028
Total	$	357,586

(6) Comprehensive Income (Loss)

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



	Three Months Ended
	September 30, 2017									September 30, 2016
	Before-Tax Amount			Tax Expense			Net-of-Tax Amount			Before-Tax Amount			Tax Expense		Net-of-Tax Amount
Foreign currency translation adjustment	$	(144	)	$	—		$	(144	)	$	26		$	—	$	26
Reclassification of net losses (gains) on derivative instruments	152			(60		)	92			(2,448		)	942		(1,506		)
Other comprehensive income (loss)	$	8		$	(60	)	$	(52	)	$	(2,422	)	$	942	$	(1,480	)



	Nine Months Ended
	September 30, 2017									September 30, 2016
	Before-Tax Amount			Tax Expense			Net-of-Tax Amount			Before-Tax Amount			Tax Expense		Net-of-Tax Amount
Foreign currency translation adjustment	$	(197	)	$	—		$	(197	)	$	(84	)	$	—	$	(84	)
Reclassification of net losses (gains) on derivative instruments	458			(180		)	278			(2,324		)	892		(1,432		)
Other comprehensive income (loss)	$	261		$	(180	)	$	81		$	(2,408	)	$	892	$	(1,516	)

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



	September 30, 2017			December 31, 2016
Foreign currency translation	$	1,183		$	1,380
Derivative instruments designated as cash flow hedges	(10,074		)	(10,352		)
Postretirement medical plans	(742		)	(742		)
Accumulated other comprehensive loss	$	(9,633	)	$	(9,714	)

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



		Three Months Ended
		September 30, 2017
	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		$	(10,166	)	$	(742	)	$	1,327		$	(9,581	)
Other comprehensive loss before reclassifications		—			—			(144		)	(144		)
Amounts reclassified from AOCL	Interest Expense	92			—			—			92
Net current-period other comprehensive income (loss)		92			—			(144		)	(52		)
Ending balance		$	(10,074	)	$	(742	)	$	1,183		$	(9,633	)



		Three Months Ended
		September 30, 2016
	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		$	(8,940	)	$	(937	)	$	1,245	(8,632		)
Other comprehensive income before reclassifications		—			—			26		26
Amounts reclassified from AOCL	Interest Expense	(1,506		)	—			—		(1,506		)
Net current-period other comprehensive (loss) income		(1,506		)	—			26		(1,480		)
Ending balance		$	(10,446	)	$	(937	)	$	1,271	$	(10,112	)



		Nine Months Ended
		September 30, 2017
	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		$	(10,352	)	$	(742	)	$	1,380		$	(9,714	)
Other comprehensive loss before reclassifications		—			—			(197		)	(197		)
Amounts reclassified from AOCL	Interest Expense	278			—			—			278
Net current-period other comprehensive income (loss)		278			—			(197		)	81
Ending balance		$	(10,074	)	$	(742	)	$	1,183		$	(9,633	)



		Nine Months Ended
		September 30, 2016
	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		$	(9,014	)	$	(937	)	$	1,355		$	(8,596	)
Other comprehensive loss before reclassifications		—			—			(84		)	(84		)
Amounts reclassified from AOCL	Interest Expense	(1,432		)	—			—			(1,432		)
Net current-period other comprehensive loss		(1,432		)	—			(84		)	(1,516		)
Ending balance		$	(10,446	)	$	(937	)	$	1,271		$	(10,112	)

(7) Risk Management and Hedging Activities

Nature of Our Business and Associated Risks

We are exposed to certain risks related to the ongoing operations of our business, including the impact of market fluctuations in the price of electricity and natural gas commodities and changes in interest rates. We rely on market purchases to fulfill a portion of our electric and natural gas supply requirements. Several factors influence price levels and volatility. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, fuel availability, market liquidity, and the nature and extent of current and potential federal and state regulations.

Objectives and Strategies for Using Derivatives

To manage our exposure to fluctuations in commodity prices we routinely enter into derivative contracts. These types of contracts are included in our electric and natural gas supply portfolios and are used to manage price volatility risk by taking advantage of fluctuations in market prices. While individual contracts may be above or below market value, the overall portfolio approach is intended to provide greater price stability for consumers. We do not maintain a trading portfolio, and our derivative transactions are only used for risk management purposes consistent with regulatory guidelines.

In addition, we may use interest rate swaps to manage our interest rate exposures associated with new debt issuances or to manage our exposure to fluctuations in interest rates on variable rate debt.

Accounting for Derivative Instruments

We evaluate new and existing transactions and agreements to determine whether they are derivatives. The permitted accounting treatments include: normal purchase normal sale (NPNS); cash flow hedge; fair value hedge; and mark-to-market. Mark-to-market accounting is the default accounting treatment for all derivatives unless they qualify, and we specifically designate them, for one of the other accounting treatments. Derivatives designated for any of the elective accounting treatments must meet specific, restrictive criteria both at the time of designation and on an ongoing basis. The changes in the fair value of recognized derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction.

Normal Purchases and Normal Sales

We have applied the NPNS to our contracts involving the physical purchase and sale of gas and electricity at fixed prices in future periods. During our normal course of business, we enter into full-requirement energy contracts, power purchase agreements and physical capacity contracts, which qualify for NPNS. All of these contracts are accounted for using the accrual method of accounting; therefore, there were no unrealized amounts recorded in the Financial Statements at September 30, 2017 and December 31, 2016 . Revenues and expenses from these contracts are reported on a gross basis in the appropriate revenue and expense categories as the commodities are received or delivered.

Credit Risk

Credit risk is the potential loss resulting from counterparty non-performance under an agreement. We manage credit risk with policies and procedures for, among other things, counterparty analysis and exposure measurement, monitoring and mitigation. We limit credit risk in our commodity and interest rate derivatives activities by assessing the creditworthiness of potential counterparties before entering into transactions with them and continuing to evaluate their creditworthiness on an ongoing basis.

We are exposed to credit risk through buying and selling electricity and natural gas to serve customers. We may request collateral or other security from our counterparties based on the assessment of creditworthiness and expected credit exposure. It is possible that volatility in commodity prices could cause us to have material credit risk exposures with one or more counterparties. We enter into commodity master enabling agreements with our counterparties to mitigate credit exposure, as these agreements reduce the risk of default by allowing us or our counterparty the ability to make net payments. The agreements generally are: (1) Western Systems Power Pool agreements – standardized power purchase and sales contracts in the electric industry; (2) International Swaps and Derivatives Association agreements – standardized financial gas and electric contracts; (3) North American Energy Standards Board agreements – standardized physical gas contracts; and (4) Edison Electric Institute Master Purchase and Sale Agreements – standardized power sales contracts in the electric industry.

Many of our forward purchase contracts contain provisions that require us to maintain an investment grade credit rating from each of the major credit rating agencies. If our credit rating were to fall below investment grade, the counterparties could require immediate payment or demand immediate and ongoing full overnight collateralization on contracts in net liability positions.

Interest Rate Swaps Designated as Cash Flow Hedges

We have previously used interest rate swaps designated as cash flow hedges to manage our interest rate exposures associated with new debt issuances. We have no interest rate swaps outstanding. These swaps were designated as cash flow hedges with the effective portion of gains and losses, net of associated deferred income tax effects, recorded in AOCL. We reclassify these gains from AOCL into interest expense during the periods in which the hedged interest payments occur. The following table shows the effect of these interest rate swaps previously terminated on the Financial Statements (in thousands):

A pre-tax loss of approximately $16.6 million is remaining in AOCL as of September 30, 2017 , and we expect to reclassify approximately $0.6 million of pre-tax losses from AOCL into interest expense during the next twelve months. These amounts relate to terminated swaps.

(8) Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Measuring fair value requires the use of market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, corroborated by market data, or generally unobservable. Valuation techniques are required to maximize the use of observable inputs and minimize the use of unobservable inputs.

Applicable accounting guidance establishes a hierarchy that prioritizes the inputs used to measure fair value, and requires fair value measurements to be categorized based on the observability of those inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The three levels of the fair value hierarchy are as follows:


•	Level 1 – Unadjusted quoted prices available in active markets at the measurement date for identical assets or liabilities;


•	Level 2 – Pricing inputs, other than quoted prices included within Level 1, which are either directly or indirectly observable as of the reporting date; and


•	Level 3 – Significant inputs that are generally not observable from market activity.

We classify assets and liabilities within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement of each individual asset and liability taken as a whole. The table below sets forth by level within the fair value hierarchy the gross components of our assets and liabilities measured at fair value on a recurring basis. NPNS transactions are not included in the fair values by source table as they are not recorded at fair value. See Note 7 - Risk Management and Hedging Activities for further discussion.

We record transfers between levels of the fair value hierarchy, if necessary, at the end of the reporting period. There were no transfers between levels for the periods presented.



	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Margin Cash Collateral Offset		Total Net Fair Value
	(in thousands)
September 30, 2017
Restricted cash	$	6,799	$	—	$	—	$	—	$	6,799
Rabbi trust investments	27,425		—		—		—		27,425
Total	$	34,224	$	—	$	—	$	—	$	34,224

December 31, 2016
Restricted cash	$	4,164	$	—	$	—	$	—	$	4,164
Rabbi trust investments	25,064		—		—		—		25,064
Total	$	29,228	$	—	$	—	$	—	$	29,228

Restricted cash represents amounts held in money market mutual funds. Rabbi trust investments represent assets held for non-qualified deferred compensation plans, which consist of our common stock and actively traded mutual funds with quoted prices in active markets.

Financial Instruments

The estimated fair value of financial instruments is summarized as follows (in thousands):



	September 30, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
Long-term debt	$	1,794,083	$	1,897,140	$	1,793,338	$	1,852,052

Short-term borrowings consist of commercial paper and are not included in the table above as carrying value approximates fair value. The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies; however, considerable judgment is required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we would realize in a current market exchange.

We determined fair value for long-term debt based on interest rates that are currently available to us for issuance of debt with similar terms and remaining maturities, except for publicly traded debt, for which fair value is based on market prices for the same or similar issues or upon the quoted market prices of U.S. treasury issues having a similar term to maturity, adjusted for our bond issuance rating and the present value of future cash flows. These are significant other observable inputs, or level 2 inputs, in the fair value hierarchy.

(9) Financing Activities

In September 2017 , we entered into an Equity Distribution Agreement with Merrill Lynch, Pierce, Fenner & Smith and J.P. Morgan Securities LLC, collectively the sales agents, pursuant to which we may offer and sell shares of our common stock from time to time, having an aggregate gross sales price of up to $100 million . During the third quarter of 2017, we sold 83,769 shares of our common stock at an average price of $59.56 per share. Proceeds received were approximately $4.8 million , which are net of sales commissions and other fees paid of approximately $0.2 million .

In October 2017, we priced $250 million aggregate principal amount of Montana First Mortgage Bonds, at a fixed interest rate of 4.03% maturing in 2047 . We expect to close the transaction in early November 2017, and will issue the bonds in transactions exempt from the registration requirements of the Securities Act of 1933, as amended. Proceeds will be used to redeem our 6.34% , $250 million of Montana First Mortgage Bonds due 2019 . The bonds will be secured by our electric and natural gas assets in Montana.

(10) 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.

We evaluate the performance of these segments based on gross 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 management for internal reporting purposes and involves estimates and assumptions.

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



Three Months Ended
September 30, 2017	Electric			Gas			Other			Eliminations		Total
Operating revenues	$	274,785		$	35,148		$	—		$	—	$	309,933
Cost of sales	91,327			6,180			—			—		97,507
Gross margin	183,458			28,968			—			—		212,426
Operating, general and administrative	53,535			19,280			(2,571		)	—		70,244
Property and other taxes	30,754			8,355			2			—		39,111
Depreciation and depletion	34,127			7,390			8			—		41,525
Operating income (loss)	65,042			(6,057		)	2,561			—		61,546
Interest expense	(20,644		)	(1,418		)	(1,087		)	—		(23,149		)
Other income (loss)	1,247			732			(1,189		)	—		790
Income tax (expense) benefit	(4,153		)	2,334			(956		)	—		(2,775		)
Net income (loss)	$	41,492		$	(4,409	)	$	(671	)	$	—	$	36,412
Total assets	$	4,498,807		$	1,127,464		$	2,684		$	—	$	5,628,955
Capital expenditures	$	62,799		$	15,063		$	—		$	—	$	77,862



Three Months Ended
September 30, 2016	Electric			Gas			Other			Eliminations		Total
Operating revenues	$	266,629		$	34,369		$	—		$	—	$	300,998
Cost of sales	89,681			6,475			—			—		96,156
Gross margin	176,948			27,894			—			—		204,842
Operating, general and administrative	50,460			19,141			(1,311		)	—		68,290
Property and other taxes	32,343			8,328			2			—		40,673
Depreciation and depletion	32,549			7,206			8			—		39,763
Operating income (loss)	61,596			(6,781		)	1,301			—		56,116
Interest expense	(19,099		)	(1,249		)	(701		)	—		(21,049		)
Other income (loss)	982			345			(1,448		)	—		(121		)
Income tax benefit	7,946			1,169			544			—		9,659
Net income (loss)	$	51,425		$	(6,516	)	$	(304	)	$	—	$	44,605
Total assets	$	4,294,549		$	1,093,333		$	6,059		$	—	$	5,393,941
Capital expenditures	$	66,322		$	16,430		$	—		$	—	$	82,752



Nine Months Ended
September 30, 2017	Electric			Gas			Other			Eliminations		Total
Operating revenues	$	774,890		$	186,214		$	—		$	—	$	961,104
Cost of sales	246,858			54,466			—			—		301,324
Gross margin	528,032			131,748			—			—		659,780
Operating, general and administrative	166,240			61,115			(961		)	—		226,394
Property and other taxes	92,824			25,688			8			—		118,520
Depreciation and depletion	102,302			22,155			24			—		124,481
Operating income	166,666			22,790			929			—		190,385
Interest expense	(62,745		)	(4,464		)	(2,748		)	—		(69,957		)
Other income	2,870			1,449			94			—		4,413
Income tax (expense) benefit	(7,563		)	(3,800		)	1,331			—		(10,032		)
Net income (loss)	$	99,228		$	15,975		$	(394	)	$	—	$	114,809
Total assets	$	4,498,807		$	1,127,464		$	2,684		$	—	$	5,628,955
Capital expenditures	$	159,835		$	37,150		$	—		$	—	$	196,985



Nine Months Ended
September 30, 2016	Electric			Gas			Other			Eliminations		Total
Operating revenues	$	756,374		$	170,283		$	—		$	—	$	926,657
Cost of sales	245,470			47,813			—			—		293,283
Gross margin	510,904			122,470			—			—		633,374
Operating, general and administrative	157,471			61,638			1,621			—		220,730
Property and other taxes	87,094			24,200			8			—		111,302
Depreciation and depletion	97,614			21,913			24			—		119,551
Operating income (loss)	168,725			14,719			(1,653		)	—		181,791
Interest expense	(65,273		)	(5,018		)	(1,688		)	—		(71,979		)
Other income	2,136			925			1,115			—		4,176
Income tax benefit (expense) (1)	3,600			(574		)	3,027			—		6,053
Net income (1)	$	109,188		$	10,052		$	801		$	—	$	120,041
Total assets	$	4,294,549		$	1,093,333		$	6,059		$	—	$	5,393,941
Capital expenditures	$	165,885		$	38,113		$	—		$	—	$	203,998

______________

(1) We adopted the provisions of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, during the fourth quarter of 2016, which resulted in the recognition of $1.8 million in excess tax benefits. In accordance with the guidance, the $1.8 million impact of this adoption is reflected as of January 1, 2016, which resulted in an increase in net income for the nine months ended September 30, 2016 .

(11) Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of common stock equivalent shares that could occur if all unvested shares were to vest. Common stock equivalent shares are calculated using the treasury stock method, as applicable. The dilutive effect is computed by dividing earnings applicable to common stock by the weighted average number of common shares outstanding plus the effect of the outstanding unvested performance share awards. Average shares used in computing the basic and diluted earnings per share are as follows:



	Three Months Ended
	September 30, 2017	September 30, 2016
Basic computation	48,486,899	48,314,783
Dilutive effect of:
Performance share awards (1)	64,598	175,533

Diluted computation	48,551,497	48,490,316



	Nine Months Ended
	September 30, 2017	September 30, 2016
Basic computation	48,441,463	48,288,678
Dilutive effect of:
Performance share awards (1)	65,323	175,781

Diluted computation	48,506,786	48,464,459

_______

(1) Performance share awards are included in diluted weighted average number of shares outstanding based upon what would be issued if the end of the most recent reporting period was the end of the term of the award.

We adopted the provisions of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, during the fourth quarter of 2016. Under this ASU, the assumed proceeds from applying the treasury stock method when computing earnings per share no longer includes the amount of excess tax benefits or deficiencies that used to be recognized as additional paid-in capital. This change in the treasury stock method was made on a prospective basis, with adjustments reflected as of January 1, 2016. The changes to the treasury stock method required by this ASU increased dilutive shares by 20,996 and 20,892 for the three and nine months ended September 30, 2016, respectively.

(12) Employee Benefit Plans

Net periodic benefit cost (income) for our pension and other postretirement plans consists of the following (in thousands):



	Pension Benefits						Other Postretirement Benefits
	Three Months Ended September 30,						Three Months Ended September 30,
	2017			2016			2017			2016
Components of Net Periodic Benefit Cost (Income)
Service cost	$	2,749		$	2,939		$	114		$	123
Interest cost	6,408			6,553			178			198
Expected return on plan assets	(5,991		)	(7,062		)	(211		)	(261		)
Amortization of prior service cost	1			62			(471		)	(471		)
Recognized actuarial loss	1,959			2,472			80			78
Net Periodic Benefit Cost (Income)	$	5,126		$	4,964		$	(310	)	$	(333	)



	Pension Benefits						Other Postretirement Benefits
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Components of Net Periodic Benefit Cost (Income)
Service cost	$	8,246		$	8,819		$	342		$	369
Interest cost	19,225			19,658			536			596
Expected return on plan assets	(17,973		)	(21,186		)	(635		)	(782		)
Amortization of prior service cost	3			185			(1,412		)	(1,412		)
Recognized actuarial loss	5,878			7,416			239			236
Net Periodic Benefit Cost (Income)	$	15,379		$	14,892		$	(930	)	$	(993	)

(13) Commitments and Contingencies



ENVIRONMENTAL LIABILITIES AND REGULATION

Environmental Matters

The operation of electric generating, transmission and distribution facilities, and gas gathering, 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, protection of natural resources, avian and wildlife. We monitor federal, state, and local environmental initiatives to determine potential impacts on our financial results. As new laws or regulations are implemented, our policy is to assess their applicability and implement the necessary modifications to our facilities or their operation to maintain ongoing compliance.

Our environmental exposure includes a number of components, including remediation expenses related to the cleanup of current or former properties, and costs to comply with changing environmental regulations related to our operations. At present, the majority of our environmental reserve relates to the remediation of former manufactured gas plant sites owned by us and is estimated to range between $27.9 million to $32.6 million . As of September 30, 2017 , we have a reserve of approximately $30.1 million , which has not been discounted. Environmental costs are recorded when it is probable we are liable for the remediation and we can reasonably estimate the liability. We use a combination of site investigations and monitoring to formulate an estimate of environmental remediation costs for specific sites. Our monitoring procedures and development of actual remediation plans depend not only on site specific information but also on coordination with the different environmental regulatory agencies in our respective jurisdictions; therefore, while remediation exposure exists, it may be many years before costs are incurred.

Over time, as costs become determinable, we may seek authorization to recover such costs in rates or seek insurance reimbursement as applicable; therefore, although we cannot guarantee regulatory recovery, we do not expect these costs to have a material effect on our consolidated financial position or results of operations.

Manufactured Gas Plants - Approximately $23.4 million of our environmental reserve accrual is related to manufactured gas plants. A formerly operated manufactured gas plant located in Aberdeen, South Dakota, has been identified on the Federal Comprehensive Environmental Response, Compensation, and Liability Information System list as contaminated with coal tar residue. We are currently conducting feasibility studies, implementing remedial actions pursuant to work plans approved by the South Dakota Department of Environment and Natural Resources, and conducting ongoing monitoring and operation and maintenance activities. As of September 30, 2017 , the reserve for remediation costs at this site is approximately $10.3 million , and we estimate that approximately $5.7 million of this amount will be incurred during the next five years.

We also own sites in North Platte, Kearney and Grand Island, Nebraska on which former manufactured gas facilities were located. We are currently working independently to fully characterize the nature and extent of potential impacts associated with these Nebraska sites. Our reserve estimate includes assumptions for site assessment and remedial action work. At present, we cannot determine with a reasonable degree of certainty the nature and timing of any risk-based remedial action at our Nebraska locations.

In addition, we own or have responsibility for sites in Butte, Missoula and Helena, Montana on which former manufactured gas plants were located. The Butte and Helena sites, both listed as high priority sites on Montana's state superfund list, were placed into the Montana Department of Environmental Quality (MDEQ) voluntary remediation program for cleanup due to soil and groundwater impacts. Soil and coal tar were removed at the sites in accordance with the MDEQ requirements. Groundwater monitoring is conducted semiannually at both sites. In August 2016, the MDEQ sent us a Notice of Potential Liability and Request for Remedial Action regarding the Helena site. In September 2017, we submitted a Draft Remedial Investigation Work Plan for the Helena site, based on the request of the MDEQ. Comments from the MDEQ are expected in November 2017. At this time, we cannot estimate with a reasonable degree of certainty the nature and timing of additional remedial actions and/or investigations, if any, at the Butte site.

An investigation conducted at the Missoula site did not require remediation activities, but required preparation of a groundwater monitoring plan. Monitoring wells have been installed and groundwater is monitored semiannually. At the request of Missoula Valley Water Quality District (MVWQD), a draft risk assessment was prepared for the Missoula site and presented to the MVWQD. We and the MVWQD agreed additional site investigation work is appropriate. Analytical results from an October 2016 sampling exceeded the Montana Maximum Contaminant Level for benzene and/or total cyanide in certain monitoring wells. These results were forwarded to MVWQD which shared the same with the MDEQ. MDEQ requested that MVWQD file a formal complaint with MDEQ's Enforcement Division, which MVWQD filed in July 2017. This is expected to prompt MDEQ to reevaluate its position concerning listing the Missoula site on the State of Montana's superfund list. New landowners purchased a portion of the Missoula site using funding provided by a third party. The terms of the funding require the new landowners to address environmental issues. The new landowners contacted us and have requested a meeting to address concerns. After researching historical ownership we have identified another potentially responsible party with whom we have initiated communications regarding the site. At this time, we cannot estimate with a reasonable degree of certainty the nature and timing of risk-based remedial action, if any, at the Missoula site.

Global Climate Change - National and international actions have been initiated to address global climate change and the contribution of emissions of greenhouse gases (GHG) including, most significantly, carbon dioxide (CO ₂ ). These actions include legislative proposals, Executive and Environmental Protection Agency (EPA) actions at the federal level, actions at the state level, and private party litigation relating to GHG emissions. Coal-fired plants have come under particular scrutiny due to their level of GHG emissions. We have joint ownership interests in four coal-fired electric generating plants, all of which are operated by other companies. We are responsible for our proportionate share of the capital and operating costs while being entitled to our proportionate share of the power generated.

While numerous bills have been introduced that address climate change from different perspectives, including through direct regulation of GHG emissions, the establishment of cap and trade programs and the establishment of Federal renewable portfolio standards, Congress has not passed any federal climate change legislation and we cannot predict the timing or form of any potential legislation. In the absence of such legislation, EPA is presently regulating new and existing sources of GHG emissions through regulations. EPA is currently reviewing its existing regulations as a result of an Executive Order issued by President Trump on March 28, 2017 (the Executive Order) instructing all federal agencies to review all regulations and other policies (specifically including the Clean Power Plan, which is discussed in further detail below) that burden the development or use of domestically produced energy resources and suspend, revise or rescind those that pose an undue burden beyond that required to protect the public interest.

As a result of the Executive Order review, on October 10, 2017, the EPA proposed to repeal the Clean Power Plan (CPP). The CPP was published in October 2015 and was intended to establish GHG performance standards for existing power plants under Clean Air Act Section 111(d). The CPP established CO2 emission performance standards for existing electric utility steam generating units and natural gas combined cycle units.

Under the CPP, states were to develop implementation plans for affected units to meet the individual state GHG emission reduction targets established in the CPP, or they could adopt a federal plan. The CPP could have required reductions in CO ₂ emissions from 2012 emission levels of up to 38.4 percent in South Dakota and 47.4 percent in Montana by 2030. Neither South Dakota nor Montana has submitted implementation plans to date. In its repeal proposal, EPA indicated that it had not yet determined whether it will promulgate a new rule to replace the CPP and the form, if any, such a replacement would take.

Following the issuance of the CPP in October 2015, judicial appeals were filed in the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit), including an appeal by us filed on October 23, 2015. The United States Supreme Court (Supreme Court) issued a stay of the CPP on February 9, 2016 pending resolution of the appeals by the D.C. Circuit and possibly the Supreme Court. On October 10, 2017, the EPA filed a status report advising the D.C. Circuit of EPA’s proposal to repeal the CPP and asking the D.C. Circuit to continue to hold the case in abeyance. On October 16, 2017, the EPA

published its proposal to repeal the CPP in the Federal Register, opening a 60-day window for public comment. The EPA’s request has been opposed by intervenors supporting the CPP who, in an October 17, 2017 filing, asked the D.C. Circuit to rule on the case or, alternatively, to limit the abeyance’s duration.

In addition, administrative requests for reconsideration of the CPP were filed with the EPA, including one filed by us in December 2015. We requested the EPA reconsider the CPP, in part, on the grounds that the CO ₂ reductions in the CPP applicable to Montana were substantially greater than the reductions the EPA had originally proposed. The EPA denied the petition for reconsideration on January 11, 2017, and we appealed that denial to the D.C. Circuit on March 13, 2017. The EPA has also requested that this case be held in abeyance. The D.C. Circuit has not acted on the EPA’s abeyance request.

We cannot predict what, if any, action the D.C. Circuit may take in either of these two cases, particularly in light of the EPA’s proposal to repeal the CPP.

If the CPP ultimately is not repealed, survives the legal challenges described above, and is implemented as written, or if a replacement to the CPP is adopted with similar requirements, it could result in significant additional compliance costs that would affect our future results of operations and financial position if such costs are not recovered through regulated rates. We will continue working with federal and state regulatory authorities, other utilities, and stakeholders to seek relief from any GHG regulations that, in our view, disproportionately impacts customers in our region. We cannot predict the ultimate outcome of these matters or what our obligations might be under any state compliance plans with any degree of certainty until they are finalized; however, complying with the CO ₂ emission performance standards in the CPP, and with other future environmental rules, may make it economically impractical to continue operating all or a portion of our jointly owned facilities or for individual owners to participate in their proportionate ownership of the coal-fired generating units. This could lead to significant impacts to customer rates for recovery of plant improvements and / or closure related costs and costs to procure replacement power. In addition, these changes could impact system reliability due to changes in generation sources.

In addition, future additional requirements to reduce GHG emissions could cause us to incur material costs of compliance, increase our costs of procuring electricity, decrease transmission revenue and impact cost recovery. Technology to efficiently capture, remove and/or sequester such GHG emissions may not be available within a timeframe consistent with the implementation of any such requirements. Physical impacts of climate change also may present potential risks for severe weather, such as droughts, fires, floods, ice storms and tornadoes, in the locations where we operate or have interests. These potential risks may impact costs for electric and natural gas supply and maintenance of generation, distribution, and transmission facilities.

Water Intakes and Discharges - Section 316(b) of the Federal Clean Water Act requires that the location, design, construction and capacity of any cooling water intake structure reflect the “best technology available (BTA)” for minimizing environmental impacts. In May 2014, the EPA issued a final rule applicable to facilities that withdraw at least 2 million gallons per day of cooling water from waters of the US and use at least 25 percent of the water exclusively for cooling purposes. The final rule, which became effective in October 2014, gives options for meeting BTA, and provides a flexible compliance approach. Under the rule, permits required for existing facilities will be developed by the individual states and additional capital and/or increased operating costs may be required to comply with future water permit requirements. Challenges to the final cooling water intake rule filed by industry and environmental groups are under review in the United States Court of Appeals for the Second Circuit.

In November 2015, the EPA published final regulations on effluent limitations for power plant wastewater discharges, including mercury, arsenic, lead and selenium. The rule became effective in January 2016. Some of the new requirements for existing power plants would be phased in starting in 2018 with full implementation of the rule by 2023. The EPA rule estimates that 12 percent of the steam electric power plants in the U.S. will have to make new investments to meet the requirements of the new effluent limitation regulations. Challenges to the final rule have been filed in the United States Court of Appeals for the Fifth Circuit, asserting that the EPA underestimated compliance costs. It is too early to determine whether the impacts of these rules will be material.

Clean Air Act Rules and Associated Emission Control Equipment Expenditures - The EPA has proposed or issued a number of rules under different provisions of the Clean Air Act that could require the installation of emission control equipment at the generation plants in which we have joint ownership.

In December 2011, the EPA issued a final rule relating to Mercury and Air Toxics Standards (MATS). Among other things, the MATS set stringent emission limits for acid gases, mercury, and other hazardous air pollutants from new and existing electric generating units. The rule was challenged by industry groups and states, and was upheld by the D.C. Circuit in April 2014. The decision was appealed to the Supreme Court and in June 2015, the Supreme Court issued an opinion that the EPA did

not properly consider the costs to the industry when making the requisite “appropriate and necessary” determination as part of its analysis in connection with the issuance of the MATS rule. The Supreme Court remanded the case back to the D.C. Circuit, and the D.C. Circuit remanded, without vacatur, the MATS rule to the EPA, leaving the rule in place. In April 2016, the EPA published its final supplemental finding that it is "appropriate and necessary" to regulate coal and oil-fired units under Section 112 of the Clean Air Act. Although industry and trade associations have filed a lawsuit in the D.C. Circuit challenging the EPA's supplemental finding and the D.C. Circuit recently delayed oral argument in the case at the request of the Trump administration, installation or upgrading of relevant environmental controls at our affected plants is complete and we are controlling emissions of mercury under the state and Federal MATS rules.

In October 2013, the Supreme Court denied certiorari in Luminant Generation Co v. EPA , which challenged the EPA’s current approach to regulating air emissions during startup, shutdown and malfunction (SSM) events. As a result, fossil fuel power plants may need to address SSM in their permits to reduce the risk of enforcement or citizen actions.

The Clean Air Visibility Rule was issued by the EPA in June 2005, to address regional haze in national parks and wilderness areas across the United States. The Clean Air Visibility Rule requires the installation and operation of Best Available Retrofit Technology (BART) to achieve emissions reductions from designated sources (including certain electric generating units) that are deemed to cause or contribute to visibility impairment in 'Class I' areas.

In September 2012, a final Federal Implementation Plan for Montana was published in the Federal Register to address regional haze. The plan does not require Colstrip Units 3 and 4 to improve removal efficiency for pollutants that contribute to regional haze. In November 2012, PPL Montana (now Talen Montana, LLC) (Talen), the operator of Colstrip, as well as environmental groups (National Parks Conservation Association, Montana Environmental Information Center (MEIC), and Sierra Club) jointly filed a petition for review of the Federal Implementation Plan in the United States Court of Appeals for the Ninth Circuit (Ninth Circuit). MEIC and Sierra Club challenged the EPA's decision not to require any emissions reductions from Colstrip Units 3 and 4. In June 2015, the Ninth Circuit rejected the challengers’ contention that the EPA should have required additional pollution-reduction technologies on Colstrip Unit 4 beyond those in the regulations and the matter is back in EPA Region 8 for action.

On January 10, 2017, the EPA published amendments to the requirements under the Clean Air Act for state plans for protection of visibility. Among other things, these amendments revised the process and requirements for the state implementation plans and extended the due date for the next periodic comprehensive regional haze state implementation plan revisions from 2018 to 2021. Therefore, by 2021, Montana, or EPA, must develop a revised plan that demonstrates reasonable progress toward eliminating man-made emissions of visibility impairing pollutants, which could impact Colstrip Unit 4. On March 13, 2017, we filed a Petition for Review of these amendments with the D.C. Circuit. On March 15, 2017, our petition was consolidated with other petitions challenging the final rule. The EPA has not responded to our petition, which remains pending before the D.C. Circuit.

Jointly Owned Plants - We have joint ownership in generation plants located in South Dakota, North Dakota, Iowa and Montana that are or may become subject to the various regulations discussed above that have been issued or proposed.

Regarding the CPP, as discussed above, we cannot predict the impact of the CPP on us until there is a definitive judicial decision or administrative action by the EPA repealing or significantly changing the CPP.

Compliance with the final rule on Water Intakes and Discharges discussed above, which became effective in January 2016, did not have a significant impact at any of our jointly owned facilities.

North Dakota . The North Dakota Regional Haze state implementation plan requires the Coyote generating facility, in which we have 10% ownership, to reduce its nitrogen oxide (NOx) emissions by July 2018. In 2016, Coyote completed installation of control equipment to maintain compliance with the lower NOx emissions of 0.5 pounds per million Btu as calculated on a 30-day rolling average basis, including periods of start-up and shutdown. The cost of the control equipment was not significant.

Montana. Colstrip Unit 4, a coal fired generating facility in which we have a 30% interest, is subject to EPA's coal combustion residual rule. A compliance plan has been developed and is in the initial stages of implementation. The current estimate of the total project cost is approximately $90.0 million (our share is 30% ) over the remaining life of the facility.

Other - We continue to manage equipment containing polychlorinated biphenyl (PCB) oil in accordance with the EPA's Toxic Substance Control Act regulations. We will continue to use certain PCB-contaminated equipment for its remaining useful

life and will, thereafter, dispose of the equipment according to pertinent regulations that govern the use and disposal of such equipment.

We routinely engage the services of a third-party environmental consulting firm to assist in performing a comprehensive evaluation of our environmental reserve. Based upon information available at this time, we believe that the current environmental reserve properly reflects our remediation exposure for the sites currently and previously owned by us. The portion of our environmental reserve applicable to site remediation may be subject to change as a result of the following uncertainties:


•	We may not know all sites for which we are alleged or will be found to be responsible for remediation; and


•	Absent performance of certain testing at sites where we have been identified as responsible for remediation, we cannot estimate with a reasonable degree of certainty the total costs of remediation.

LEGAL PROCEEDINGS

Billings, Montana Refinery Outage Claim

On January 25, 2014, an electrical outage on our 50kV lines supplying power to the ExxonMobil refinery in Billings, Montana caused the refinery to shut down for an extended period. On January 13, 2016, a second electrical outage shut down the ExxonMobil refinery for about nine days. On January 22, 2016, ExxonMobil filed suit against NorthWestern in U.S. District Court in Billings, Montana, seeking unspecified compensatory and punitive damages arising from both outages. ExxonMobil currently claims property damages and economic losses of approximately $84.9 million to $95.6 million . We dispute ExxonMobil’s claims and intend to vigorously defend this lawsuit. We have reported the refinery's claims and lawsuit to our liability insurance carriers under our liability insurance coverage, which has a $2.0 million per occurrence retention. We also have brought third-party complaints against the City of Billings and General Electric International, Inc. alleging that they are responsible in whole or in part for the outages.

Fact and expert witness discovery have been completed and the parties are in the process of filing various dispositive motions on liability and damage issues. A mediation is scheduled for November 16, 2017. If unsuccessful, trial is scheduled to begin on February 26, 2018. We are not currently able to predict an outcome or estimate the amount or range of loss that would be associated with an adverse result.

Pacific Northwest Solar Litigation

Pacific Northwest Solar, LLC (PNWS) is an Oregon solar QF developer with which we began negotiating in early 2016 to purchase capacity and energy at our avoided cost under the QF-1 option 1(a) tariff standard rates in accordance with PURPA as implemented by the FERC and the MPSC.

On June 16, 2016, however, the MPSC entered a Notice of Commission Action (MPSC Notice) suspending the availability of QF-1 option 1(a) standard rates for solar projects greater than 100 kW, which included the various projects proposed by PNWS. The MPSC exempted from the suspension any contracts at the standard tariff rate with solar QFs greater than 100 kW, but no larger than 3 MW, if prior to the date of the MPSC Notice, the QF had submitted a signed power purchase agreement and had executed an interconnection agreement. PNWS had not obtained interconnection agreements for any of its projects as of June 16, 2016, so based on the MPSC Notice and subsequent July 25, 2016 Order 7500 of like effect from the MPSC, we discontinued further negotiations with PNWS.

On August 30, 2016, PNWS sent us a letter demanding that we enter into power purchase agreements for 21 solar projects and threatening to sue us for $106 million if we did not accede to its demand. We declined to do so, and on November 16, 2016, PNWS sued us in state court seeking unspecified damages for breach of contract and other relief, including a judicial declaration that some or all of the proposed power purchase agreements were in effect. We removed the state lawsuit to the United States District Court for the District of Montana, which then stayed the case until September 29, 2017, so that the MPSC could consider related issues that might bear on the issues raised in PNWS's lawsuit.

On July 19, 2017, we entered into a partial settlement agreement with PNWS that resolved some but not all of PNWS' litigation claims. In return for supporting PNWS' efforts to obtain MPSC approval of PNWS’ first four solar projects, PNWS agreed to release its damages claims against us related to the other 17 projects, although PNWS can continue to seek (and we can continue to oppose) MPSC approval of those 17 projects.

On July 31, 2017, jointly with PNWS, we requested reconsideration of the MPSC’s decision not to approve PNWS’ first four solar projects. We are awaiting the MPSC’s final order on all requests for reconsideration in this docket. If the MPSC approves the first four projects, PNWS also will release its damage claims related to those four projects. If the MPSC does not approve those four projects, PNWS will be able to pursue all of its damages claims and other relief related to those four projects.

We dispute all of the claims that PNWS has made in its lawsuit and intend to vigorously defend those that have not been resolved by the partial settlement. This matter is in the initial stages, and we cannot predict an outcome or estimate the am ount or range of loss that would result from the remaining claims.

State of Montana - Riverbed Rents

On April 1, 2016, the State of Montana (State) filed a complaint on remand with the Montana First Judicial District Court (State District Court), naming us, along with Talen as defendants. The State claims it owns the riverbeds underlying 10 of our hydroelectric facilities (dams, along with reservoirs and tailraces) on the Missouri, Madison and Clark Fork Rivers, and seeks rents for Talen’s and our use and occupancy of such lands. The facilities at issue in the litigation include the Hebgen, Madison, Hauser, Holter, Black Eagle, Rainbow, Cochrane, Ryan and Morony facilities on the Missouri-Madison Rivers and the Thompson Falls facility on the Clark Fork River. We acquired these facilities from Talen in November 2014.

Prior to our acquisition of the facilities, Talen litigated this issue against the State in State District Court, the Montana Supreme Court and in the United States Supreme Court. In August 2007, the State District Court determined that the 10 hydroelectric facilities were located on rivers which were navigable and that the State held title to the riverbeds. Subsequently, in June 2008, the State District Court awarded the State compensation with respect to all 10 facilities of approximately $34 million for the 2000-2006 period and approximately $6 million for 2007. The State District Court deferred the determination of compensation for 2008 and future years to the Montana State Land Board.

Talen appealed the issue of navigability to the Montana Supreme Court, which in March 2010 affirmed the State District Court decision. In June 2011, the United States Supreme Court granted Talen's petition to review the Montana Supreme Court decision. The United States Supreme Court issued an opinion in February 2012, overturning the Montana Supreme Court and holding that the Montana courts erred first by not considering the navigability of the rivers on a segment-by-segment basis and second in relying on present day recreational use of the rivers. The United States Supreme Court also considered the navigability of what it referred to as the Great Falls Reach and concluded, at least from the head of the first waterfall to the foot of the last, that the Great Falls Reach was not navigable for title purposes, and thus the State did not own the riverbeds in that segment. The United States Supreme Court remanded the case to the Montana Supreme Court for further proceedings not inconsistent with its opinion.

Following the 2012 remand, the case laid dormant for four years until the State filed its complaint on remand with the State District Court. The complaint on remand renews all of the State’s claims that the rivers on which the 10 hydroelectric facilities are located are navigable (including the Great Falls Reach), that because they were navigable the riverbeds became State lands upon Montana’s statehood in 1889 and that the State is entitled to rent for their use. The State’s complaint on remand does not claim any specific rental amount. Pursuant to the terms of our acquisition of the hydroelectric facilities, Talen and NorthWestern will share jointly the expense of this litigation, and Talen is responsible for any rents applicable to the periods of time prior to the acquisition (i.e., before November 18, 2014), while we are responsible for periods thereafter.

On April 20, 2016, we removed the case from State District Court to the United States District Court for the District of Montana (Federal District Court), and Talen consented to our removal. On April 27, 2016, we and Talen filed motions with the Federal District Court seeking to dismiss the portion of the litigation dealing with the Great Falls Reach in light of the United States Supreme Court’s decision that the Great Falls Reach was not navigable for title purposes, and thus the State did not own the riverbeds in that segment.

On May 19, 2016, the State asked the Federal District Court to remand the case back to the State District Court and to dismiss Talen’s consent to removal. The parties briefed the remand issue and oral argument was held before the Magistrate on January 17, 2017. On January 23, 2017 the Magistrate issued his Findings and Recommendation to remand the case to State District Court. In February 2017, we and Talen filed objections to the Magistrate’s Findings and Recommendation. In oral argument before the U.S. District Court Judge on August 16, 2017 we argued that the Federal District Court should retain jurisdiction. On October 10, 2017, the U.S. District Court Judge entered an order denying the State’s motion to remand. On October 16, 2017, we and Talen renewed our motions to dismiss the State's claim regarding the Great Falls Reach.

We dispute the State’s claims and intend to vigorously defend the lawsuit. This matter is in the initial stages, and we cannot predict an outcome. If the Federal District Court determines the riverbeds under all 10 of the hydroelectric facilities are navigable (including the five hydroelectric facilities on the Great Falls Reach) and if it calculates damages as the State District Court did in 2008, we estimate the annual rents could be approximately $7 million commencing in November 2014, when we acquired the facilities. We anticipate that any obligation to pay the State rent for use and occupancy of the riverbeds would be recoverable in rates from customers, although there can be no assurances that the MPSC would approve any such recovery.

Wilde Claims

On October 10, 2017, Martin Wilde, a Montana resident and wind developer, and three entities with which he is affiliated, commenced a lawsuit against the MPSC, each individual commissioner of the MPSC (in each of their official and individual capacities), and us in the Montana Eighth Judicial District Court (Eighth District Court). The Wilde lawsuit alleges that the MPSC collaborated with NorthWestern to set discriminatory rates and contract durations for QF developers. The plaintiffs seek power purchase agreements at $45.19 per megawatt hour for a 25-year term or, as an alternative remedy to the alleged discrimination, a reduction in NorthWestern’s rates by $17.03 per megawatt hour. The Wilde lawsuit also seeks compensatory damages of not less than $4.8 million , various forms of declaratory relief, injunctive relief, unspecified damages, and punitive damages.

On October 20, 2017, the Eighth District Court conducted a hearing on the Wilde plaintiffs' application for a preliminary injunction to stop the defendants from the alleged ongoing discrimination that harms development of renewable energy in Montana. At the hearing’s conclusion, the court did not rule on the requested injunction but orally ordered post-hearing briefs and filings due November 22, 2017 and December 6, 2017. We dispute the Wilde claims, believe they are without merit and intend to vigorously defend the lawsuit. However, we are unable to predict the outcome of this case and, if determined adversely to us, it could have a material effect on our financial results.

Other Legal Proceedings

We are also subject to various other legal proceedings, governmental audits and claims that arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these other actions will not materially affect our financial position, results of operations, or cash flows.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



OVERVIEW

NorthWestern Corporation, doing business as Northwestern Energy, provides electricity and natural gas to approximately 709,600 customers in Montana, South Dakota and Nebraska. For a discussion of NorthWestern’s business strategy, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2016 .

As you read this discussion and analysis, refer to our Condensed Consolidated Statements of Income, which present the results of our operations for 2017 and 2016 .



HOW WE PERFORMED AGAINST OUR THIRD QUARTER 2016 RESULTS



	Quarter-over-Quarter Change

Gross Margin by Segment ⁽¹⁾
Electric	$6.6M	é	3.7%
Natural Gas	$1.0M	é	3.6%


Operating Income	$5.4M	é	9.7%


Net Income	$(8.2)M	ê	(18.4)%


EPS (Diluted)	$(0.17)	ê	(18.5)%

(1) Non-GAAP financial measure. See "non-GAAP Financial Measure" below.



SIGNIFICANT DEVELOPMENTS IN Q3 2017



Ÿ	A decrease in net income of $8.2 million, primarily due to the inclusion in our 2016 results of a $15.5 million income tax benefit due to the adoption of a tax accounting method change related to the costs to repair generation assets.
	Ÿ	Operating income increased approximately $5.4 million due to an improvement in gross margin driven by favorable weather, and to a lesser extent, by customer growth.

Following is a brief overview of significant items for 2017.



SIGNIFICANT TRENDS AND REGULATION

Montana Natural Gas General Rate Filing

In June 2017, we reached a settlement agreement with intervenors in our natural gas rate case. This settlement included an overall increase in delivery services and production charges of approximately $5.7 million , based upon a 6.96 percent rate of return ( 9.55 percent return on equity, 4.67 percent cost of debt and 53.2 percent debt to rate base). The MPSC issued an order in August 2017, accepting the settlement with modifications resulting in an annual increase in delivery services and production charges of approximately $5.1 million , and including an annual reduction in production rates to reflect depletion until our next rate filing. Rates were effective September 1, 2017.


•	While the final order reflects an annual increase of approximately $5.1 million, we expect the increase in 2018 to be approximately $2 million due to the inclusion in 2017 of four months of increased rates and the step down of gas production rates to reflect depletion.

Montana QF Tariff Filing

Under the PURPA, electric utilities are required, with exceptions, to purchase energy and capacity from independent power producers that are QFs. The MPSC held a work session in June 2017 to discuss our application for approval of a revised tariff for standard rates for small QFs (3 MW or less). In July 2017, the MPSC issued an order establishing a maximum 10-year contract length with a rate adjustment after the first five years, and approving rates that do not include costs associated with the risk of future carbon dioxide emissions regulations. In this same order, the MPSC indicated it would apply the 10-year contract term to us for future electric supply resource transactions. We and other parties filed motions for reconsideration of this decision. Although the MPSC voted in October 2017 to revise the initial order extending the contract length to 15 years and to continue to apply the contract term to both QF contracts and our future electric supply resource, the MPSC has not yet issued a final order. Based on the MPSC’s October 2017 vote, we expect that the decision will result in substantially lower rates for future QF contracts.

As a result of the MPSC’s July decision, we suspended our competitive solicitation process to determine the lowest-cost / least-risk approach for addressing our intermittent capacity and reserve margin needs in Montana. We have significant generation capacity deficits and negative reserve margins, and our 2016 resource plan identified price and reliability risks to our customers if we rely solely upon market purchases to address these capacity needs. In addition to our responsibility to meet peak demand, national reliability standards effective July 2016 require us to have even greater dispatchable generation capacity available and be capable of increasing or decreasing output to address the irregular nature of intermittent generation such as wind or solar. A final determination regarding the competitive solicitation will be dependent upon reviewing the MPSC's final order. We expect the order to be issued during the fourth quarter of 2017.

Montana House Bill 193

In April 2017, the Montana legislature passed HB 193, repealing the statutory language that provided for mandatory recovery of our prudently incurred electric supply costs effective July 1, 2017. The enacted legislation gives the MPSC discretion whether to approve an electric supply cost adjustment mechanism. In May 2017, the MPSC issued a NCA initiating a process to develop a replacement electric supply cost adjustment mechanism. We filed a motion for reconsideration of the May 2017 NCA. On July 7, 2017, the MPSC issued an additional NCA addressing the arguments in our motion for reconsideration and identifying three replacement mechanism alternatives for consideration. Two of the MPSC's replacement mechanism alternatives include updating the fixed rate portion of the recovery of our electric supply assets in addition to the variable costs that were recovered through the prior electric tracker.

On July 14, 2017, responsive to the NCA, we filed a proposed electric PCCAM with the MPSC. The MPSC held work sessions to consider whether to require us to make a filing similar to a rate case filing by September 30, 2017, regarding electric supply costs and generation assets. On August 1, 2017, the MPSC concluded its work session. The MPSC declined to require us to submit the additional filing, and requested staff to establish a procedural schedule in the docket. In September 2017, the MPSC established a procedural schedule, with a hearing scheduled in March 2018. We believe our July 2017 PCCAM filing is consistent with the MPSC's advocacy for HB 193, the MPSC's May and July 2017 NCAs, and the MDU adjustment mechanism used in Montana that allows for recovery of 90 percent of the increases or decreases in fuel and purchased energy costs from an established baseline. However, we cannot guarantee how the MPSC may apply the statute in establishing a revised mechanism for us. If the MPSC approves a new mechanism, we expect the MPSC will apply the mechanism to variable costs on a retroactive basis to the effective date of HB 193 (July 1, 2017).

Montana Property Tax Tracker



RESULTS OF OPERATIONS

Our consolidated results include the results of our reportable business segments, which are primarily engaged in the electric and natural gas business. The overall consolidated discussion is followed by a detailed discussion of gross margin by segment.

Non-GAAP Financial Measure

The following discussion includes financial information prepared in accordance with GAAP, as well as another financial measure, Gross Margin, that is considered a “non-GAAP financial measure.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Gross Margin (Revenues less Cost of Sales) is a non-GAAP financial measure due to the exclusion of depreciation and depletion from the measure. The presentation of Gross Margin is intended to supplement investors’ understanding of our operating performance. Gross Margin is used by us to determine whether we are collecting the appropriate amount of energy costs from customers to allow recovery of operating costs. Our Gross Margin measure may not be comparable to other companies’ Gross Margin measure. Furthermore, this measure is not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.

Factors Affecting Results of Operations

Our revenues are impacted by customer growth and usage, the latter of which is primarily affected by weather. Very cold winters increase demand for natural gas and to a lesser extent, electricity, while warmer than normal summers increase demand for electricity, especially among our residential and commercial customers. We measure this effect using degree-days, which is the difference between the average daily actual temperature and a baseline temperature of 65 degrees. Heating degree-days result when the average daily temperature is less than the baseline. Cooling degree-days result when the average daily temperature is greater than the baseline. The statistical weather information in our regulated segments represents a comparison of this data.

Our revenues may also fluctuate with changes in supply costs, which are generally collected in rates from customers. In addition, various regulatory agencies approve the prices for electric and natural gas utility service within their respective jurisdictions and regulate our ability to recover costs from customers.

OVERALL CONSOLIDATED RESULTS

Three Months Ended September 30, 2017 Compared with the Three Months Ended September 30, 2016



	Three Months Ended September 30,
	2017		2016		Change		% Change
	(dollars in millions)
Operating Revenues
Electric	$	274.8	$	266.6	$	8.2	3.1	%
Natural Gas	35.1		34.4		0.7		2.0
Total Operating Revenues	$	309.9	$	301.0	$	8.9	3.0	%



	Three Months Ended September 30,
	2017		2016		Change			% Change
	(dollars in millions)
Cost of Sales
Electric	$	91.3	$	89.7	$	1.6		1.8	%
Natural Gas	6.2		6.5		(0.3		)	(4.6	)
Total Cost of Sales	$	97.5	$	96.2	$	1.3		1.4	%



	Three Months Ended September 30,
	2017		2016		Change		% Change
	(dollars in millions)
Gross Margin
Electric	$	183.5	$	176.9	$	6.6	3.7	%
Natural Gas	28.9		27.9		1.0		3.6
Total Gross Margin	$	212.4	$	204.8	$	7.6	3.7	%

Primary components of the change in gross margin include the following:



	Gross Margin 2017 vs. 2016
	(in millions)
Gross Margin Items Impacting Net Income
Electric retail volumes	$	5.1
Montana natural gas and production rates	0.7
Natural gas retail volumes	0.1
Electric transmission	(0.3		)
Other	1.6
Change in Gross Margin Impacting Net Income	7.2

Gross Margin Items Offset in Operating Expenses
Production tax credits flowed-through trackers	1.0
Operating expenses recovered in trackers	0.6
Property taxes recovered in trackers	(1.0		)
Gas production gathering fees	(0.2		)
Change in Items Offset Within Net Income	0.4
Increase in Gross Margin	$	7.6

Consolidated gross margin for items impacting net income increased $7.2 million , due to the following:


•	Improved electric retail volumes due primarily to warmer summer weather in our Montana jurisdiction and customer growth; partly offset by cooler summer weather in our South Dakota jurisdiction;


•	A final order from the MPSC in our Montana natural gas rate case, which resulted in an increase of approximately $0.6 million from the resolution of the deferral of gas production interim rates and a $0.1 million increase in rates effective September 1, 2017; and


•	While natural gas retail volumes remained flat, customer growth and higher commercial volumes in our Montana jurisdiction were partly offset by warmer summer weather.

These increases were partly offset by lower demand to transmit energy across our transmission lines due to market conditions and pricing.

The change in consolidated gross margin also includes the following items that had no impact on net income:


•	A decrease in production tax credits, which is an increase in our customer rates, is offset by increased income tax expense; and


•	An increase in operating expenses included in our supply trackers is offset by an increase in operating, general and administrative expenses; These increases were partly offset by


•	A decrease in revenues for property taxes included in trackers is offset by decreased property tax expense; and


•	A decrease in natural gas production gathering fees is offset by a decrease in operating expenses.



	Three Months Ended September 30,
	2017		2016		Change			% Change
	(dollars in millions)
Operating Expenses (excluding cost of sales)
Operating, general and administrative	$	70.2	$	68.3	$	1.9		2.8	%
Property and other taxes	39.1		40.7		(1.6		)	(3.9	)
Depreciation and depletion	41.5		39.8		1.7			4.3
	$	150.8	$	148.8	$	2.0		1.3	%

Consolidated operating, general and administrative expenses were $70.2 million for the three months ended September 30, 2017 , as compared with $68.3 million for the three months ended September 30, 2016 . Primary components of the change include the following:



	Operating, General & Administrative Expenses
	2017 vs. 2016
	(in millions)
Employee benefits	$	1.8
Operating expenses recovered in trackers	0.6
Bad debt expense	0.4
Non-employee directors deferred compensation	0.3
Maintenance costs	(0.6		)
Natural gas production gathering expense	(0.2		)
Other	(0.4		)
Increase in Operating, General & Administrative Expenses	$	1.9

The increase in operating, general and administrative expenses is primarily due to the following:


•	An increase in employee benefits due to higher medical and supplemental benefit costs;


•	Higher operating expenses recovered through our supply trackers;


•	Higher bad debt expense due to an increase in revenues as a result of warmer summer weather in Montana; and


•	The change in value of non-employee directors deferred compensation due to changes in our stock price (offset by changes in other income with no impact on net income).

These increases were partly offset by lower maintenance costs at our Dave Gates Generating Station and a decrease in natural gas production gathering expense (offset by lower gathering fee revenue discussed above).

Property and other taxes were $39.1 million for the three months ended September 30, 2017 , as compared with $40.7 million in the same period of 2016 . This decrease was primarily due to the inclusion in our 2016 results of an approximately $5.4 million increase to our annual property tax expense estimate, partly offset by plant additions and higher annual estimated 2017 Montana valuations. We estimate property taxes throughout each year, and update based on valuation reports received from the Montana Department of Revenue. As discussed above, under Montana law, we are allowed to track the increases in the actual level of state and local taxes and fees and recover these amounts. Our Montana property tax tracker mechanism currently allows for the recovery of approximately 60% of the estimated increase in our state and local taxes and fees (primarily property taxes) as compared with the related amount included in rates during our last general rate case.

Depreciation and depletion expense was $41.5 million for the three months ended September 30, 2017 , as compared with $39.8 million in the same period of 2016 . This increase was primarily due to plant additions.

Consolidated operating income for the three months ended September 30, 2017 was $61.5 million as compared with $56.1 million in the same period of 2016 . This increase was primarily due to the increase in gross margin driven by higher electric retail volumes.

Consolidated interest expense for the three months ended September 30, 2017 was $23.1 million , as compared with $21.0 million in the same period of 2016 . The third quarter of 2016 included a benefit related to a debt refinancing transaction, which reduced interest expense.

Consolidated other income for the three months ended September 30, 2017 , was $0.8 million as compared with a loss of $0.1 million in the same period of 2016 . This increase was primarily due to higher capitalization of allowance for funds used during construction (AFUDC) and a $0.3 million increase in the value of deferred shares held in trust for non-employee directors deferred compensation (which, as discussed above, is offset by a corresponding increase to operating, general and administrative expenses).

Consolidated income tax expense for the three months ended September 30, 2017 was $2.8 million as compared with a benefit of $9.7 million in the same period of 2016 . Our effective tax rate for the three months ended September 30, 2017 was 7.1% as compared with (27.6)% for the same period of 2016 . We expect our 2017 effective tax rate to range between 7% - 11%.

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



	Three Months Ended September 30,
	2017					2016
Income Before Income Taxes	$	39.2				$	34.9

Income tax calculated at 35% federal statutory rate	13.7			35.0	%	12.2			35.0	%

Permanent or flow through adjustments:
State income, net of federal provisions	(0.7		)	(1.7	)	(0.6		)	(1.8	)
Flow-through repairs deductions	(7.0		)	(17.9	)	(19.0		)	(54.4	)
Production tax credits	(2.2		)	(5.8	)	(2.2		)	(6.3	)
Plant and depreciation of flow through items	(0.1		)	(0.2	)	(0.2		)	(0.7	)
Prior year permanent return to accrual adjustments	(0.8		)	(2.2	)	—			—
Other, net	(0.1		)	(0.1	)	0.1			0.6
	(10.9		)	(27.9	)	(21.9		)	(62.6	)

Income Tax Expense (Benefit)	$	2.8		7.1	%	$	(9.7	)	(27.6	)%

2016, we filed a tax accounting method change with the IRS related to costs to repair generation property. This resulted in an income tax benefit of approximately $15.5 million during the three months ended September 30, 2016, of which approximately $12.5 million was related to 2015 and prior tax years, and is reflected in the flow-through repairs deductions line above.

Consolidated net income for the three months ended September 30, 2017 was $36.4 million as compared with $44.6 million for the same period in 2016 . This decrease was primarily due to the inclusion in our 2016 results of a $15.5 million income tax benefit due to the adoption of a tax accounting method change related to the costs to repair generation assets, offset in part by improved gross margin as a result of favorable weather, and to a lesser extent, by customer growth.

Nine Months Ended September 30, 2017 Compared with the Nine Months Ended September 30, 2016



	Nine Months Ended September 30,
	2017		2016		Change		% Change
	(dollars in millions)
Operating Revenues
Electric	$	774.9	$	756.4	$	18.5	2.4	%
Natural Gas	186.2		170.3		15.9		9.3
Total Operating Revenues	$	961.1	$	926.7	$	34.4	3.7	%



	Nine Months Ended September 30,
	2017		2016		Change		% Change
	(dollars in millions)
Cost of Sales
Electric	$	246.9	$	245.5	$	1.4	0.6	%
Natural Gas	54.4		47.8		6.6		13.8
Total Cost of Sales	$	301.3	$	293.3	$	8.0	2.7	%



	Nine Months Ended September 30,
	2017		2016		Change		% Change
	(dollars in millions)
Gross Margin
Electric	$	528.0	$	510.9	$	17.1	3.3	%
Natural Gas	131.8		122.5		9.3		7.6
Total Gross Margin	$	659.8	$	633.4	$	26.4	4.2	%

Primary components of the change in gross margin include the following:



	Gross Margin 2017 vs. 2016
	(in millions)
Gross Margin Items Impacting Net Income
Electric retail volumes	$	12.3
2016 MPSC disallowance	9.5
Natural gas retail volumes	7.4
South Dakota electric rate increase	1.2
Electric QF adjustment	0.4
Montana natural gas and production rates	0.1
2016 Lost revenue adjustment mechanism	(14.2		)
Other	2.8
Change in Gross Margin Impacting Net Income	19.5

Gross Margin Items Offset in Operating Expenses
Property taxes recovered in trackers	5.3
Operating expenses recovered in trackers	1.0
Production tax credits flowed-through trackers	0.4
Gas production gathering fees	0.2
Change in Items Offset Within Net Income	6.9
Increase in Gross Margin	$	26.4

Consolidated gross margin for items impacting net income increased $19.5 million , due to the following:


•	An increase in electric retail volumes due primarily to colder winter and warmer summer weather in our Montana jurisdiction and customer growth, partly offset by cooler summer weather in our South Dakota jurisdiction and milder spring weather overall;


•	The inclusion in our 2016 results of the MPSC disallowance of both replacement power costs from a 2013 outage at Colstrip Unit 4 and portfolio modeling costs;


•	An increase in natural gas retail volumes due primarily to colder winter and spring weather and customer growth;


•	An increase in South Dakota electric revenue due to the timing of the change in customer rates in 2016;


•	A decrease in QF related supply costs based on actual QF pricing and output; and


•	A $0.1 million increase in our Montana gas rates effective September 1, 2017. The favorable impact of the resolution of gas production interim rates in the third quarter was offset by an associated deferral during the first half of 2017, with no impact for the nine months ended September 30, 2017.

These increases were partly offset by the inclusion in our 2016 results of $14.2 million of deferred revenue as a result of a MPSC final order in our tracker filings regarding prior period lost revenues.

The change in consolidated gross margin also includes the following items that had no impact on net income:


•	An increase in revenues for property taxes included in trackers is offset by increased property tax expense;


•	An increase in operating expenses included in our supply trackers is offset by an increase in operating, general and administrative expenses;


•	A decrease in production tax credits, which is an increase in our customer rates, is offset by increased income tax expense; and


•	An increase in natural gas production gathering fees is offset by an increase in operating expenses.



	Nine Months Ended September 30,
	2017		2016		Change		% Change
	(dollars in millions)
Operating Expenses (excluding cost of sales)
Operating, general and administrative	$	226.4	$	220.7	$	5.7	2.6	%
Property and other taxes	118.5		111.3		7.2		6.5
Depreciation and depletion	124.5		119.6		4.9		4.1
	$	469.4	$	451.6	$	17.8	3.9	%

Consolidated operating, general and administrative expenses were $226.4 million for the nine months ended September 30, 2017 , as compared with $220.7 million for the nine months ended September 30, 2016 . Primary components of the change include the following:



	Operating, General & Administrative Expenses
	2017 vs. 2016
	(in millions)
Bad debt expense	$	2.3
Labor	1.4
Maintenance costs	1.4
Operating expenses recovered in trackers	1.0
Employee benefits	0.8
Natural gas production gathering expense	0.2
Insurance reserves	(1.0		)
Non-employee directors deferred compensation	(1.0		)
Other	0.6
Increase in Operating, General & Administrative Expenses	$	5.7

The increase in operating, general and administrative expenses is primarily due to the following:


•	Higher bad debt expense due to an increase in revenues as a result of colder winter and warmer summer weather;


•	Increased labor costs due primarily to compensation increases and more time spent by employees on maintenance projects (which are expensed) rather than capital projects;


•	Higher maintenance costs at our Dave Gates Generating Station and Colstrip Unit 4;


•	Higher operating expenses recovered through our supply trackers;


•	An increase in employee benefits due primarily to higher medical costs; and


•	An increase in natural gas production gathering expense (offset by higher gathering fees discussed above).

These increases were offset in part by:


•	A decrease in insurance reserves primarily due to the amount recorded in 2016 related to the Billings, Montana refinery outage; and


•	The change in value of non-employee directors deferred compensation due to changes in our stock price (offset by changes in other income with no impact on net income).

Property and other taxes were $118.5 million for the nine months ended September 30, 2017 , as compared with $111.3 million in the same period of 2016 . This increase was primarily due to plant additions and higher estimated property valuations in Montana. We expect property tax expense to increase by approximately $10 million on an annual basis in 2017 as compared with 2016.

Depreciation and depletion expense was $124.5 million for the nine months ended September 30, 2017 , as compared with $119.6 million in the same period of 2016 . This increase was primarily due to plant additions.

Consolidated operating income for the nine months ended September 30, 2017 was $190.4 million as compared with $181.8 million in the same period of 2016 . This increase was primarily due to the increase in gross margin as discussed above, offset in part by higher operating expenses.

Consolidated interest expense for the nine months ended September 30, 2017 was $70.0 million , as compared with $72.0 million in the same period of 2016 . This decrease was primarily due to the refinancing of debt in 2016.

Consolidated other income for the nine months ended September 30, 2017 , was $4.4 million , as compared with $4.2 million in the same period of 2016 . This increase was primarily due to higher capitalization of AFUDC and was offset in part by a $1.0 million decrease in the value of deferred shares held in trust for non-employee directors deferred compensation (which, as discussed above, is offset by a corresponding decrease to operating, general and administrative expenses).

Consolidated income tax expense for the nine months ended September 30, 2017 was $10.0 million , as compared with a benefit of $6.1 million in the same period of 2016 . Our effective tax rate for the nine months ended September 30, 2017 was 8.0% as compared with (5.3)% for the same period of 2016 . We adopted the provisions of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, during the fourth quarter of 2016, which resulted in the recognition of $1.8 million in excess tax benefits. In accordance with the guidance, the $1.8 million impact of this adoption is reflected as of January 1, 2016, which reduced tax expense for the nine months ended September 30, 2016.

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



	Nine Months Ended September 30,
	2017					2016
Income Before Income Taxes	$	124.8				$	114.0

Income tax calculated at 35% federal statutory rate	43.7			35.0	%	39.9			35.0	%

Permanent or flow through adjustments:
State income, net of federal provisions	(2.0		)	(1.6	)	(3.0		)	(2.6	)
Flow-through repairs deductions	(20.6		)	(16.5	)	(32.7		)	(28.6	)
Production tax credits	(7.5		)	(6.0	)	(7.3		)	(6.4	)
Plant and depreciation of flow through items	(2.2		)	(1.8	)	(1.4		)	(1.3	)
Share-based compensation	(0.4		)	(0.3	)	(1.6		)	(1.4	)
Prior year permanent return to accrual adjustments	(0.8		)	(0.7	)	(0.1		)	(0.1	)
Other, net	(0.2		)	(0.1	)	0.1			0.1
	(33.7		)	(27.0	)	(46.0		)	(40.3	)

Income Tax Expense (Benefit)	$	10.0		8.0	%	$	(6.1	)	(5.3	)%

Consolidated net income for the nine months ended September 30, 2017 was $114.8 million as compared with $120.0 million for the same period in 2016 . This decrease was primarily due to the inclusion in our 2016 results of a $15.5 million income tax benefit due to the adoption of a tax accounting method change related to the costs to repair generation assets, and higher property taxes, and operating expenses as discussed above, offset in part by improved gross margin as a result of favorable weather, and to a lesser extent, by customer growth.

ELECTRIC SEGMENT

We have various classifications of electric revenues, defined as follows:


•	Retail: Sales of electricity to residential, commercial and industrial customers.


•	Regulatory amortization: Primarily represents timing differences for electric supply costs and property taxes between when we incur these costs and when we recover these costs in rates from our customers.


•	Transmission: Reflects transmission revenues regulated by the FERC.


•	Ancillary Services: FERC jurisdictional services that ensure reliability and support the transmission of electricity from generation sites to customer loads. Such services include regulation service, reserves and voltage support.


•	Wholesale and other: Our South Dakota service territory is a market participant in the Southwest Power Pool, where we buy and sell wholesale energy and reserves through the operation of a single, consolidated balancing authority. This line also includes miscellaneous electric revenues.

Three Months Ended September 30, 2017 Compared with the Three Months Ended September 30, 2016



	Results
	2017		2016		Change			% Change
	(dollars in millions)
Retail revenues	$	226.5	$	219.3	$	7.2		3.3	%
Regulatory amortization	3.4		2.3		1.1			47.8
Total retail revenues	229.9		221.6		8.3			3.7
Transmission	13.1		13.4		(0.3		)	(2.2	)
Ancillary services	0.4		0.4		—			—
Wholesale and other	31.4		31.2		0.2			0.6
Total Revenues	274.8		266.6		8.2			3.1
Total Cost of Sales	91.3		89.7		1.6			1.8
Gross Margin	$	183.5	$	176.9	$	6.6		3.7	%



	Revenues				Megawatt Hours (MWH)		Avg. Customer Counts
	2017		2016		2017	2016	2017	2016
	(in thousands)
Montana	$	72,081	$	67,346	618	559	295,590	291,628
South Dakota	15,974		16,426		136	151	50,232	50,044
Residential	88,055		83,772		754	710	345,822	341,672
Montana	90,654		88,932		856	813	66,658	65,702
South Dakota	24,826		24,254		263	268	12,748	12,665
Commercial	115,480		113,186		1,119	1,081	79,406	78,367
Industrial	10,349		9,937		594	555	74	75
Other	12,636		12,377		105	97	8,092	8,010
Total Retail Electric	$	226,520	$	219,272	2,572	2,443	433,394	428,124



	Cooling Degree Days			2017 as compared with:
	2017	2016	Historic Average	2016	Historic Average
Montana	466	278	361	68% warmer	29% warmer
South Dakota	572	739	635	23% colder	10% colder



	Heating Degree Days			2017 as compared with:
	2017	2016	Historic Average	2016	Historic Average
Montana	304	360	301	16% warmer	1% colder
South Dakota	65	42	80	55% colder	19% warmer

The following summarizes the components of the changes in electric gross margin for the three months ended September 30, 2017 and 2016 :



	Gross Margin 2017 vs. 2016
	(in millions)
Gross Margin Items Impacting Net Income
Retail volumes	$	5.1
Transmission	(0.3		)
Other	0.9
Change in Gross Margin Impacting Net Income	5.7

Gross Margin Items Offset in Operating Expenses
Production tax credits flowed-through trackers	1.0
Operating expenses recovered in trackers	0.6
Property taxes recovered in trackers	(0.7		)
Change in Items Offset Within Net Income	0.9
Increase in Gross Margin	$	6.6

Gross margin for items impacting net income increased $5.7 million . Gross margin includes an increase in electric retail volumes due primarily to warmer summer weather in our Montana jurisdiction and customer growth, partly offset by cooler summer weather in our South Dakota jurisdiction. This increase was partly offset by lower demand to transmit energy across our transmission lines due to market conditions and pricing.

The change in consolidated gross margin also includes the following items that had no impact on net income:


•	A decrease in production tax credits, which is an increase in our customer rates, is offset by increased income tax expense;


•	An increase in operating expenses included in our supply trackers is offset by an increase in operating, general and administrative expenses; and


•	The decrease in revenues for property taxes included in trackers is offset by decreased property tax expense.

The change in regulatory amortization revenue is due to timing differences between when we incur electric supply costs and when we recover these costs in rates from our customers. These timing differences have a minimal impact on gross margin. Our wholesale and other revenues are largely gross margin neutral as they are offset by changes in cost of sales.

Nine Months Ended September 30, 2017 Compared with the Nine Months Ended September 30, 2016



	Results
	2017		2016		Change			% Change
	(dollars in millions)
Retail revenues	$	657.2	$	630.0	$	27.2		4.3	%
Regulatory amortization	2.7		15.1		(12.4		)	(82.1	)
Total retail revenues	659.9		645.1		14.8			2.3
Transmission	38.7		38.8		(0.1		)	(0.3	)
Ancillary services	1.2		1.2		—			—
Wholesale and other	75.1		71.3		3.8			5.3
Total Revenues	774.9		756.4		18.5			2.4
Total Cost of Sales	246.9		245.5		1.4			0.6
Gross Margin	$	528.0	$	510.9	$	17.1		3.3	%



	Revenues				Megawatt Hours (MWH)		Avg. Customer Counts
	2017		2016		2017	2016	2017	2016
	(in thousands)
Montana	$	222,630	$	207,080	1,882	1,748	294,845	290,807
South Dakota	46,142		44,305		426	433	50,188	49,967
Residential	268,772		251,385		2,308	2,181	345,033	340,774
Montana	261,790		257,566		2,436	2,381	66,349	65,467
South Dakota	68,636		65,454		747	749	12,660	12,591
Commercial	330,426		323,020		3,183	3,130	79,009	78,058
Industrial	31,301		29,626		1,725	1,628	75	74
Other	26,693		25,993		179	170	6,326	6,300
Total Retail Electric	$	657,192	$	630,024	7,395	7,109	430,443	425,206



	Cooling Degree Days			2017 as compared with:
	2017	2016	Historic Average	2016	Historic Average
Montana	524	367	415	43% warmer	26% warmer
South Dakota	663	837	693	21% colder	4% colder



	Heating Degree Days			2017 as compared with:
	2017	2016	Historic Average	2016	Historic Average
Montana	4,741	4,212	4,709	13% colder	1% colder
South Dakota	5,276	4,962	5,615	6% colder	6% warmer

The following summarizes the components of the changes in electric gross margin for the nine months ended September 30, 2017 and 2016 :



	Gross Margin 2017 vs. 2016
	(in millions)
Gross Margin Items Impacting Net Income
Retail volumes	$	12.3
2016 MPSC disallowance	9.5
South Dakota rate increase	1.2
QF adjustment	0.4
2016 Lost revenue adjustment mechanism	(13.4		)
Other	1.6
Change in Gross Margin Impacting Net Income	11.6

Gross Margin Items Offset in Operating Expenses
Property taxes recovered in trackers	4.1
Operating expenses recovered in trackers	1.0
Production tax credits flowed-through trackers	0.4
Change in Items Offset Within Net Income	5.5
Increase in Gross Margin	$	17.1

Gross margin for items impacting net income increased $11.6 million including the following:


•	An increase in retail volumes due primarily to colder winter and warmer summer weather in our Montana jurisdiction and customer growth, partly offset by cooler summer weather in our South Dakota jurisdiction and milder spring weather overall;


•	The inclusion in our 2016 results of the MPSC disallowance of both replacement power costs from a 2013 outage at

Colstrip Unit 4 and portfolio modeling costs;


•	An increase in South Dakota electric rates due to the timing of the change in customer rates in 2016; and


•	A decrease in QF related supply costs based on actual QF pricing and output.

These increases were partly offset by the recognition in 2016 of $13.4 million of deferred revenue as a result of a MPSC final order in our tracker filings.

The change in consolidated gross margin also includes the following items that had no impact on net income:


•	The increase in revenues for property taxes included in trackers is offset by increased property tax expense;


•	An increase in operating expenses included in our supply trackers is offset by an increase in operating, general and administrative expenses; and


•	A decrease in production tax credits, which is an increase in our customer rates, is offset by increased income tax expense.

The change in regulatory amortization revenue is primarily due to timing differences between when we incur electric supply costs and when we recover these costs in rates from our customers, which has a minimal impact on gross margin. Our wholesale and other revenues are largely gross margin neutral as they are offset by changes in cost of sales.

NATURAL GAS SEGMENT

We have various classifications of natural gas revenues, defined as follows:


•	Retail: Sales of natural gas to residential, commercial and industrial customers.


•	Regulatory amortization: Primarily represents timing differences for natural gas supply costs and property taxes between when we incur these costs and when we recover these costs in rates from our customers, which is also reflected in cost of sales and therefore has minimal impact on gross margin.


•	Wholesale: Primarily represents transportation and storage for others.

Three Months Ended September 30, 2017 Compared with the Three Months Ended September 30, 2016



	Results
	2017		2016		Change			% Change
	(dollars in millions)
Retail revenues	$	22.5	$	21.1	$	1.4		6.6	%
Regulatory amortization	3.1		3.6		(0.5		)	(13.9	)
Total retail revenues	25.6		24.7		0.9			3.6
Wholesale and other	9.5		9.7		(0.2		)	(2.1	)
Total Revenues	35.1		34.4		0.7			2.0
Total Cost of Sales	6.2		6.5		(0.3		)	(4.6	)
Gross Margin	$	28.9	$	27.9	$	1.0		3.6	%



	Revenues				Dekatherms (Dkt)		Customer Counts
	2017		2016		2017	2016	2017	2016
	(in thousands)
Montana	$	9,980	$	9,607	894	901	170,229	167,909
South Dakota	1,719		1,699		109	108	39,286	38,907
Nebraska	2,058		1,796		145	145	37,038	36,888
Residential	13,757		13,102		1,148	1,154	246,553	243,704
Montana	6,163		5,691		641	623	23,399	23,108
South Dakota	1,319		1,248		216	213	6,504	6,401
Nebraska	1,082		904		162	174	4,733	4,688
Commercial	8,564		7,843		1,019	1,010	34,636	34,197
Industrial	113		109		12	13	252	257
Other	69		87		7	11	158	157
Total Retail Gas	$	22,503	$	21,141	2,186	2,188	281,599	278,315



	Heating Degree Days			2017 as compared with:
	2017	2016	Historic Average	2016	Historic Average
Montana	324	413	347	22% warmer	7% warmer
South Dakota	65	42	80	55% colder	19% warmer
Nebraska	27	22	42	23% colder	36% warmer

The following summarizes the components of the changes in natural gas gross margin for the three months ended September 30, 2017 and 2016 :



	Gross Margin 2017 vs. 2016
	(in millions)
Gross Margin Items Impacting Net Income
Montana rates	$	0.7
Retail volumes	0.1
Other	0.7
Change in Gross Margin Impacting Net Income	1.5

Gross Margin Items Offset in Operating Expenses
Property taxes recovered in trackers	(0.3		)
Production gathering fees	(0.2		)
Change in Items Offset Within Net Income	(0.5		)
Increase in Gross Margin	$	1.0

Gross margin for items impacting net income increased $1.5 million due to the following:


•	A final order from the MPSC in our Montana rate case, which resulted in an increase of approximately $0.6 million from the resolution of the deferral of gas production interim rates and a $0.1 million increase in rates effective September 1, 2017; and


•	While retail volumes remained flat, customer growth and higher commercial volumes in our Montana jurisdiction were partly offset by warmer summer weather.

The change in consolidated gross margin also includes the following items that had no impact on net income:


•	A decrease in revenues for property taxes included in trackers is offset by decreased property tax expense; and


•	A decrease in production gathering fees is offset by a decrease in operating expenses.

Our wholesale and other revenues are largely gross margin neutral as they are offset by changes in cost of sales.

Nine Months Ended September 30, 2017 Compared with the Nine Months Ended September 30, 2016



	Results
	2017			2016		Change			% Change
	(dollars in millions)
Retail revenues	$	159.6		$	138.1	$	21.5		15.6	%
Regulatory amortization	(3.5		)	3.1		(6.6		)	(212.9	)
Total retail revenues	156.1			141.2		14.9			10.6
Wholesale and other	30.1			29.1		1.0			3.4
Total Revenues	186.2			170.3		15.9			9.3
Total Cost of Sales	54.4			47.8		6.6			13.8
Gross Margin	$	131.8		$	122.5	$	9.3		7.6	%



	Revenues				Dekatherms (Dkt)		Customer Counts
	2017		2016		2017	2016	2017	2016
	(in thousands)
Montana	$	70,255	$	60,160	8,795	7,622	170,236	167,901
South Dakota	16,820		15,827		2,136	1,982	39,470	39,115
Nebraska	15,192		13,040		1,829	1,703	37,234	37,077
Residential	102,267		89,027		12,760	11,307	246,940	244,093
Montana	36,307		30,673		4,766	4,070	23,500	23,190
South Dakota	11,499		10,200		2,072	1,984	6,540	6,428
Nebraska	8,050		6,850		1,379	1,310	4,773	4,714
Commercial	55,856		47,723		8,217	7,364	34,813	34,332
Industrial	775		698		106	98	253	260
Other	680		662		102	103	158	157
Total Retail Gas	$	159,578	$	138,110	21,185	18,872	282,164	278,842



	Heating Degree Days			2017 as compared with:
	2017	2016	Historic Average	2016	Historic Average
Montana	4,925	4,411	4,856	12% colder	1% colder
South Dakota	5,276	4,962	5,615	6% colder	6% warmer
Nebraska	4,137	4,011	4,620	3% colder	10% warmer

The following summarizes the components of the changes in natural gas gross margin for the nine months ended September 30, 2017 and 2016 :



	Gross Margin 2017 vs. 2016
	(in millions)
Gross Margin Items Impacting Net Income
Retail volumes	$	7.4
Montana rates	0.1
2016 Lost revenue adjustment mechanism	(0.8		)
Other	1.2
Change in Gross Margin Impacting Net Income	7.9

Gross Margin Items Offset in Operating Expenses
Property taxes recovered in trackers	1.2
Production gathering fees	0.2
Change in Items Offset Within Net Income	1.4
Increase in Gross Margin	$	9.3

Gross margin for items impacting net income increased $7.9 million due primarily to the following:


•	An increase in retail volumes from colder winter and spring weather and customer growth; and


•	A $0.1 million increase in our Montana gas rates effective September 1, 2017. The favorable impact of the resolution of gas production interim rates in the third quarter was offset by an associated deferral during the first half of 2017, with no impact for the nine months ended September 30, 2017.

These increases were partly offset by the recognition in 2016 of $0.8 million of deferred revenue as a result of a MPSC final order in our tracker filings.

The change in consolidated gross margin also includes the following items that had no impact on net income:


•	An increase in revenues for property taxes included in trackers is offset by increased property tax expense with no impact to net income; and


•	An increase in production gathering fees is offset by an increase in operating expenses.

Our wholesale and other revenues are largely gross margin neutral as they are offset by changes in cost of sales.



LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Funds

We require liquidity to support and grow our business, and use our liquidity for working capital needs, capital expenditures, investments in or acquisitions of assets, and to repay debt. We believe our cash flows from operations and existing borrowing capacity should be sufficient to fund our operations, service existing debt, pay dividends, and fund capital expenditures (excluding strategic growth opportunities). The amount of capital expenditures and dividends are subject to certain factors including the use of existing cash, cash equivalents and the receipt of cash from operations. In addition, a material change in operations or available financing could impact our current liquidity and ability to fund capital resource requirements, and we may defer a portion of our planned capital expenditures as necessary.

We issue debt securities to refinance retiring maturities, reduce short-term debt, fund construction programs and for other general corporate purposes. To fund our strategic growth opportunities we utilize available cash flow, debt capacity and equity issuances that allow us to maintain investment grade ratings. In September 2017 , we entered into an Equity Distribution Agreement with Merrill Lynch, Pierce, Fenner & Smith and J.P. Morgan Securities LLC, collectively the sales agents, pursuant to which we may offer and sell shares of our common stock from time to time, having an aggregate gross sales price of up to $100 million . During the third quarter of 2017, we sold 83,769 shares of our common stock at an average price of $59.56 per share. Proceeds received were approximately $4.8 million , which are net of sales commissions and other fees paid of approximately $0.2 million .

We plan to maintain a 50 - 55 percent debt to total capital ratio excluding capital leases, and expect to continue to target a long-term dividend payout ratio of 60 - 70 percent of earnings per share; however, there can be no assurance that we will be able to meet these targets. In addition, we priced $250 million of Montana First Mortgage Bonds in October 2017, at a fixed interest rate of 4.03% maturing in 2047 . We expect to close the transaction in early November 2017. Proceeds will be used to redeem our 6.34% , $250 million of Montana First Mortgage Bonds due 2019 .

Short-term liquidity is provided by internal cash flows, the sale of commercial paper and use of our revolving credit facility. We utilize our short-term borrowings and / or revolver availability to manage our cash flows due to the seasonality of our business, and utilize any cash on hand in excess of current operating requirements to invest in our business and reduce borrowings. Short-term borrowings may also be used to temporarily fund utility capital requirements. As of September 30, 2017 , our total net liquidity was approximately $138.2 million , including $7.9 million of cash and $130.3 million of revolving credit facility availability. Revolving credit facility availability was $150.2 million as of October 27, 2017 .

The following table presents additional information about short term borrowings during the three months ended September 30, 2017 (in millions):



Amount outstanding at period end	$	269.7
Daily average amount outstanding	$	266.2
Maximum amount outstanding	$	303.7

Factors Impacting our Liquidity

Supply Costs - Our operations are subject to seasonal fluctuations in cash flow. During the heating season, which is primarily from November through March, cash receipts from natural gas and electric sales typically exceed cash requirements. During the summer months, cash on hand, together with the seasonal increase in cash flows and utilization of our existing revolver, are used to purchase natural gas to place in storage, perform maintenance and make capital improvements.

The effect of this seasonality on our liquidity is also impacted by changes in the market prices of our electric and natural gas supply, which is currently recovered through various monthly cost tracking mechanisms. These energy supply tracking mechanisms are designed to provide stable and timely recovery of supply costs on a monthly basis during the July to June annual tracking period, with an adjustment in the following annual tracking period to correct for any under or over collection in our monthly trackers. Due to the lag between our purchases of electric and natural gas commodities and revenue receipt from customers, cyclical over and under collection situations arise consistent with the seasonal fluctuations discussed above; therefore we usually under collect in the fall and winter and over collect in the spring. Fluctuations in recoveries under our cost tracking mechanisms can have a significant effect on cash flows from operations and make year-to-year comparisons difficult. In 2017, a Montana statute that provided for mandatory recovery of our prudently incurred electric supply costs was

amended, and that statute now gives the MPSC discretion as to whether to approve electric supply costs. The MPSC opened a new docket and initiated a process to develop a new electric supply mechanism.

As of September 30, 2017 , we are under collected on our supply trackers by approximately $9.6 million , as compared with an under collection of $11.7 million as of December 31, 2016 , and $5.1 million as of September 30, 2016 .

Credit Ratings

In general, less favorable credit ratings make debt financing more costly and more difficult to obtain on terms that are favorable to us and our customers, and impact our trade credit availability. Fitch Ratings (Fitch), Moody's and Standard and Poor’s Ratings Service (S&P) are independent credit-rating agencies that rate our debt securities. These ratings indicate the agencies’ assessment of our ability to pay interest and principal when due on our debt. As of October 27, 2017 , our current ratings with these agencies are as follows:



	Senior Secured Rating	Senior Unsecured Rating	Commercial Paper	Outlook
Fitch	A	A-	F2	Stable
Moody’s (1)	A2	Baa1	Prime-2	Negative
S&P	A-	BBB	A-2	Stable

_____________________

(1) In March 2017, Moody's downgraded our senior secured rating to A2, from A1, and our unsecured credit rating to Baa1, from A3, while maintaining a negative outlook. Moody's cited weak financial metrics and a heightened degree of regulatory uncertainty in Montana as reasons for the downgrade. Moody's maintained a negative outlook, citing a more contentious regulatory relationship in Montana, our primary regulatory jurisdiction, resulting in unpredictable regulatory outcomes.

A security rating is not a recommendation to buy, sell or hold securities. Such rating may be subject to revision or withdrawal at any time by the credit rating agency and each rating should be evaluated independently of any other rating.

Cash Flows

The following table summarizes our consolidated cash flows (in millions):



	Nine Months Ended September 30,
	2017			2016
Operating Activities
Net income	$	114.8		$	120.0
Non-cash adjustments to net income	138.1			115.3
Changes in working capital	51.8			28.9
Other noncurrent assets and liabilities	(4.1		)	(6.2		)
Cash Provided by Operating Activities	300.6			258.0

Investing Activities
Property, plant and equipment additions	(197.0		)	(204.0		)
Other	0.4			1.4
Cash Used in Investing Activities	(196.6		)	(202.6		)

Financing Activities
Proceeds from issuance of common stock, net	4.8			—
Issuances of long-term debt, net	—			24.5
Repayments of short-term borrowings, net	(31.1		)	(7.6		)
Dividends on common stock	(75.6		)	(71.8		)
Financing costs	(0.2		)	(6.6		)
Other	0.9			(0.8		)
Cash Used in Financing Activities	(101.2		)	(62.3		)

Increase (Decrease) in Cash and Cash Equivalents	$	2.8		$	(6.9	)
Cash and Cash Equivalents, beginning of period	$	5.1		$	12.0
Cash and Cash Equivalents, end of period	$	7.9		$	5.1

Cash Provided by Operating Activities

As of September 30, 2017 , cash and cash equivalents were $7.9 million as compared with $5.1 million at December 31, 2016 and $5.1 million at September 30, 2016 . Cash provided by operating activities totaled $300.6 million for the nine months ended September 30, 2017 as compared with $258.0 million during the nine months ended September 30, 2016 . This increase in operating cash flows is primarily due to lower 2016 cash flows due to customer refunds associated with the DGGS FERC ruling and interim rates in our South Dakota electric rate case of approximately $30.8 million and $7.2 million, respectively.

Cash Used in Investing Activities

Cash used in investing activities decreased by approximately $6.0 million as compared with the first nine months of 2016. Plant additions during 2017 include maintenance additions of approximately $108.3 million , capacity related capital expenditures of approximately $59.7 million , and infrastructure capital expenditures of approximately $29.0 million . Plant additions during the first nine months of 2016 included maintenance additions of approximately $109.4 million , capacity related capital expenditures of approximately $56.2 million , and infrastructure capital expenditures of approximately $38.4 million .

Cash Used in Financing Activities

Cash used in financing activities totaled $101.2 million during the nine months ended September 30, 2017 as compared with $62.3 million during the nine months ended September 30, 2016 . During the nine months ended September 30, 2017 , net cash used in financing activities reflects payment of dividends of $75.6 million and repayments of commercial paper of $31.1 million , offset in part by proceeds from the issuance of common stock pursuant to our equity distribution agreement of $4.8 million . During the nine months ended September 30, 2016 , net cash used in financing activities included payments of dividends of $71.8 million , the payment of financing costs of $6.6 million , and net repayments of commercial paper of $7.6 million , partially offset by net proceeds from the issuance of debt of $24.5 million .

Contractual Obligations and Other Commitments

We have a variety of contractual obligations and other commitments that require payment of cash at certain specified periods. The following table summarizes our contractual cash obligations and commitments as of September 30, 2017 . See our Annual Report on Form 10-K for the year ended December 31, 2016 for additional discussion.



	Total		2017		2018		2019		2020		2021		Thereafter
	(in thousands)
Long-term debt	$	1,794,083	$	—	$	—	$	250,000	$	—	$	—	$	1,544,083
Capital leases	24,860		513		2,133		2,298		2,476		2,668		14,772
Short-term borrowings	269,738		269,738		—		—		—		—		—
Estimated pension and other postretirement obligations (1)	57,007		3,378		13,684		13,577		13,274		13,094		N/A
Qualifying facilities liability (2)	826,073		18,652		76,703		78,836		80,984		82,941		487,957
Supply and capacity contracts (3)	2,114,396		51,339		168,781		165,651		132,305		116,468		1,479,852
Contractual interest payments on debt (4)	1,310,090		20,384		81,537		73,612		65,687		65,389		1,003,481
Environmental remediation obligations (1)	5,700		500		1,650		2,150		800		600		N/A
Total Commitments (5)	$	6,401,947	$	364,504	$	344,488	$	586,124	$	295,526	$	281,160	$	4,530,145

_________________________


(1)	We estimate cash obligations related to our pension and other postretirement benefit programs and environmental remediation obligations for five years, as it is not practicable to estimate thereafter. Pension and postretirement benefit estimates reflect our expected cash contributions, which may be in excess of minimum funding requirements.


(2)	Certain QFs require us to purchase minimum amounts of energy at prices ranging from $74 to $136 per MWH through 2029 . Our estimated gross contractual obligation related to these QFs is approximately $826.1 million . A portion of the costs incurred to purchase this energy is recoverable through rates authorized by the MPSC, totaling approximately $640.1 million .


(3)	We have entered into various purchase commitments, largely purchased power, electric transmission, coal and natural gas supply and natural gas transportation contracts. These commitments range from one to 27 years.


(4)	For our variable rate short-term borrowings outstanding, we have assumed an average interest rate of 1.45% through maturity.


(5)	Potential tax payments related to uncertain tax positions are not practicable to estimate and have been excluded from this table.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of financial condition and results of operations is based on our Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and other assumptions that are believed to be proper and reasonable under the circumstances.

As of September 30, 2017 , there have been no significant changes with regard to the critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2016 . The policies disclosed included the accounting for the following: goodwill and long-lived assets, QF liability, revenue recognition, regulatory assets and liabilities, pension and postretirement benefit plans, and income taxes. We continually evaluate the appropriateness of our estimates and assumptions. Actual results could differ from those estimates.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks, including, but not limited to, interest rates, energy commodity price volatility, and credit exposure. Management has established comprehensive risk management policies and procedures to manage these market risks.

Interest Rate Risk

Interest rate risks include exposure to adverse interest rate movements for outstanding variable rate debt and for future anticipated financings. We manage our interest rate risk by issuing primarily fixed-rate long-term debt with varying maturities, refinancing certain debt and, at times, hedging the interest rate on anticipated borrowings. All of our debt has fixed interest rates, with the exception of our revolving credit facility. The revolving credit facility bears interest at the lower of prime or available rates tied to the Eurodollar rate plus a credit spread, ranging from 0.88% to 1.75%. To more cost effectively meet short-term cash requirements, we issue commercial paper supported by our revolving credit facility. Since commercial paper terms are short-term, we are subject to interest rate risk. As of September 30, 2017 , we had approximately $269.7 million of commercial paper outstanding and no borrowings on our revolving credit facility. A 1% increase in interest rates would increase our annual interest expense by approximately $2.7 million .

Commodity Price Risk

We are exposed to commodity price risk due to our reliance on market purchases to fulfill a portion of our electric and natural gas supply requirements. We also participate in the wholesale electric market to balance our supply of power from our own generating resources. Several factors influence price levels and volatility. These factors include, but are not limited to, seasonal changes in demand, weather conditions, available generating assets within regions, transportation availability and reliability within and between regions, fuel availability, market liquidity, and the nature and extent of current and potential federal and state regulations.

As part of our overall strategy for fulfilling our electric and natural gas supply requirements, we employ the use of market purchases and sales, including forward contracts. These types of contracts are included in our supply portfolios and in some instances, are used to manage price volatility risk by taking advantage of seasonal fluctuations in market prices. These contracts are part of an overall portfolio approach intended to provide price stability for consumers. As a regulated utility, our exposure to market risk caused by changes in commodity prices is substantially mitigated because these commodity costs are included in our cost tracking mechanisms and are recoverable from customers subject to prudence reviews by applicable state regulatory commissions.

Counterparty Credit Risk

We are exposed to counterparty credit risk related to the ability of these counterparties to meet their contractual payment obligations, and the potential non-performance of counterparties to deliver contracted commodities or services at the contracted price. If counterparties seek financial protection under bankruptcy laws, we are exposed to greater financial risks. We are also exposed to counterparty credit risk related to providing transmission service to our customers under our Open Access Transmission Tariff and under gas transportation agreements. We have risk management policies in place to limit our transactions to high quality counterparties. We monitor closely the status of our counterparties and take action, as appropriate, to further manage this risk. This includes, but is not limited to, requiring letters of credit or prepayment terms. There can be no assurance, however, that the management tools we employ will eliminate the risk of loss.


ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including the principal executive officer and principal financial officer to allow timely decisions regarding required disclosure.

We conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

See Note 13, Commitments and Contingencies, to the Financial Statements for information regarding legal proceedings.

ITEM 1A. RISK FACTORS -

You should carefully consider the risk factors described below, as well as all other information available to you, before making an investment in our common stock or other securities.

We are subject to potential unfavorable state and federal regulatory outcomes. To the extent our incurred costs are deemed imprudent by the applicable regulatory commissions or certain regulatory mechanisms are not available, we may not recover some of our costs, which could adversely impact our results of operations and liquidity.

Our profitability is dependent on our ability to recover the costs of providing energy and utility services to our customers and earn a return on our capital investment in our utility operations. We provide service at rates established by several regulatory commissions. These rates are generally set based on an analysis of our costs incurred in a historical test year. In addition, each regulatory commission sets rates based in part upon their acceptance of an allocated share of total utility costs. When commissions adopt different methods to calculate inter-jurisdictional cost allocations, some costs may not be recovered. Thus, the rates we are allowed to charge may or may not match our costs at any given time. While rate regulation is premised on providing a reasonable opportunity to earn a reasonable rate of return on invested capital, there can be no assurance that the applicable regulatory commission will judge all of our costs to have been prudently incurred or that the regulatory process in which rates are determined will always result in rates that will produce full recovery of such costs.

In addition to rate cases, our cost tracking mechanisms are a significant component of how we recover our costs. Historically, our wholesale costs for electricity and natural gas supply were recovered through various pass-through cost tracking mechanisms in each of the states we serve. In April 2017, the Montana legislature passed HB 193, repealing the statutory language that provided for mandatory recovery of our prudently incurred electric supply costs effective July 1, 2017. On July 14, 2017, we filed a proposed electric PCCAM with the MPSC, and the MPSC has established a procedural schedule with a hearing to be held in March 2018. We believe our PCCAM filing is consistent with the MPSC's advocacy for HB 193, the MPSC's NCAs and the MDU adjustment mechanism used in Montana that allows for recovery of 90 percent of the increases or decreases in fuel and purchased energy costs from an established baseline. We cannot guarantee how the MPSC may apply the statute in establishing a revised mechanism. To the extent our energy supply costs are deemed imprudent by the applicable state regulatory commissions, or the passage of HB 193 reduces our recovery or the timeliness of cash flows, the revised mechanism could adversely impact our results of operations and cash flows.

In addition to the proposed changes to our electric tracking mechanism, we have received several unfavorable regulatory rulings in Montana, including:

• In 2016, the MPSC disallowed approximately $8.2 million of replacement power costs from a 2013 outage at Colstrip Unit 4, and approximately $1.3 million of costs related to generation portfolio modeling previously recovered through our electric tracker filings.

• In October 2015, the MPSC issued an order eliminating the lost revenue adjustment mechanism. This mechanism was established in 2005 by the MPSC as a component of an approved energy efficiency program, by which we recovered on an after-the-fact basis a portion of our fixed costs that would otherwise have been collected in the kWh sales lost due to energy efficiency programs through our supply tracker. Lost revenues were removed prospectively effective December 1, 2015.

• In October 2013, the MPSC concluded that $1.4 million of incremental costs associated with regulation service acquired from third parties during a 2012 outage at DGGS were imprudently incurred, and disallowed recovery.

In June 2016, we filed an appeal of the MPSC decision regarding the disallowance of portfolio modeling costs in Montana District Court. Also, in September 2016, we appealed the MPSC’s decisions regarding the disallowance of Colstrip Unit 4 replacement power costs and the modeling/planning costs in Montana District Court, arguing that these decisions were arbitrary and capricious, and violated Montana law.

In addition to our supply trackers, under Montana law we are allowed to track the changes in the actual level of state and local taxes and fees and recover 60 percent of the change in rates. We submit an annual property tax tracker filing with the MPSC for an automatic rate adjustment of our Montana property taxes, with rates typically effective January 1st of each year. The MPSC identified concerns with the amount of annual increases proposed by the Montana Department of Revenue. In June 2017, the MPSC adopted new rules to establish minimum filing requirements for our statutory property tax tracker. Some of the rules appear to be based on a narrow interpretation of the statutory language and suggest that the MPSC will challenge the amount and allocation of these taxes to customers. Under the new rules, we may face obstacles to the same recovery that we now achieve. Any change in recovery of property taxes could have a material impact on our results of operations.

Additionally, in our regulatory filings related to DGGS, we proposed an allocation of approximately 80% of costs to retail customers subject to the MPSC's jurisdiction and approximately 20% allocated to wholesale customers subject to FERC's jurisdiction. In March 2012, the MPSC's final order approved using our proposed cost allocation methodology, but requires us to complete a study of the relative contribution of retail and wholesale customers to regulation capacity needs. The results of this study may be used in determining future cost allocations between retail and wholesale customers. However, there is no assurance that both the MPSC and FERC will agree on the results of this study, which could result in an inability to fully recover our costs in a future electric general rate filing.

Our ability to invest in additional generation is impacted by regulatory and public policy. Under PURPA, electric utilities are required, with exceptions, to purchase energy and capacity from independent power producers that are QFs. Our requirements to procure power from these sources could impact our ability to make generation investments depending upon the number and size of QF contracts we ultimately enter into. The cost to procure power from these QFs may not be a cost effective resource for customers, or the type of generation resource needed, resulting in increased supply costs. In June 2017, the MPSC held a work session to discuss our application for approval of a revised tariff for standard rates for small QFs. In July 2017, the MPSC issued an order establishing a maximum 10-year contract length with a rate adjustment after the first five years, and approving rates that do not include costs associated with the risk of future carbon dioxide emissions regulations. In this same order, the MPSC indicated it would apply the 10-year contract term to us for future electric supply resource transactions. We and other parties filed motions for reconsideration of this decision. Although the MPSC voted in October 2017 to revise the initial order extending the contract length to 15 years and to continue to apply the contract term to both QF contracts and our future electric supply resource procurement, the MPSC has not yet issued a final written order. Based on the MPSC’s October 2017 vote, we expect that the decision will result in substantially lower rates for future QF contracts. We are continuing to evaluate the impact of this decision and have suspended our competitive solicitation process to determine the lowest-cost / least-risk approach for addressing our intermittent capacity and reserve margin needs in Montana. This order may have a significant impact on our approach to meet our portfolio needs.

We must also comply with established reliability standards and requirements, which apply to the North American Electric Reliability Corporation (NERC) functions in both the Midwest Reliability Organization for our South Dakota operations and Western Electricity Coordination Council for our Montana operations. The FERC, NERC, or a regional reliability organization may assess penalties against any responsible entity that violates their rules, regulations or standards. Violations may be discovered through various means, including self-certification, self-reporting, compliance investigations, audits, periodic data submissions, exception reporting, and complaints. Penalties for the most severe violations can reach as high as approximately $1.2 million per violation, per day. If a serious reliability incident or other incidence of noncompliance did occur, it could have a material adverse effect on our operating and financial results.

We are also subject to changing federal and state laws and regulations. Congress and state legislatures may enact legislation that adversely affects our operations and financial results.

We are subject to existing, and potential future, federal and state legislation. In the planning and management of our operations, we must address the effects of legislation within a regulatory framework. Federal and state laws can significantly impact our operations, whether it is new or revised statutes directly affecting the electric and gas industry, or other issues such as taxes.

We are subject to changing tax laws, regulations, and interpretations in multiple jurisdictions. Corporate tax reform continues to be a priority in the U.S. Changes to the U.S. tax system could have significant effects, positive and negative, on our effective tax rate, and on our deferred tax assets and liabilities. In addition, the timing of realization of certain tax benefits may be further delayed in the event of future extensions of bonus depreciation or expensing of capital investments and impact our ability to utilize our federal and state net operating loss carryforwards.

In addition, new or revised statutes can also materially affect our operations through impacting existing regulations or requiring new regulations. These changes are ongoing, and we cannot predict the future course of changes or the ultimate effect

that this changing environment will have on us. Changes in laws, and the resulting regulations and tariffs and how they are implemented and interpreted, may have a material adverse effect on our financial condition, results of operations and cash flows.

On June 22, 2016, then-President Obama signed the Securing America’s Future Energy: Protecting our Infrastructure of Pipelines and Enhancing Safety Act (SAFE PIPES Act), which would reauthorize appropriations for the Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) safety programs through 2019. The law prioritizes PHMSA's completion of outstanding regulations. In addition, PHMSA proposed regulations to safety standards for natural gas transmission and gathering pipelines. The long-anticipated proposal could impose significant regulatory requirements for additional miles of natural gas pipeline, including pipelines constructed prior to 1970 which were previously exempt from PHMSA regulations related to pressure testing. It would also create a new "Moderate Consequence Area" category to expand safety protocols to pipelines in moderately populated areas. The rule also would codify the Integrity Verification Process (IVP) which is a process that will require companies to have reliable, traceable, verifiable, and complete records for pipelines in certain areas. The rule would establish a deadline for IVP completion that we will be required to meet. Costs incurred to comply with the proposed regulations may be material.

We are subject to extensive and changing environmental laws and regulations and potential environmental liabilities, which could have a material adverse effect on our liquidity and results of operations.

We are subject to extensive laws and regulations imposed by federal, state, and local government authorities in the ordinary course of operations with regard to the environment, including environmental laws and regulations relating to air and water quality, protection of natural resources, migratory birds and other wildlife, solid waste disposal, coal ash and other environmental considerations. We believe that we are in compliance with environmental regulatory requirements; however, possible future developments, such as more stringent environmental laws and regulations, and the timing of future enforcement proceedings that may be taken by environmental authorities, could affect our costs and the manner in which we conduct our business and could require us to make substantial additional capital expenditures or abandon certain projects.

In October 2015, the EPA published standards for states to implement to control GHG emissions from existing electric generating units. These standards are referred to as the Clean Power Plan (CPP). We, along with a number of states and other parties, filed lawsuits against the EPA standards. Additional information regarding the CPP, the proposed reductions in South Dakota and Montana, and the pending litigation is included in Note 13 - Commitments and Contingencies to the Condensed Consolidated Financial Statements. In addition, there is uncertainty associated with the new EPA Administration and the timeframe for actions that may be taken with regard to the existing and pending GHG-related regulations, including the CPP. President Trump's March 28, 2017 Executive Order instructs all federal agencies to review all regulations and other policies that burden the development or use of domestically produced energy resources and suspend, revise or rescind those that pose an undue burden beyond that required to protect the public interest. The order specifically identifies CPP as requiring review pursuant to this standard. Following the Executive Order, in October 2017, the EPA proposed to repeal the CPP. In light of the Executive Order and the proposed repeal, the future of the CPP regulations and associated guidance is uncertain. However, if the CPP is not repealed, survives the pending legal challenges and is implemented as written or if a replacement to the CPP is adopted with similar requirements, it could result in significant additional compliance costs that would affect our future results of operations and financial position if such costs are not recovered through regulated rates. Due to the pending litigation, the proposed repeal of the CPP and the uncertainties in the state approaches, the ultimate timing and impact of the CPP or other GHG regulations on our operations cannot be determined with certainty at this time. Complying with the CO ₂ emission performance standards, and with other future environmental rules, may make it economically impractical to continue operating all or a portion of our jointly owned facilities or for individual owners to participate in their proportionate ownership of the coal-fired generating units. This could lead to significant impacts to customer rates for recovery of plant improvements and / or closure related costs and costs to procure replacement power. In addition, these changes could impact system reliability due to changes in generation sources.

Many of these environmental laws and regulations provide for substantial civil and criminal fines for noncompliance which, if imposed, could result in material costs or liabilities. In addition, there is a risk of environmental damages claims from private parties or government entities. We may be required to make significant expenditures in connection with the investigation and remediation of alleged or actual spills, personal injury or property damage claims, and the repair, upgrade or expansion of our facilities to meet future requirements and obligations under environmental laws.

To the extent that costs exceed our estimated environmental liabilities, or we are not successful in recovering remediation costs or costs to comply with the proposed or any future changes in rules or regulations, our results of operations and financial position could be adversely affected.

Our revenues, results of operations and financial condition are impacted by customer growth and usage in our service territories and may fluctuate with current economic conditions or response to price increases. We are also impacted by market conditions outside of our service territories related to demand for transmission capacity and wholesale electric pricing.

Our revenues, results of operations and financial condition are impacted by customer growth and usage, which can be impacted by a number of factors, including the voluntary reduction of consumption of electricity and natural gas by our customers in response to increases in prices and demand-side management programs, economic conditions impacting decreases in their disposable income, and the use of distributed generation resources or other emerging technologies for electricity. Advances in distributed generation technologies that produce power, including fuel cells, micro-turbines, wind turbines and solar cells, may reduce the cost of alternative methods of producing power to a level competitive with central power station electric production. Customer-owned generation itself reduces the amount of electricity purchased from utilities and has the effect of increasing rates unless retail rates are designed to share the costs of the distribution grid across all customers that benefit from their use. Such developments could affect the price of energy, could affect energy deliveries as customer-owned generation becomes more cost-effective, could require further improvements to our distribution systems to address changing load demands and could make portions of our electric system power supply and transmission and/or distribution facilities obsolete prior to the end of their useful lives. Such technologies could also result in further declines in commodity prices or demand for delivered energy.

Both decreasing use per customer driven by appliance and lighting efficiency and the availability of cost-effective distributed generation put downward pressure on load growth. Our electricity supply resource procurement plan includes an expected load growth assumption of 0.8 percent annually, which reflects low customer and usage increases, offset in part by these efficiency measures. Reductions in usage, attributable to various factors could materially affect our results of operations, financial position, and cash flows through, among other things, reduced operating revenues, increased operating and maintenance expenses, and increased capital expenditures, as well as potential asset impairment charges or accelerated depreciation and decommissioning expenses over shortened remaining asset useful lives.

Demand for our Montana transmission capacity fluctuates with regional demand, fuel prices and weather related conditions. The levels of wholesale sales depend on the wholesale market price, market participants, transmission availability and the availability of generation, among other factors. Declines in wholesale market price, availability of generation, transmission constraints in the wholesale markets, or low wholesale demand could reduce wholesale sales. These events could adversely affect our results of operations, financial position and cash flows.

Weather and weather patterns, including normal seasonal and quarterly fluctuations of weather, as well as extreme weather events that might be associated with climate change, could adversely affect our results of operations and liquidity.

Our electric and natural gas utility business is seasonal, and weather patterns can have a material impact on our financial performance. Demand for electricity and natural gas is often greater in the summer and winter months associated with cooling and heating. Because natural gas is heavily used for residential and commercial heating, the demand for this product depends heavily upon weather patterns throughout our market areas, and a significant amount of natural gas revenues are recognized in the first and fourth quarters related to the heating season. Accordingly, our operations have historically generated less revenue and income when weather conditions are milder in the winter and cooler in the summer. In the event that we experience unusually mild winters or cool summers in the future, our results of operations and financial position could be adversely affected. In addition, exceptionally hot summer weather or unusually cold winter weather could add significantly to working capital needs to fund higher than normal supply purchases to meet customer demand for electricity and natural gas. Our sensitivity to weather volatility is significant due to the absence of regulatory mechanisms, such as those authorizing revenue decoupling, lost margin recovery, and other innovative rate designs.

Severe weather impacts, including but not limited to, thunderstorms, high winds, tornadoes and snow or ice storms can disrupt energy generation, transmission and distribution. We derive a significant portion of our energy supply from hydroelectric facilities, and the availability of water can significantly affect operations. Higher temperatures may decrease the Montana snowpack and impact the timing of run-off and may require us to purchase replacement power. Dry conditions also increase the threat of wildfires, which could threaten our communities and electric distribution and transmission lines and facilities. In addition, wildfires alleged to have been caused by our system could expose us to substantial property damage and other claims. Any damage caused as a result of wildfires could negatively impact our financial condition, results of operations or cash flows.

There is also a concern that the physical risks of climate change could include changes in weather conditions, such as changes in the amount or type of precipitation and extreme weather events. Climate change and the costs that may be associated with its impacts have the potential to affect our business in many ways, including increasing the cost incurred in providing electricity and natural gas, impacting the demand for and consumption of electricity and natural gas (due to change in both costs and weather patterns), and affecting the economic health of the regions in which we operate. Extreme weather conditions creating high energy demand on our own and/or other systems may raise market prices as we buy short-term energy to serve our own system. To the extent the frequency of extreme weather events increase, this could increase our cost of providing service. In addition, we may not recover all costs related to mitigating these physical and financial risks.

Cyber and physical attacks, threats of terrorism and catastrophic events that could result from terrorism, or individuals and/or groups attempting to disrupt our business, or the businesses of third parties, may affect our operations in unpredictable ways and could adversely affect our liquidity and results of operations.

We are subject to the potentially adverse operating and financial effects of terrorist acts and threats, as well as cyber (such as hacking and viruses) and physical security breaches and other disruptive activities of individuals or groups. Our generation, transmission and distribution facilities are deemed critical infrastructure and provide the framework for our service infrastructure. These assets and the information technology systems on which they depend could be direct targets of, or indirectly affected by, cyber attacks and other disruptive activities, including cyber attacks and other disruptive activities on third party facilities that are interconnected to us through the regional transmission grid or natural gas pipeline infrastructure. Any significant interruption of these assets or systems could prevent us from fulfilling our critical business functions including delivering energy to our customers, and sensitive, confidential and other data could be compromised.

We rely on information technology networks and systems to operate our critical infrastructure, engage in asset management activities, and process, transmit and store electronic information including customer and employee information. Further, our infrastructure, networks and systems are interconnected to external networks and neighboring critical infrastructure systems. Security breaches could lead to system disruptions, generating facility shutdowns or unauthorized disclosure of confidential information. In particular, any data loss or information security lapses resulting in the compromise of personal information or the improper use or disclosure of sensitive or classified information could result in claims, remediation costs, regulatory sanctions, loss of current and future contracts, and serious harm to our reputation.

We are subject to laws and rules issued by multiple government agencies concerning safeguarding and maintaining the confidentiality of our security, customer and business information. One of the agencies, NERC, has issued comprehensive regulations and standards surrounding the security of our operating systems, and is continually in the process of developing updated and additional requirements with which the utility industry must comply. The increasing promulgation of NERC rules and standards will increase our compliance costs and our exposure to the potential risk of violations of standards.

Security threats continue to evolve and adapt. Cyber or physical attacks, terrorist acts, or disruptive activities could harm our business by limiting our ability to generate, purchase or transmit power and by delaying the development and construction of new generating facilities and capital improvements to existing facilities. These events, and governmental actions in response, could result in a material decrease in revenues and significant additional costs to repair and insure assets, and could adversely affect our operations by contributing to the disruption of supplies and markets for natural gas, oil and other fuels. These events could also impair our ability to raise capital by contributing to financial instability and reduced economic activity.

Our plans for future expansion through the acquisition of assets including natural gas reserves, capital improvements to current assets, generation investments, and transmission grid expansion involve substantial risks.

Acquisitions include a number of risks, including but not limited to, regulatory approval, additional costs, the assumption of material liabilities, the diversion of management’s attention from daily operations to the integration of the acquisition, difficulties in assimilation and retention of employees, and securing adequate capital to support the transaction. The regulatory process in which rates are determined may not result in rates that produce full recovery of our investments, or a reasonable rate of return. Uncertainties also exist in assessing the value, risks, profitability, and liabilities associated with certain businesses or assets and there is a possibility that anticipated operating and financial synergies expected to result from an acquisition do not develop. The failure to successfully integrate future acquisitions that we may choose to undertake could have an adverse effect on our financial condition and results of operations.

Our business strategy also includes significant investment in capital improvements and additions to modernize existing infrastructure, generation investments and transmission capacity expansion. The completion of generation and natural gas investments and transmission projects are subject to many construction and development risks, including, but not limited to,

risks related to permitting, financing, regulatory recovery, escalating costs of materials and labor, meeting construction budgets and schedules, and environmental compliance. In addition, these capital projects may require a significant amount of capital expenditures. We cannot provide certainty that adequate external financing will be available to support such projects. Additionally, borrowings incurred to finance construction may adversely impact our leverage, which could increase our cost of capital.

Our electric and natural gas operations involve numerous activities that may result in accidents and other operating risks and costs.

Inherent in our electric and natural gas operations are a variety of hazards and operating risks, such as fires, electric contacts, leaks, explosions and mechanical problems. These risks could cause a loss of human life, significant damage to property, loss of customer load, environmental pollution, impairment of our operations, and substantial financial losses to us and others. In accordance with customary industry practice, we maintain insurance against some, but not all, of these risks and losses. The occurrence of any of these events not fully covered by insurance could have a material adverse effect on our financial position and results of operations. For our natural gas transmission and distribution lines located near populated areas, including residential areas, commercial business centers, industrial sites and other public gathering areas, the level of damages resulting from these risks potentially is greater.

Our owned and jointly owned electric generating facilities are subject to operational risks that could result in unscheduled plant outages, unanticipated operation and maintenance expenses and increased power purchase costs.

Operation of electric generating facilities involves risks, which can adversely affect energy output and efficiency levels. Operational risks include facility shutdowns due to breakdown or failure of equipment or processes, labor disputes, operator error, catastrophic events such as fires, explosions, floods, and intentional acts of destruction or other similar occurrences affecting the electric generating facilities; and operational changes necessitated by environmental legislation, litigation or regulation. The loss of a major electric generating facility would require us to find other sources of supply or ancillary services, if available, and expose us to higher purchased power costs.

The six owners of Colstrip currently share the operating costs pursuant to the terms of an operating agreement among the owners of Units 3 and 4 and a common facilities agreement among the owners of all four units. As part of the settlement of litigation brought by the Sierra Club and the Montana Environmental Information Center, against the owners and operator of Colstrip, the owners of Units 1 and 2 agreed to shut down these units no later than July 2022. We do not have ownership in Units 1 and 2, and decisions regarding these units, including their shut down, were made by their respective owners. When Units 1 and 2 discontinue operation, we anticipate incurring incremental operating costs with respect to our interest in Unit 4 and expect to experience a negative impact on our transmission revenue due to less energy available to transmit across our transmission lines. This reduction would be incorporated in our next general electric rate filing, resulting in lower revenue credits to certain customers.

In early July 2013, following the return to service from a scheduled maintenance outage, Colstrip Unit 4 tripped off-line and incurred damage to its stator and rotor. Colstrip Unit 4 returned to service in early 2014. As discussed above, we were not able to fully recover our costs for the purchase of replacement power while Colstrip Unit 4 was out of service.

Colstrip Units 3 and 4 are supplied with fuel from adjacent coal reserves under coal supply and transportation agreements in effect through 2019. These contracts are necessary for the long-term operation of the facility. Negotiation of a new coal supply contract anticipates environmental reviews and permitting, and we cannot predict when or if those permits will be granted. If a new coal supply contract is not in place, we could continue under the current arrangement for several years if the mining company agrees, however the extraction costs would increase.

We also rely on a limited number of suppliers of coal for our electric generation, making us vulnerable to increased prices for fuel as existing contracts expire or in the event of unanticipated interruptions in fuel supply. We are a captive rail shipper of the Burlington Northern Santa Fe Railway for shipments of coal to the Big Stone Plant (our largest source of generation in South Dakota), making us vulnerable to railroad capacity and operational issues and/or increased prices for coal transportation from a sole supplier.

We must meet certain credit quality standards. If we are unable to maintain investment grade credit ratings, our liquidity, access to capital and operations could be materially adversely affected.

A downgrade of our credit ratings to less than investment grade could adversely affect our liquidity. Certain of our credit agreements and other credit arrangements with counterparties require us to provide collateral in the form of letters of credit or

cash to support our obligations if we fall below investment grade. Also, a downgrade below investment grade could hinder our ability to raise capital on favorable terms, including through the commercial paper markets. Higher interest rates on short-term borrowings with variable interest rates or on incremental commercial paper issuances could also have an adverse effect on our results of operations.

Poor investment performance of plan assets of our defined benefit pension and post-retirement benefit plans, in addition to other factors impacting these costs, could unfavorably impact our results of operations and liquidity.

Our costs for providing defined benefit retirement and postretirement benefit plans are dependent upon a number of factors. Assumptions related to future costs, return on investments and interest rates have a significant impact on our funding requirements related to these plans. These estimates and assumptions may change based on economic conditions, actual stock market performance and changes in governmental regulations. Without sustained growth in the plan assets over time and depending upon interest rate changes as well as other factors noted above, the costs of such plans reflected in our results of operations and financial position and cash funding obligations may change significantly from projections.

Our obligation to include a minimum annual quantity of power in our Montana electric supply portfolio at an agreed upon price per MWH could expose us to material commodity price risk if certain QFs under contract with us do not perform during a time of high commodity prices, as we are required to make up the difference. In addition, we are subject to price escalation risk with one of our largest QF contracts.

As part of a stipulation in 2002 with the MPSC and other parties, we agreed to include a minimum annual quantity of power in our Montana electric supply portfolio at an agreed upon price per MWH through June 2029. The annual minimum energy requirement is achievable under normal QF operations, including normal periods of planned and forced outages. However, to the extent the supplied QF power for any year does not reach the minimum quantity set forth in the settlement, we are obligated to purchase the difference from other sources. The anticipated source for any QF shortfall is the wholesale market, which would subject us to commodity price risk if the cost of replacement power is higher than contracted QF rates.

In addition, we are subject to price escalation risk with one of our largest QF contracts due to variable contract terms. In estimating our QF liability, we have estimated an annual escalation rate of three percent over the remaining term of the contract (through June 2024). To the extent the annual escalation rate exceeds three percent, our results of operations, cash flows and financial position could be adversely affected.

ITEM 6. EXHIBITS -

(a) Exhibits

Exhibit 1.1—Equity Distribution Agreement, dated as of September 6, 2017, between NorthWestern Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC (incorporated by reference to Exhibit 1.1 of NorthWestern Corporation’s Current Report on Form 8-K, dated September 6, 2017, Commission File No. 1-10499).

Exhibit 31.1—Certification of chief executive officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

Exhibit 31.2—Certification of chief financial officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

Exhibit 32.1—Certification of chief executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2—Certification of chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 99.1—Bond Purchase Agreement, dated as of October 31, 2017, between NorthWestern Corporation and initial purchasers.

Exhibit 101.INS—XBRL Instance Document

Exhibit 101.SCH—XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL—XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEF—XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 101.LAB—XBRL Taxonomy Label Linkbase Document

Exhibit 101.PRE—XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			NorthWestern Corporation
Date:	November 2, 2017	By:	/s/ BRIAN B. BIRD
			Brian B. Bird
			Chief Financial Officer
			Duly Authorized Officer and Principal Financial Officer



EXHIBIT INDEX



Exhibit Number		Description
1.1		Equity Distribution Agreement, dated as of September 6, 2017, between NorthWestern Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC (incorporated by reference to Exhibit 1.1 of NorthWestern Corporation’s Current Report on Form 8-K, dated September 6, 2017, Commission File No. 1-10499).
*31.1		Certification of chief executive officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
*31.2		Certification of chief financial officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
*32.1		Certification of chief executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2		Certification of chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*99.1		Bond Purchase Agreement, dated as of October 31, 2017, between NorthWestern Corporation and initial purchasers.
*101.INS		XBRL Instance Document
*101.SCH		XBRL Taxonomy Extension Schema Document
*101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB		XBRL Taxonomy Label Linkbase Document
*101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

_________________________


*	Filed herewith

EXHIBIT 31.1

C ERTIFICATION

I, Robert C. Rowe, certify that:


1.	I have reviewed this report on Form 10-Q of NorthWestern Corporation;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



November 2, 2017
/s/ ROBERT C. ROWE
Robert C. Rowe
President and Chief Executive Officer

EXHIBIT 31.2

C ERTIFICATION

I, Brian B. Bird, certify that:


1.	I have reviewed this report on Form 10-Q of NorthWestern Corporation;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



November 2, 2017
/s/ BRIAN B. BIRD
Brian B. Bird
Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of NorthWestern Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert C. Rowe, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:


1)	The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



November 2, 2017		/s/ ROBERT C. ROWE
		Robert C. Rowe
		President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of NorthWestern Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian B. Bird, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:


1)	The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



November 2, 2017		/s/ BRIAN B. BIRD
		Brian B. Bird
		Vice President and Chief Financial Officer

Execution Version

NorthWestern Corporation

$250,000,000 First Mortgage Bonds, 4.03% Series, due November 6, 2047

____________________________

Bond Purchase Agreement

____________________________

Dated as of October 31, 2017

Table of Contents

Section Heading Page


Section 1.	Description of Bonds 1


Section 2.	Sale and Purchase of Bonds 2


Section 3.	Closing 2


Section 4.	Conditions to Closing 2


Section 4.1.	Representations and Warranties 2


Section 4.2.	Performance; No Default 2


Section 4.3.	Compliance Certificates 3


Section 4.4.	Opinions of Counsel 3


Section 4.5.	Purchase Permitted By Applicable Law, Etc 3


Section 4.6.	Sale of Other Bonds 4


Section 4.7.	Payment of Special Counsel Fees 4


Section 4.8.	Private Placement Number 4


Section 4.9.	Changes in Corporate Structure 4


Section 4.10.	Funding Instructions 4


Section 4.11.	Commission Approval 4


Section 4.12.	UCC Financing Statements 4


Section 4.13.	Compliance with Indenture 4


Section 4.14.	Proceedings and Documents 4


Section 5.	Representations and Warranties of the Company 5


Section 5.1.	Organization; Power and Authority 5


Section 5.2.	Authorization, Etc 5


Section 5.3.	Disclosure 5


Section 5.4.	Organization and Ownership of Shares of Subsidiaries; Affiliates 6


Section 5.5.	Financial Statements; Material Liabilities 6


Section 5.6.	Compliance with Laws, Other Instruments, Etc 6


Section 5.7.	Governmental Authorizations, Etc 7


Section 5.8.	Litigation; Observance of Agreements, Statutes and Orders 7


Section 5.9.	Taxes 7


Section 5.10.	Title to Property; Leases 8


Section 5.11.	Licenses, Permits, Etc 8


Section 5.12.	Compliance with ERISA 8


Section 5.13.	Private Offering by the Company; Qualification of Indenture 9


Section 5.14.	Use of Proceeds; Margin Regulations 9


Section 5.15.	Existing Indebtedness; Future Liens 10


Section 5.16.	Foreign Assets Control Regulations, Etc 10


Section 5.17.	Status under Certain Statutes 12


Section 5.18.	Environmental Matters 12


Section 5.19.	Lien of Indenture 12


Section 5.20.	Filings 13


Section 6.	Representations of the Purchasers 13


Section 6.1.	Purchase for Investment 13


Section 6.2.	Source of Funds 13


Section 7.	Information as to Company 15


Section 7.1.	Financial and Business Information 15


Section 7.2.	Officer’s Certificate 18


Section 7.3.	Visitation 18


Section 8.	Covenants 19


Section 9.	Expenses, Etc 19


Section 9.1.	Transaction Expenses 19


Section 9.2.	Survival 20


Section 10.	Survival of Representations and Warranties; Entire Agreement 20


Section 11.	Amendments and Waivers 20


Section 12.	Notices 20


Section 13.	Indemnification 21


Section 14.	Miscellaneous 21


Section 14.1.	Successors and Assigns 21


Section 14.2.	Accounting Terms 21


Section 14.3.	Severability 21


Section 14.4.	Construction, Etc 21


Section 14.5.	Counterparts 22


Section 14.6.	Governing Law 22


Section 14.7.	Jurisdiction and Process; Waiver of Jury Trial 22

Schedule A - Information Relating to Purchasers

Schedule B - Defined Terms

Schedule 4.12 - UCC Filings

Schedule 5.3 - Disclosure Materials

Schedule 5.4 - Subsidiaries of the Company and Ownership of Subsidiary Stock

Schedule 5.5 - Financial Statements

Schedule 5.7 - Required Approvals

Schedule 5.15 - Existing Indebtedness

Schedule 5.20 - Filings

Exhibit A - Form of Thirty‑Seventh Supplemental Indenture

Exhibit 4.4(a)(i) - Form of Opinion of Special Counsel for the Company

Exhibit 4.4(a)(ii) - Form of Opinion of General or In-House Counsel for the Company

Exhibit 4.4(b) - Form of Opinion of Special Counsel for the Purchasers

NorthWestern Corporation

3010 West 69th Street

Sioux Falls, South Dakota 57108

$250,000,000 First Mortgage Bonds, 4.03% Series, due November 6, 2047

As of October 31, 2017

To Each of the Purchasers Listed in

Schedule A Hereto:

Ladies and Gentlemen:

NorthWestern Corporation (formerly known as NorthWestern Public Service Company), a corporation organized and existing under the laws of the State of Delaware (the “Company” ), agrees with each of the purchasers whose names appear at the end hereof (each, a “Purchaser” and, collectively, the “Purchasers” ) as follows:


Section 1.	Description of Bonds.

The Company will authorize the issue and sale of $250,000,000 aggregate principal amount of its First Mortgage Bonds, 4.03% Series, due November 6, 2047 (collectively, the “Bonds” ). The Bonds will be issued under and secured by a Mortgage and Deed of Trust dated as of October 1, 1945 (the “Original Indenture” ) by and among the Company (as successor to NorthWestern Energy, L.L.C., in turn successor to The Montana Power Company) and the Bank of New York Mellon (formerly The Bank of New York) (as successor to Guaranty Trust Company of New York), as corporate trustee (hereinafter called the “Corporate Trustee” ), Beata Harvin or her successor (as indirect successor to Arthur E. Burke), (Beata Harvin or her successor being hereinafter sometimes called the “Co-Trustee” ; and the Corporate Trustee and the Co-Trustee being hereinafter together sometimes called the “Trustees” ), which Original Indenture was executed and delivered to secure the payment of Bonds issued or to be issued under and in accordance with the provisions of the Original Indenture pursuant to the Thirty‑Seventh Supplemental Indenture dated as of November 1, 2017 (the “Thirty‑Seventh Supplemental Indenture , ” the Original Indenture together with all supplements and amendments thereto, including the Thirty‑Seventh Supplemental Indenture being hereinafter collectively referred to as the “Indenture” ) which Thirty‑Seventh Supplemental Indenture will be substantially in the form attached hereto as Exhibit A , with such changes therein, if any, as shall be approved by the Purchasers and the Company. Certain capitalized and other terms used in this Agreement are defined in Schedule B ; and references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement.


Section 2.	Sale and Purchase of Bonds.

Subject to the terms and conditions of this Agreement, the Company will issue and sell to each Purchaser and each Purchaser will purchase from the Company, at the Closing provided for in Section 3 ,

Bonds in the principal amount and of the series specified opposite such Purchaser’s name in Schedule A at the purchase price of 100% of the principal amount thereof. The Purchasers’ obligations hereunder are several and not joint obligations and no Purchaser shall have any liability to any Person for the performance or non‑performance of any obligation by any other Purchaser hereunder.


Section 3.	Closing.

The execution and delivery of this Agreement will occur at the offices of Chapman and Cutler LLP, 111 West Monroe Street, Chicago, Illinois 60603 on October 31, 2017 (the “Execution Date” ).

The sale and purchase of the Bonds to be purchased by each Purchaser shall occur at the offices of Chapman and Cutler LLP, 111 West Monroe, Chicago, IL, at 10:00 a.m., Chicago time, at a closing (the “Closing” ) on November 6, 2017. At the Closing the Company will deliver to each Purchaser the Bonds to be purchased by such Purchaser in the form of a single Bond (or such greater number of Bonds in denominations of $1,000 or multiples of $1,000 as such Purchaser may request) dated the date of the Closing, authenticated by the Corporate Trustee and registered in such Purchaser’s name (or in the name of its nominee), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 153910224325 at US Bank N.A., 800 Nicollet Mall, Minneapolis, MN 55402, ABA: 123000848, Account Name - NorthWestern Corporation General Account. If at the Closing the Company shall fail to tender such Bonds to any Purchaser as provided above in this Section 3 , or any of the conditions specified in Section 4 shall not have been fulfilled to such Purchaser’s satisfaction, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any rights such Purchaser may have by reason of such failure or such nonfulfillment.


Section 4.	Conditions to Closing.

Each Purchaser’s obligation to execute and deliver this Agreement on the Execution Date and to purchase and pay for the Bonds to be sold to such Purchaser at the Closing is subject to the fulfillment to such Purchaser’s reasonable satisfaction, prior to or at the Execution Date and/or the Closing, as the case may be, of the following conditions:

Section 4.1. Representations and Warranties . The representations and warranties of the Company in this Agreement shall be correct when made on the Execution Date and at the time of the Closing.

Section 4.2. Performance; No Default . The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or on the Execution Date and at the Closing and after giving effect to the issue and sale of the Bonds (and the application of the proceeds thereof as contemplated by Section 5.14 ) no Default or Event of Default shall have occurred and be continuing.

Section 4.3. Compliance Certificates . The Company shall have performed and complied with all agreements and conditions contained in the Indenture which are required to be performed or complied with by the Company for the issuance of the Bonds. In addition, the Company shall have delivered the following certificates:

(a) Officer’s Certificates . The Company shall have delivered to such Purchaser (i) an Officer’s Certificate certifying that the conditions specified in Section 4 have been fulfilled and (ii) an

Officer’s Certificate regarding no Event of Default pursuant to Section 28(2) of the Indenture, in each case, dated the date of the Closing.

(b) Secretary’s Certificate . The Company shall have delivered to such Purchaser a certificate of its Secretary or Assistant Secretary, dated the date of Closing, certifying as to (i) the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Bonds and this Agreement and (ii) the Company’s organizational documents as then in effect.

Section 4.4. Opinions of Counsel . Such Purchaser shall have received opinions in form and substance satisfactory to such Purchaser, dated the date of the Closing (a) (i) from Stinson Leonard Street LLP, counsel for the Company and (ii) from general or in-house counsel for the Company covering the matters set forth in Exhibits 4.4(a)(i) and 4.4(a)(ii) , respectively, and covering such other matters incident to the transactions contemplated hereby as such Purchaser or its counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinions to the Purchasers) and (b) from Chapman and Cutler LLP, the Purchasers’ special counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as such Purchaser may reasonably request.

Section 4.5. Purchase Permitted By Applicable Law, Etc . On the date of the Closing such Purchaser’s purchase of Bonds shall (a) be permitted by the laws and regulations of each jurisdiction to which such Purchaser is subject, without recourse to provisions (such as section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject such Purchaser to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by such Purchaser, such Purchaser shall have received an Officer’s Certificate certifying as to such matters of fact regarding the Company and its Subsidiaries as such Purchaser may reasonably specify to enable such Purchaser to determine whether such purchase is so permitted.

Section 4.6. Sale of Other Bonds . Contemporaneously with the Closing the Company shall sell to each other Purchaser and each other Purchaser shall purchase the Bonds to be purchased by it at the Closing as specified in Schedule A .

Section 4.7. Payment of Special Counsel Fees . Without limiting the provisions of Section 9 , the Company shall have paid on or before the date of the Closing the reasonable fees, charges and disbursements of the Purchasers’ special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the date of the Closing.

Section 4.8. Private Placement Number . On or before the date of the Closing, a Private Placement Number issued by Standard & Poor’s CUSIP Service Bureau (in cooperation with the SVO) shall have been obtained for the Bonds.

Section 4.9. Changes in Corporate Structure . The Company shall not have changed its jurisdiction of incorporation or organization, as applicable, or been a party to any merger or consolidation or succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements referred to in Schedule 5.5 .

Section 4.10. Funding Instructions . At least three Business Days prior to the date of the Closing, each Purchaser shall have received written instructions signed by a Responsible Officer on letterhead of the Company confirming the information specified in Section 3 including (i) the name and address of the transferee bank, (ii) such transferee bank’s ABA number and (iii) the account name and number into which the purchase price for the Bonds is to be deposited.

Section 4.11. Commission Approval . On or before the Execution Date, the Company shall have delivered reasonably satisfactory evidence to the Purchasers and their special counsel that the Company has received the required regulatory approvals described in Schedule 5.7 authorizing the issue and sale of the Bonds, and said orders remain in full force and effect as of the date of Closing. The issuance and effectiveness of such orders as of the date of Closing shall be a condition precedent to the Company’s obligations to sell the Bonds to the Purchasers.

Section 4.12. UCC Financing Statements . On or before the date of Closing, the UCC financing statements shall have been duly filed or recorded by any debtor party in such manner and in such places as is described in Schedule 4.12 (the “Collateral Filings” ) and no other UCC financing statements or instruments shall be required to be filed to perfect the security interests and Liens of the Trustees in the Mortgaged Property created by or pursuant to the Indenture that can be perfected by filing a UCC financing statement under the UCC.

Section 4.13. Compliance with Indenture. On or before the date of the Closing, the Company shall have performed and complied with all agreements and conditions contained in the Indenture which are required to be performed or complied with by the Company for the issuance of the Bonds.

Section 4.14. Proceedings and Documents . All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to such Purchaser and its special counsel, and such Purchaser and its special counsel shall have received all such counterpart originals or certified or other copies of such documents as such Purchaser or such special counsel may reasonably request.


Section 5.	Representations and Warranties of the Company.

The Company represents and warrants to each Purchaser, on the Execution Date and the date of the Closing, that:

Section 5.1. Organization; Power and Authority . The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver the Financing Agreements and to perform the provisions hereof and thereof.

Section 5.2. Authorization, Etc . The Financing Agreements have been duly authorized by all necessary corporate action on the part of the Company, this Agreement and the Indenture (other than the Thirty‑Seventh Supplemental Indenture) constitute, and upon execution and delivery thereof by the Company and authentication of the Bonds by the Corporate Trustee, the Thirty‑Seventh Supplemental Indenture and each Bond will constitute, a legal, valid and binding obligation of the Company enforceable against the

Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 5.3. Disclosure . The Company, through its agents, MUFG Securities Americas Inc. and RBC Capital Markets, has delivered to each Purchaser a copy of an Investor Presentation, dated September 22, 2017 (the “Investor Presentation” ), relating to the transactions contemplated hereby. This Agreement, the Investor Presentation and the documents, certificates or other writings delivered to the Purchasers by or on behalf of the Company in connection with the transactions contemplated hereby and identified in Schedule 5.3 , and the financial statements listed in Schedule 5.5 (this Agreement, the Investor Presentation and such documents, certificates or other writings and such financial statements delivered to each Purchaser prior to October 4, 2017 being referred to, collectively, as the “Disclosure Documents” ), taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Without limiting the foregoing, the Disclosure Documents fairly describe, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in the Disclosure Documents, since December 31, 2016, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Disclosure Documents.

Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates . (a) Schedule 5.4 contains complete and correct lists (i) of the Company’s Subsidiaries showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary, (ii) of the Company’s Affiliates, other than Subsidiaries, and (iii) of the Company’s directors and senior officers.

(b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien.

(c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact.

(d) Except as identified in Schedule 5.4, no Subsidiary is a party to, or otherwise subject to any legal, regulatory, contractual or other restriction (other than customary limitations imposed by corporate law or similar statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary.

Section 5.5. Financial Statements; Material Liabilities . The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5 . All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year‑end adjustments). The Company and its Subsidiaries do not have any Material liabilities that are not disclosed on such financial statements or otherwise disclosed in the Disclosure Documents.

Section 5.6. Compliance with Laws, Other Instruments, Etc . The execution, delivery and performance by the Company of the Financing Agreements will not (a) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien (other than the continuing Lien of the Indenture) in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by‑laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary.

Section 5.7. Governmental Authorizations, Etc. No consent, approval, authorization, or order of, or filing with, or declaration with, any Governmental Authority or body or any court is required for the consummation of the transactions contemplated by the Financing Agreements in connection with the issuance and sale of the Bonds by the Company except for filings with or the orders of the Federal Energy Regulatory Commission ( “FERC” ) and the Montana Public Service Commission, which approvals have, as described on Schedule 5.7 , been obtained. The issuance and sale of the Bonds has been authorized by order of the FERC, and by order of the Montana Public Service Commission, which orders are in full force and effect.

Section 5.8. Litigation; Observance of Agreements, Statutes and Orders . (a) There are no actions, suits, investigations or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

(b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws or the USA Patriot Act) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

Section 5.9. Taxes . The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not individually or in the aggregate Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate

proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been finally determined (whether by reason of completed audits or the statute of limitations having run) for all fiscal years up to and including the fiscal year ended December 31, 1999.

Section 5.10. Title to Property; Leases . The Company has good and marketable fee simple title to all properties owned by it which are subject to the Indenture, subject only (a) to the Lien of the Indenture, (b) to Excepted Encumbrances (as defined in the Indenture) and (c) to minor exceptions and defects which do not, in the aggregate, materially interfere with the use by the Company of such properties for the purposes for which they are held, materially detract from the value of said properties or in any material way impair the security afforded by the Indenture. Such properties constitute and comprise substantially all of the utility properties directly owned by the Company in the States of Montana and Wyoming. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects.

Section 5.11. Licenses, Permits, Etc . (a) The Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, proprietary software, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others.

(b) To the best knowledge of the Company, no product or service of the Company or any of its Subsidiaries infringes in any material respect any license, permit, franchise, authorization, patent, copyright, proprietary software, service mark, trademark, trade name or other right owned by any other Person.

(c) To the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any license, permit, franchise, authorization, patent, copyright, proprietary software, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries.

Section 5.12. Compliance with ERISA . (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that could, individually or in the aggregate, reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to section 430(k) of the Code or to any such penalty or excise tax provisions under the Code or federal law or section 4068 of ERISA or by the granting of a security interest in connection with the amendment of a Plan, other than such liabilities or Liens as would not be individually or in the aggregate Material.

(b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan’s most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan’s most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $122,000,000 in the aggregate for all Plans. The term “benefit liabilities” has the meaning

specified in section 4001 of ERISA and the terms “current value” and “present value” have the meaning specified in section 3 of ERISA.

(c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material.

(d) The expected postretirement benefit obligation (determined as of the last day of the Company’s most recently ended fiscal year in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 715‑60, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not more than $27,000,000.

(e) The execution and delivery of this Agreement and the issuance and sale of the Bonds hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)‑(D) of the Code. The representation by the Company to each Purchaser in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of such Purchaser’s representation in Section 6.2 and disclosures by such Purchaser to the Company in accordance therewith as to the sources of the funds to be used to pay the purchase price of the Bonds to be purchased by such Purchaser.

Section 5.13. Private Offering by the Company; Qualification of Indenture . (a) Neither the Company nor anyone acting on its behalf has offered the Bonds or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than the Purchasers and not more than 30 Institutional Investors, each of which has been offered the Bonds at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Bonds to the registration requirements of Section 5 of the Securities Act or to the registration requirements of any securities or blue sky laws of any applicable jurisdiction.

(b) Neither the execution and delivery of the Financing Agreements nor the consummation of the transactions contemplated thereby, including the issuance and sale of the Bonds, will require the qualification of the Indenture under the Trust Indenture Act of 1939, as amended.

Section 5.14. Use of Proceeds; Margin Regulations . The Company will apply the proceeds of the sale of the Bonds to repay the Company’s outstanding $250,000,000 of 6.34% First Mortgage Bonds due 2019 and for other general corporate purposes. No part of the proceeds from the sale of the Bonds hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 5% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 5% of the value of such assets. As used in this Section, the terms “margin stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said Regulation U.

Section 5.15. Existing Indebtedness; Future Liens . (a) Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of September 30, 2017 (including a description of the obligors and obligees, principal amount outstanding and collateral therefor,

if any, and Guaranty thereof, if any), since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment.

(b) Except as disclosed in Schedule 5.15 , neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien.

(c) Neither the Company nor any Subsidiary is a party to, or otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the Company or such Subsidiary, any agreement relating thereto or any other agreement (including, but not limited to, its charter or other organizational document) which limits the amount of, or otherwise imposes restrictions on the incurring of, Indebtedness of the Company, except as specifically indicated in Schedule 5.15 .

Section 5.16. Foreign Assets Control Regulations, Etc. (a) Neither the Company nor any Controlled Entity is (i) a Person whose name appears on the list of Specially Designated Nationals and Blocked Persons published by the Office of Foreign Assets Control, United States Department of the Treasury ( “OFAC” ) (an “OFAC Listed Person” ) (ii) an agent, department, or instrumentality of, or is otherwise beneficially owned by, controlled by or acting on behalf of, directly or indirectly, (x) any OFAC Listed Person or (y) any Person, entity, organization, foreign country or regime that is subject to any OFAC Sanctions Program or (iii) otherwise blocked, subject to sanctions under or engaged in any activity in violation of other United States economic sanctions, including but not limited to, the Trading with the Enemy Act, the International Emergency Economic Powers Act, CISADA or any similar law or regulation with respect to Iran or any other country, the Sudan Accountability and Divestment Act, any OFAC Sanctions Program, or any economic sanctions regulations administered and enforced by the United States or any enabling legislation or executive order relating to any of the foregoing (collectively, “U.S. Economic Sanctions” ) (each OFAC Listed Person and each other Person, entity, organization and government of a country described in clause (i), clause (ii) or clause (iii), a “Blocked Person” ). Neither the Company nor any Controlled Entity has been notified that its name appears or may in the future appear on a state list of Persons that engage in investment or other commercial activities in Iran or any other country that is subject to U.S. Economic Sanctions.

(b) No part of the proceeds from the sale of the Bonds hereunder constitutes or will constitute funds obtained on behalf of any Blocked Person or will otherwise be used by the Company or any Controlled Entity, directly or indirectly, (i) in connection with any investment in, or any transactions or dealings with, any Blocked Person, or (ii) otherwise in violation of U.S. Economic Sanctions.

(c) Neither the Company nor any Controlled Entity (i) has been found in violation of, charged with, or convicted of, money laundering, drug trafficking, terrorist‑related activities or other money laundering predicate crimes under the Currency and Foreign Transactions Reporting Act of 1970 (otherwise known as the Bank Secrecy Act), the USA Patriot Act or any other United States law or regulation governing such activities (collectively, “Anti‑Money Laundering Laws” ) or any U.S. Economic Sanctions violations, (ii) to the Company’s actual knowledge after making due inquiry, is under investigation by any Governmental Authority for possible violation of Anti‑Money Laundering Laws or any U.S. Economic Sanctions violations, (iii) has been assessed civil penalties under any Anti‑Money Laundering Laws or any U.S. Economic

Sanctions, or (iv) has had any of its funds seized or forfeited in an action under any Anti‑Money Laundering Laws. The Company has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that the Company and each Controlled Entity is and will continue to be in compliance with all applicable current Anti‑Money Laundering Laws and U.S. Economic Sanctions.

(d) (1) Neither the Company nor any Controlled Entity (i) has been charged with, or convicted of bribery or any other anti‑corruption related activity under any applicable law or regulation in a U.S. or any non‑U.S. country or jurisdiction, including but not limited to, the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010 (collectively, “Anti‑Corruption Laws” ), (ii) to the Company’s actual knowledge after making due inquiry, is under investigation by any U.S. or non‑U.S. Governmental Authority for possible violation of Anti‑Corruption Laws, (iii) has been assessed civil or criminal penalties under any Anti‑Corruption Laws or (iv) has been or is the target of sanctions imposed by the United Nations or the European Union;

(2) To the Company’s actual knowledge after making due inquiry, neither the Company nor any Controlled Entity has, within the last five years, directly or indirectly offered, promised, given, paid or authorized the offer, promise, giving or payment of anything of value to a Governmental Official or a commercial counterparty for the purposes of: (i) influencing any act, decision or failure to act by such Governmental Official in his or her official capacity or such commercial counterparty, (ii) inducing a Governmental Official to do or omit to do any act in violation of the Governmental Official’s lawful duty, or (iii) inducing a Governmental Official or a commercial counterparty to use his or her influence with a government or instrumentality to affect any act or decision of such government or entity; in each case in order to obtain, retain or direct business or to otherwise secure an improper advantage in violation of any applicable law or regulation or which would cause any holder to be in violation of any law or regulation applicable to such holder; and

(3) No part of the proceeds from the sale of the Bonds hereunder will be used, directly or indirectly, for any improper payments, including bribes, to any Governmental Official or commercial counterparty in order to obtain, retain or direct business or obtain any improper advantage. The Company has established procedures and controls which it reasonably believes are adequate (and otherwise comply with applicable law) to ensure that the Company and each Controlled Entity is and will continue to be in compliance with all applicable current Anti‑Corruption Laws.

Section 5.17. Status under Certain Statutes . Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 2005, as amended, or the ICC Termination Act of 1995, as amended.

Section 5.18. Environmental Matters . (a) Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case or in the aggregate, such as could not reasonably be expected to result in a Material Adverse Effect.

(b) Neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by

any of them or to other assets or their use, except, in each case or in the aggregate, such as could not reasonably be expected to result in a Material Adverse Effect.

(c) Neither the Company nor any Subsidiary has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws, in each case or in the aggregate, in any manner that could reasonably be expected to result in a Material Adverse Effect.

(d) All buildings on all real properties now owned, leased or operated by the Company or any Subsidiary are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect.

Section 5.19. Lien of Indenture . The Indenture (excluding the Thirty‑Seventh Supplemental Indenture) constitutes and the Indenture, when the Thirty‑Seventh Supplemental Indenture will have been duly filed for recording and recorded, will constitute a valid and enforceable first mortgage lien for the equal and proportionate security of the mortgage bonds issued or to be issued thereunder, upon substantially all of the physical properties of the Company (other than the Excepted Encumbrances) which are specifically described therein as subject to the Lien thereof and which are used or useful in the conduct of the Company’s utility business in Montana and Wyoming, free from all prior Liens, charges or encumbrances, other than (a) Excepted Encumbrances; and (b) in the case of property acquired after the date of the original execution and delivery of the Indenture, vendors’ Liens, purchase money mortgages and any other Liens thereon at the time of acquisition thereof, except to the extent that enforceability of such Lien may be limited by the effect that the law of the jurisdictions in which the physical properties covered thereby are located may have upon the remedies provided in the Indenture. Such limitations, however, do not make the remedies afforded inadequate for the realization of the material benefits of the security provided by the Indenture; provided that (x) enforceability of such Lien may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights, and (y) the availability of specific performance, injunctive relief, or other equitable remedies is subject to the discretion of the court before which any proceeding therefor may be brought. The after‑acquired property clause in the Indenture subjects to the Lien thereof all after-acquired utility property of the Company’s utility business in Montana and Wyoming (except such after‑acquired property as may be expressly excepted from the Lien of the Indenture).

Section 5.20. Filings . Except for those filings described in Schedule 5.20 , no filing or recording of the Thirty‑Seventh Supplemental Indenture is necessary to perfect the Lien of the Indenture upon the properties now owned by the Company and intended to be subject thereto or to extend such lien for the benefit of the Bonds to be issued thereunder; no re-recording or refiling of the Indenture or any other instruments or documents (except for periodic filings which extend the effectiveness of financing statements) is required to preserve and protect the Lien of the Indenture. Under the present laws of the states in which the property intended to be subject to the Lien of the Indenture is located, no further supplemental indentures or other instruments or documents are required to be executed, filed and/or recorded to extend the Lien of the Indenture to after-acquired property.


Section 6.	Representations of the Purchasers.

Section 6.1. Purchase for Investment . Each Purchaser severally represents that it is purchasing the Bonds for its own account or for one or more separate accounts maintained by such Purchaser or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of such Purchaser’s or their property shall at all times be within such Purchaser’s or their control. Each Purchaser severally represents that it and each party referenced in the preceding sentence on

whose account Bonds are purchased by such Purchaser is an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act. Each Purchaser understands that the Bonds have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Bonds and that a legend will be placed on the Bonds reflecting these circumstances.

Section 6.2. Source of Funds . Each Purchaser severally represents that at least one of the following statements is an accurate representation as to each source of funds (a “Source” ) to be used by such Purchaser to pay the purchase price of the Bonds to be purchased by such Purchaser hereunder:

(a) the Source is an “insurance company general account” (as the term is defined in the United States Department of Labor’s Prohibited Transaction Exemption ( “PTE” ) 95‑60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the NAIC (the “NAIC Annual Statement” )) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95‑60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchaser’s state of domicile; or

(b) the Source is a separate account that is maintained solely in connection with such Purchaser’s fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or

(c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90‑1 or (ii) a bank collective investment fund, within the meaning of the PTE 91‑38 and, except as disclosed by such Purchaser to the Company in writing pursuant to this clause (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or

(d) the Source constitutes assets of an “investment fund” (within the meaning of Part VI of PTE 84‑14 (the “QPAM Exemption” )) managed by a “qualified professional asset manager” or “QPAM” (within the meaning of Part VI of the QPAM Exemption), no employee benefit plan’s assets that are managed by the QPAM in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, represent more than 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM maintains an ownership interest in the Company that would cause the QPAM and the Company to be “related” within the meaning of Part VI(h) of the QPAM Exemption and (i) the identity of such QPAM and (ii) the names of any employee benefit plans whose assets in the investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Part VI(c)(1) of the QPAM Exemption) of such employer or by the same employee organization,

represent 10% or more of the assets of such investment fund, have been disclosed to the Company in writing pursuant to this clause (d); or

(e) the Source constitutes assets of a “plan(s)” (within the meaning of Part IV(h) of PTE 96‑23 (the “INHAM Exemption” )) managed by an “in‑house asset manager” or “INHAM” (within the meaning of Part IV(a) of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of “control” in Part IV(d)(3) of the INHAM Exemption) owns a 10% or more interest in the Company and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (e); or

(f) the Source is a governmental plan; or

(g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (g); or

(h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.

As used in this Section 6.2, the terms “employee benefit plan,” “governmental plan,” and “separate account” shall have the respective meanings assigned to such terms in section 3 of ERISA.


Section 7.	Information as to Company.

Section 7.1. Financial and Business Information . The Company shall deliver to each holder of Bonds and, after the Execution Date and prior to the Closing, each Purchaser that is an Institutional Investor:

(a) Quarterly Statements - within 60 days (or such shorter period as is 15 days greater than the period applicable to the filing of the Company’s Quarterly Report on Form 10‑Q (the “Form 10‑Q” ) with the SEC regardless of whether the Company is subject to the filing requirements thereof) after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of,

(i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and

(ii) consolidated statements of income, changes in stockholders’ equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter,

setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year‑end adjustments, provided that delivery within the time period specified above of copies of the Company’s Form 10‑Q prepared in compliance with the requirements therefor and filed with the SEC shall be deemed to satisfy the requirements of this

Section 7.1(a) , provided, further, that the Company shall be deemed to have made such delivery of such Form 10‑Q if it shall have timely made such Form 10‑Q available on “EDGAR” and on its home page on the worldwide web (at the date of this Agreement located at: http//www.northwesternenergy.com) and shall have given each such holder or such Purchaser prompt notice of such availability on EDGAR and on its home page in connection with each delivery (such availability and notice thereof being referred to as “Electronic Delivery” );

(b) Annual Statements - within 105 days (or such shorter period as is 15 days greater than the period applicable to the filing of the Company’s Annual Report on Form 10‑K (the “Form 10‑K” ) with the SEC regardless of whether the Company is subject to the filing requirements thereof) after the end of each fiscal year of the Company, duplicate copies of

(i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, and

(ii) consolidated statements of income, changes in stockholders’ equity and cash flows of the Company and its Subsidiaries for such year,

setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion thereon of independent public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, provided that the delivery within the time period specified above of the Company’s Form 10‑K for such fiscal year (together with the Company’s annual report to stockholders, if any, prepared pursuant to Rule 14a‑3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the SEC, shall be deemed to satisfy the requirements of this Section 7.1(b) , provided, further, that the Company shall be deemed to have made such delivery of such Form 10‑K if it shall have timely made Electronic Delivery thereof;

(c) SEC and Other Reports - promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to its principal lending banks as a whole (excluding information sent to such banks in the ordinary course of administration of a bank facility, such as information relating to pricing and borrowing availability and excluding non-public information) or to its public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the SEC and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; provided that the Company shall be deemed to have made such delivery of such materials in clauses (i) and (ii) of this Section 7.1(c) if it shall have timely made Electronic Delivery thereof (to the extent delivery in such manner is available).

(d) Notice of Default or Event of Default - promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder

or that any Person has given any notice or taken any action with respect to a claimed default, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto;

(e) ERISA Matters - promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto:

(i) with respect to any Plan, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or

(ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or

(iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect;

(f) Notices from Governmental Authority - promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect;

(g) Supplemental Indentures - promptly, and in any event within five days after the execution and delivery thereof, a copy of any indenture supplemental to the Indenture that the Company from time to time may hereafter execute and deliver; and

(h) Requested Information - with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries (including, but without limitation, actual copies of the Company’s Form 10‑Q and Form 10‑K) or relating to the ability of the Company to perform its obligations hereunder and under the Financing Agreements as from time to time may be reasonably requested by any such holder of Bonds.

Section 7.2. Officer’s Certificate . Each set of financial statements delivered to a holder of Bonds or, if after the Execution Date but prior to the Closing, a Purchaser pursuant to Section 7.1(b) shall be accompanied by a certificate of a Senior Financial Officer setting forth (which, in the case of Electronic Delivery of any such financial statements, shall be by separate concurrent delivery of such certificate to such holder of Bonds or such Purchaser):

Event of Default - a statement that such Senior Financial Officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto.

Section 7.3. Visitation . The Company shall permit the representatives of each holder of Bonds that is an Institutional Investor and, if after the Execution Date but prior to the Closing, each Purchaser:

(a) No Default - if no Default or Event of Default then exists, at the expense of such holder or such Purchaser and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company’s officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and

(b) Default - if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested.


Section 8.	Covenants.

(a) The Company shall file the Thirty‑Seventh Supplemental Indenture in a timely manner in all locations necessary in Montana and Wyoming and, in any event, the Company shall use commercially reasonable best efforts to file such Thirty‑Seventh Supplemental Indenture within 60 days of the date of Closing.

(b) The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Bonds except (a) upon the payment or prepayment of the Bonds in accordance with the terms of the Thirty‑Seventh Supplemental Indenture and the Bonds or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of all Bonds at the time outstanding upon the same terms and conditions. Any such offer shall provide each

holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 15 Business Days. If the holders of more than 10% of the principal amount of the Bonds then outstanding accept such offer, the Company shall promptly notify the remaining holders of such fact and the expiration date for the acceptance by holders of Bonds of such offer shall be extended by the number of days necessary to give each such remaining holder at least 5 Business Days from its receipt of such notice to accept such offer. The Company will promptly cancel all Bonds acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Bonds pursuant to any provision of the Thirty‑Seventh Supplemental Indenture or this Section 8(b) and no Bonds may be issued in substitution or exchange for any such Bonds.

(c) The Company shall file a Report of Securities Issued, under 18 C.F.R. §§34.9 and 131.43 and 131.50 (2017), within 30 days of the date of Closing.


Section 9.	Expenses, Etc.

Section 9.1. Transaction Expenses. Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys’ fees of a special counsel and, if reasonably required by the Required Holders, local or other counsel) incurred by the Purchasers and each other holder of a Bond in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of any Financing Agreement (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under any Financing Agreement or in responding to any subpoena or other legal process or informal investigative demand issued in connection with any Financing Agreement, or by reason of being a holder of any Bond, (b) the costs and expenses, including financial advisors’ fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work‑out or restructuring of the transactions contemplated hereby and by the other Financing Agreements and (c) the costs and expenses incurred in connection with the initial filing of any Financing Agreement and all related documents and financial information with the SVO provided, that such costs and expenses under this clause (c) shall not exceed $3,000. The Company will pay, and will save each Purchaser and each other holder of a Bond harmless from, all claims in respect of any fees, costs or expenses, if any, of brokers and finders (other than those, if any, retained by a Purchaser or other holder in connection with its purchase of the Bonds).

Section 9.2. Survival. The obligations of the Company under this Section 9 will survive the payment or transfer of any Bond, the enforcement, amendment or waiver of any provision of this Agreement or the Bonds, and the termination of this Agreement and the discharge of the Indenture.


Section 10.	Survival of Representations and Warranties; Entire Agreement.

All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Bonds, the purchase or transfer by any Purchaser of any Bond or portion thereof or interest therein and the payment of any Bond, and may be relied upon by any subsequent holder of a Bond, regardless of any investigation made at any time by or on behalf of such Purchaser or any other holder of a Bond. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, the Financing Agreements embody the entire agreement and understanding between each Purchaser and the Company and supersede all prior agreements and understandings relating to the subject matter hereof.


Section 11.	Amendments and Waivers.

Any term of this Agreement may be amended and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Required Holders. Any amendment or waiver effected in accordance with this Section 11 shall be binding upon each holder of any Bond at the time outstanding, each future holder of any Bond and the Company. Bonds directly or indirectly held by the Company or any Affiliate of the Company shall not be deemed outstanding for purposes of determining whether any amendment or waiver has been effected in accordance with this Section 11 .


Section 12.	Notices.

Except as provided in Section 7, all notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent:

(i) if to any Purchaser or its nominee, to such Purchaser or nominee at the address specified for such communications in Schedule A , or at such other address as such Purchaser or nominee shall have specified to the Company in writing,

(ii) if to any other holder of any Bond, to such holder at such address as such other holder shall have specified to the Company in writing,

(iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of the Treasurer, or at such other address as the Company shall have specified to the holder of each Bond in writing; or

(iv) if to the Trustees, to the Corporate Trustee at 101 Barclay Street, Floor 8 West, New York, New York 10286 or at such other address as the Corporate Trustee shall have specified to the Company and each other party hereto in writing.

Notices under this Section 12 will be deemed given only when actually received.


Section 13.	Indemnification.

The Company hereby agrees to indemnify and hold the Purchasers harmless from, against and in respect of any and all loss, liability and expense (including reasonable attorneys’ fees) arising from any misrepresentation or nonfulfillment of any undertaking on the part of the Company under this Agreement, or from any misrepresentation in, or omission from, this Agreement or any other instrument given, or to be given, to the Purchasers pursuant to this Agreement. The indemnification obligations of the Company under this Section 13 shall survive the execution and delivery of this Agreement, the delivery of the Bonds to the Purchasers and the consummation of the transactions contemplated herein.


Section 14.	Miscellaneous.

Section 14.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective

successors and assigns (including, without limitation, any subsequent holder of a Bond) whether so expressed or not.

Section 14.2. Accounting Terms. All accounting terms used herein which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP. Except as otherwise specifically provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance with GAAP, and (ii) all financial statements shall be prepared in accordance with GAAP.

Section 14.3. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction.

Section 14.4. Construction, Etc. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person.

For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be deemed to be a part hereof.

Section 14.5. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto.

Section 14.6. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice‑of‑law principles of the law of such State that would permit the application of the laws of a jurisdiction other than such State.

Section 14.7. Jurisdiction and Process; Waiver of Jury Trial. (a) The Company irrevocably submits to the non‑exclusive jurisdiction of any New York State or federal court sitting in the Borough of Manhattan, The City of New York, over any suit, action or proceeding arising out of or relating to this Agreement or the Bonds. To the fullest extent permitted by applicable law, the Company irrevocably waives and agrees not to assert, by way of motion, as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such court, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in any such court and any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

(b) The Company consents to process being served by or on behalf of any holder of Bonds in any suit, action or proceeding of the nature referred to in Section 14.7(a) by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, return receipt requested, to it at its address specified in Section 12 or at such other address of which such holder shall then have been notified pursuant to said Section. The Company agrees that such service upon receipt (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) shall, to

the fullest extent permitted by applicable law, be taken and held to be valid personal service upon and personal delivery to it. Notices hereunder shall be conclusively presumed received as evidenced by a delivery receipt furnished by the United States Postal Service or any reputable commercial delivery service.

(c) Nothing in this Section 14.7 shall affect the right of any holder of a Bond to serve process in any manner permitted by law, or limit any right that the holders of any of the Bonds may have to bring proceedings against the Company in the courts of any appropriate jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.

(d) The parties hereto hereby waive trial by jury in any action brought on or with respect to this Agreement, the Bonds or any other document executed in connection herewith or therewith.

* * * * *

If you are in agreement with the foregoing, please sign the form of agreement on a counterpart of this Agreement and return it to the Company, whereupon this Agreement shall become a binding agreement between you and the Company.

Very truly yours,

NorthWestern Corporation


By	/s/ Brian B. Bird

Name: Brian B. Bird

Title: Vice President and CFO

This Agreement is hereby accepted and agreed to as of the date thereof.

Metropolitan Life Insurance Company


By	/s/ Jason Rothenberg

Name: Jason Rothenberg

Title: Authorised Signatory

Pensionskasse des Bundes Publica

By: MetLife Investment Management Limited, as Investment Manager


By	/s/ Edward Palmer

Name: Edward Palmer

Title: Chief Executive Officer and Director

This Agreement is hereby accepted and agreed to as of the date thereof.

MetLife Insurance K.K.

by MetLife Investment Advisors, LLC, Its Investment Manager

Brighthouse Life Insurance Company

by MetLife Investment Advisors, LLC, Its Investment Manager


By	/s/ Judith A. Gulotta

Name: Judith A. Gulotta

Title: Managing Director

Employers Reassurance Corporation

by MetLife Investment Advisors, LLC, Its Investment Adviser


By	/s/ Frank O. Monfalcone

Name: Frank O. Monfalcone

Title: Managing Director

This Agreement is hereby accepted and agreed to as of the date thereof.

Teachers Insurance and Annuity Association of America

By /s/ Laura M. Parrott

Name: Laura M. Parrott

Title: Managing Director

This Agreement is hereby accepted and agreed to as of the date thereof.

Voya Insurance and Annuity Company

Voya Retirement Insurance and Annuity Company

Security Life of Denver Insurance Company

Reliastar Life Insurance Company

Reliastar Life Insurance Company of New York

By: Voya Investment Management LLC, as Agent


By	/s/ Joshua A. Winchester

Name: Joshua A. Winchester

Title: Vice President

This Agreement is hereby accepted and agreed to as of the date thereof.

Knights of Columbus

By /s/ Michael J. O’Connor

Name: Michael J. O’Connor

Title: Supreme Secretary

This Agreement is hereby accepted and agreed to as of the date thereof.

The Lincoln National Life Insurance Company

By: Macquarie Investment Management Advisers, a series of Macquarie Investment Management Business Trust, Attorney in Fact

By /s/ Frank LaTorraca

Name: Frank LaTorraca

Title: Senior Vice President

This Agreement is hereby accepted and agreed to as of the date thereof.

Protective Life Insurance Company ( PLI )


By	/s/ Philip E. Passafiume

Name: Philip E. Passafiume

Title: Director, Fixed Income

This Agreement is hereby accepted and agreed to as of the date thereof.

American United Life Insurance Company

By /s/ David M. Weisenburger

Name: David M. Weisenburger

Title: Vice President, Fixed Income Securities

The State Life Insurance Company

By: American United Life Insurance Company


Its:	Agent


By	/s/ David M. Weisenburger

Name: David M. Weisenburger

Title: Vice President, Fixed Income Securities

Pioneer Mutual Life Insurance Company

By: American United Life Insurance Company


Its:	Agent


By	/s/ David M. Weisenburger

Name: David M. Weisenburger

Title: Vice President, Fixed Income Securities

This Agreement is hereby accepted and agreed to as of the date thereof.

Mutual of Omaha Insurance Company

By /s/ Lee Martin

Name: Lee Martin

Title: Vice President

This Agreement is hereby accepted and agreed to as of the date thereof.

Constitution Life Insurance Company

By: Nassau Asset Management LLC, its investment advisor

By /s/ Christopher M. Wilkos

Name: Christopher M. Wilkos

Title: Chief Investment Officer

PHL Variable Insurance Company

By /s/ Christopher M. Wilkos

Name: Christopher M. Wilkos

Title: Vice President

This Agreement is hereby accepted and agreed to as of the date thereof.

Country Life Insurance Company


By	/s/ John A. Jacobs

Name: John A. Jacobs

Title: Director - Fixed Income

Defined Terms

As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term:

“Affiliate” means, at any time, and with respect to any Person, any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and, with respect to the Company, shall include any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any Person of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an “Affiliate” is a reference to an Affiliate of the Company.

“Anti‑Corruption Laws” is defined in Section 5.16(d)(1) .

“Anti‑Money Laundering Laws” is defined in Section 5.16(c) .

“Blocked Person” is defined in Section 5.16(a) .

“Bonds” is defined in Section 1 .

“Business Day” means for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed.

“Capital Lease” means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.

“CISADA” means the Comprehensive Iran Sanctions, Accountability and Divestment Act.

“Closing” is defined in Section 3 .

“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.

“Collateral Filings” is defined in Section 4.12 .

“Company” means NorthWestern Corporation, a Delaware corporation, d/b/a NorthWestern Energy, or any successor.

“Controlled Entity” means (i) any of the Subsidiaries of the Company and any of their or the Company’s respective Controlled Affiliates and (ii) if the Company has a parent company, such parent company and its Controlled Affiliates. As used in this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Co-Trustee” is defined in Section 1 .

“Corporate Trustee” is defined in Section 1 .

“Default” means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default.

“Disclosure Documents” is defined in Section 5.3 .

“Electronic Delivery” is defined in Section 7.1(a) .

“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to Hazardous Materials.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code.

“Event of Default” is defined in the Indenture.

“Excepted Encumbrances” is defined in the Indenture.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Execution Date” is defined in Section 3 .

“FERC” is defined in Section 5.7 .

“Financing Agreements” means this Agreement, the Indenture, including, without limitation, the Thirty‑Seventh Supplemental Indenture, and the Bonds.

“Form 10‑K” is defined in Section 7.1(b) .

“Form 10‑Q” is defined in Section 7.1(a) .

“GAAP” means generally accepted accounting principles as in effect from time to time in the United States of America.

“Governmental Authority” means

(a) the government of

(i) the United States of America or any State or other political subdivision thereof, or

(ii) any other jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or

(b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government.

“Governmental Official” means any governmental official or employee, employee of any government‑owned or government‑controlled entity, political party, any official of a political party, candidate for political office, official of any public international organization or anyone else acting in an official capacity.

“Guaranty” means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person:

(a) to purchase such indebtedness or obligation or any property constituting security therefor;

(b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation;

(c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or

(d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof.

In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor.

“Hazardous Material” means any and all pollutants, toxic or hazardous wastes or other substances that might pose a hazard to health and safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage or filtration of which is or shall be restricted, prohibited or penalized by any applicable law including, but not limited to, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum, petroleum products, lead based paint, radon gas or similar restricted, prohibited or penalized substances.

“holder” means, with respect to any Bond the Person in whose name such Bond is registered in the register maintained by the Company.

“Indebtedness” with respect to any Person means, at any time, without duplication,

(a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock;

(b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property);

(c) (i) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases and (ii) all liabilities which would appear on its balance sheet in accordance with GAAP in respect of Synthetic Leases assuming such Synthetic Leases were accounted for as Capital Leases;

(d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities);

(e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money);

(f) the aggregate Swap Termination Value of all Swap Contracts of such Person; and

(g) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof.

Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP.

“Indenture” is defined in Section 1 .

“INHAM Exemption” is defined in Section 6.2(e).

“Institutional Investor” means (a) any Purchaser of a Bond, (b) any holder of a Bond holding (together with one or more of its affiliates) more than 5% of the aggregate principal amount of the Bonds then outstanding, (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form, and (d) any Related Fund of any holder of any Bond.

“Investor Presentation” is defined in Section 5.3 .

“Lien” means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements).

“Material” means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole.

“Material Adverse Effect” means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement, the Bonds or the Indenture, or (c) the validity or enforceability of this Agreement, the Bonds or the Indenture.

“Mortgaged Property” is defined in the Indenture.

“Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in section 4001(a)(3) of ERISA).

“NAIC” means the National Association of Insurance Commissioners or any successor thereto.

“OFAC” is defined in Section 5.16(a) .

“OFAC Listed Person” is defined in Section 5.16(a) .

“OFAC Sanctions Program” means any economic or trade sanction that OFAC is responsible for administering and enforcing. A list of OFAC Sanctions Programs may be found at http://www.ustreas.gov/offices/enforcement/ofac/programs/.

“Officer’s Certificate” means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate.

“Original Indenture” is defined in Section 1 .

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto.

“Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, business entity or Governmental Authority.

“Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA) subject to Title I of ERISA that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.

“Preferred Stock” means any class of capital stock of a Person that is preferred over any other class of capital stock (or similar equity interests) of such Person as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such Person.

“property” or “properties” means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.

“PTE” is defined in Section 6.2(a) .

“Purchaser” is defined in the first paragraph of this Agreement.

“QPAM Exemption” is defined in Section 6.2(d).

“Related Fund” means, with respect to any holder of any Bond, any fund or entity that (a) invests in Securities or bank loans, and (b) is advised or managed by such holder, the same investment advisor as such holder or by an affiliate of such holder or such investment advisor.

“Required Holders” means (a) if prior to the Closing, the Purchasers and (b) if any tine on or after the Closing, the holders of at least 51% in principal amount of the Bonds at the time outstanding (exclusive of Bonds then owned by the Company or any of its Affiliates).

“Responsible Officer” means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this Agreement.

“SEC” means the Securities and Exchange Commission of the United States, or any successor thereto.

“Securities” or “Security” shall have the meaning specified in Section 2(a)(1) of the Securities Act.

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“Senior Financial Officer” means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company.

“Subsidiary” means, as to any Person, any other Person in which such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such second Person, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such first Person or one or more of its Subsidiaries or such first Person and one or more of its Subsidiaries (unless such partnership or joint venture can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a reference to a Subsidiary of the Company.

“SVO” means the Securities Valuation Office of the NAIC or any successor to such Office.

“Swap Contract” means (a) any and all interest rate swap transactions, basis swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward foreign exchange transactions, cap transactions, floor transactions, currency options, spot contracts or any other similar transactions or any of the foregoing (including, but without limitation, any options to enter into any of the foregoing), and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., or any International Foreign Exchange Master Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause

(a), the amounts(s) determined as the mark‑to‑market values(s) for such Swap Contracts, as determined based upon one or more mid‑market or other readily available quotations provided by any recognized dealer in such Swap Contracts.

“Synthetic Lease” means, at any time, any lease (including leases that may be terminated by the lessee at any time) of any property (a) that is accounted for as an operating lease under GAAP and (b) in respect of which the lessee retains or obtains ownership of the property so leased for U.S. federal income tax purposes, other than any such lease under which such Person is the lessor.

“Thirty‑Seventh Supplemental Indenture” is defined in Section 1 .

“Trustees” is defined in Section 1 .

“UCC” shall mean the Uniform Commercial Code as in effect in the relevant states from time to time.

“USA Patriot Act” means United States Public Law 107‑56, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“U.S. Economic Sanctions” is defined in Section 5.16(a).

4.12-1

6740605v3

UCC Filings

NONE

Disclosure Documents

This Agreement and the schedules thereto

The Investor Presentation

Subsidiaries of the Company and

Ownership of Subsidiary Stock



Name of Company	Jurisdiction of its Organization	Percentage Owned
NorthWestern Services, LLC	Delaware	100
Canadian-Montana Pipeline Corporation	Canada	100
Montana Generation, LLC (1)	Delaware	100
Clark Fork and Blackfoot, LLC	Montana	100

Risk Partners Assurance Ltd.	Bermuda	100

Havre Pipeline Company, LLC	Texas	94.99
Willow Creek Gathering, LLC	Nevada	100
Lodge Creek Pipelines, LLC	Nevada	100

(1)NorthWestern Services, LLC is the parent of Montana Generation, LLC.

Affiliates:

None.

Senior Officers of the Company:

Robert C. Rowe

Brian B. Bird

Michael R. Cashell

Patrick R. Corcoran

Heather H. Grahame

John D. Hines

Crystal D. Lail

Curtis T. Pohl

Bobbi L. Schroeppel

Directors of the Company:

E. Linn Draper, Jr.

Stephen P. Adik

Anthony T. Clark

Dana J. Dykhouse

Jan R. Horsfall

Britte E. Ide

Julia L. Johnson

Robert C. Rowe

Linda G. Sullivan

Subsidiary restrictions on the payment of the dividends:

Amended and Restated Operating Agreement of Willow Creek Gathering, LLC, dated October 3, 2008

Amended and Restated Operating Agreement of Lodge Creek Pipelines, LLC, dated October 3, 2008

Regulations of Havre Pipeline Company, LLC, dated January 17, 1995

Financial Statements

Unaudited financial statements of the Company for the quarterly period ended June 30, 2017 included in the Company’s Form 10-Q for the period then ended filed on July 25, 2017.

Audited financial statements of the Company for the fiscal year ended December 31, 2016 included in the Company’s Form 10-K for the period then ended filed on February 16, 2017.

Audited financial statements for the fiscal year ended December 31, 2015 included in the Company’s Form 10‑K for the period.

Audited financial statements for the fiscal period ended December 31, 2014 included in the Company’s Form 10‑K for the period.

Required Approvals

Default Order No. 7565 dated September 19, 2017 entered by the Montana Public Service Commission in Docket No. D2017.8.67, which supersedes and replaces Default Order No. 7542 dated January 28, 2016 entered by the Montana Public Service Commission in Docket No. D2015.12.97.

Order Dated September 19, 2017, 160 FERC ¶ 62,234, entered by the Federal Energy Regulatory Commission in Docket No. ES17-51-000.

Other than FERC and Montana Public Service Commission approvals above, no other regulatory approvals are required in connection with the transactions contemplated by the Financing Agreements.

Existing Indebtedness

A. Secured Senior Debt

1. General Mortgage Indenture and Deed of Trust dated August 1, 1993 between The Chase Manhattan Bank (National Association), as Trustee and NorthWestern Public Service Company (now known as NorthWestern Corporation), as Issuer, as amended and supplemented, pursuant to which $64.0 million of 5.01% First Mortgage Bonds of NorthWestern Corporation due May 1, 2025 have been issued, $30.0 million of 4.15% First Mortgage Bonds of NorthWestern Corporation due August 10, 2042 have been issued, $20.0 million of 4.30% First Mortgage Bonds of NorthWestern Corporation due August 10, 2052 have been issued, $50.0 million of 4.85% First Mortgage Bonds of NorthWestern Corporation due 2043 have been issued, $30.0 million of 4.22% First Mortgage Bonds of NorthWestern Corporation due 2044 have been issued, $70.0 million of 4.26% First Mortgage Bonds of NorthWestern Corporation due 2040 have been issued, $60.0 million of 2.80% First Mortgage Bonds due June 15, 2026 have been issued, and $45.0 million of 2.66% First Mortgage Bonds due September 30, 2026 have been issued. This indenture places restrictions on the amount of Indebtedness of the Company. Collateral: substantially all of the utility properties directly owned by the Company in the States of South Dakota, North Dakota, Nebraska and Iowa, subject to certain exceptions, and After Acquired Property (as defined therein).

2. First Mortgage and Deed of Trust, dated as of October 1, 1945, by and between NorthWestern Corporation (as successor to The Montana Power Company), as Issuer, and Guaranty Trust Company of NY and Arthur E. Burke (now The Bank of New York Mellon and Beata Harvin or her successor), as trustees, as amended and supplemented, pursuant to which the following Mortgage Bonds have been issued:

(a) $250.0 million of 6.34% First Mortgage Bonds of NorthWestern Corporation due 2019 (will be redeemed pursuant to that certain Notice of Intention to Redeem dated October 6, 2017 issued by the Corporate Trustee to the Purchasers of such bonds).

(b) $55.0 million of 5.71% First Mortgage Bonds of NorthWestern Corporation due 2039.

(d) $60.0 million of 4.15% First Mortgage Bonds of NorthWestern Corporation due 2042.

(e) $40.0 million of 4.30% First Mortgage Bonds of NorthWestern Corporation due 2052.

(f) (a) $35.0 million of 3.99% First Mortgage Bonds of NorthWestern Corporation due 2028 and (b) $15.0 million of 4.85% First Mortgage Bonds of NorthWestern Corporation due 2043.

(g) $450.0 million of 4.176% First Mortgage Bonds of NorthWestern Corporation due 2044.

(h) (a) $75.0 million of 3.11% First Mortgage Bonds of NorthWestern Corporation due 2025 and (b) $125.0 million of 4.11% First Mortgage Bonds due 2045.

(i) $144.7 million of 2.00% First Mortgage Bonds of NorthWestern Corporation due 2023 were issued to secure in part the obligations of NorthWestern Corporation under a Loan Agreement, dated as of August 1, 2016, between NorthWestern Corporation and the City of Forsyth, pursuant to

which the City of Forsyth loaned an aggregate amount of $144.7 million to NorthWestern Corporation, received from the proceeds of the City of Forsyth Pollution Control Revenue Refunding Bonds (NorthWestern Corporation Colstrip Project) Series 2016, 2.00% series, due 2023.

This Indenture places restrictions on the amount of Indebtedness of the Company. Collateral: substantially all of the utility properties directly owned by the Company in the States of Montana and Wyoming, subject to certain exceptions, and After Acquired Property (as defined therein).

B. Capital Leases

Various equipment capital leases between John Deere Financial and U.S. Bank Equipment Finance, as lessors and NorthWestern Corporation, as lessee (none as of 9/30/17). Collateral: The equipment subject to such capital leases.

C. Unsecured Indebtedness

$400 Million Third Amended and Restated Credit Agreement, dated December 12, 2016, among NorthWestern Corporation, as borrower, the several banks and other financial institutions or entities from time to time parties to the agreement, as lenders, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Credit Suisse Securities (USA) LLC, as joint lead arrangers; Credit Suisse Securities (USA) LLC as syndication agent; Keybank National Association, MUFG Union Bank, N.A., and U.S. Bank National Association, as co-documentation agents; and Bank of America, N.A., as administrative agent. This agreement places restrictions on the amount of Indebtedness of the Company.

Commercial Paper Dealer Agreement between NorthWestern Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated as of February 3, 2011 and Commercial Paper Dealer Agreement between NorthWestern Corporation and Mitsubishi UFJ Securities (USA), Inc., dated as of February 9, 2016 ($269.7 million as of 9/30/17).

D. Swap Contracts

Various forward purchase contracts for natural gas that do not qualify for normal purchase and normal sale scope exception under GAAP (none as of 9/30/17).

Filings

The recording of the Thirty‑Seventh Supplemental Indenture in the proper real estate records in Montana and Wyoming.

Form of Thirty‑Seventh Supplemental Indenture

(See Attached)

NORTHWESTERN CORPORATION

THE BANK OF NEW YORK MELLON

(formerly The Bank of New York)

AND

BEATA HARVIN

As Trustees under Mortgage and

Deed of Trust, dated as of

October 1, 1945, with NorthWestern Corporation

THIRTY-SEVENTH SUPPLEMENTAL INDENTURE

Providing, among other things, for

First Mortgage Bonds, 4.03% Series due 2047

Dated as of November 1, 2017

THIRTY- SEVENTH SUPPLEMENTAL INDENTURE

THIS THIRTY-SEVENTH SUPPLEMENTAL INDENTURE, dated as of November 1, 2017, between NORTHWESTERN CORPORATION, a corporation duly incorporated and existing under the laws of the State of Delaware (hereinafter called the “ Company ”), having its principal office at 3010 West 69th Street, Sioux Falls, South Dakota, 57108, and THE BANK OF NEW YORK MELLON (formerly The Bank of New York) (hereinafter called the “ Corporate Trustee ”), a corporation of the State of New York, whose principal corporate trust office is located at 101 Barclay Street, New York, New York, 10286 (successor to MORGAN GUARANTY TRUST COMPANY OF NEW YORK (formerly Guaranty Trust Company of New York)), and BEATA HARVIN, whose post office address is c/o The Bank of New York Mellon, 101 Barclay Street, New York, New York, 10286 (successor to Arthur E. Burke, Karl R. Henrich, H.H. Gould, R. Amundsen, P.J. Crowley, W.T. Cunningham, Douglas J. MacInnes, MaryBeth Lewicki, Ming Ryan and Philip L. Watson) (said Beata Harvin being hereinafter sometimes called the “ Co-Trustee ”, and the Corporate Trustee and the Co-Trustee being hereinafter together sometimes called the “ Trustees ”), as Trustees under the Mortgage and Deed of Trust, dated as of October 1, 1945 (hereinafter called the “ Mortgage ” and, together with any indentures supplemental thereto, the “ Indenture ”), which Mortgage was executed and delivered by The Montana Power Company, a corporation of the State of New Jersey (hereinafter called the “ Company-New Jersey ”), as indirect predecessor under the Mortgage to the Company (the Company being successor under the Mortgage to NorthWestern Energy, L.L.C. (hereinafter called “ NorthWestern Energy ”), formerly known as The Montana Power, L.L.C., a limited liability company of the State of Montana, and NorthWestern Energy being the successor under the Mortgage to The Montana Power Company, a corporation of the State of Montana (hereinafter called the “ Company-Montana ”)), to Guaranty Trust Company of New York and Arthur E. Burke, as Trustees, to secure the payment of bonds issued or to be issued under and in accordance with the provisions of the Mortgage, reference to which Mortgage is hereby made, this instrument (hereinafter called the “ Thirty-seventh Supplemental Indenture ”) being supplemental thereto;

WHEREAS, by the Mortgage, the Company-New Jersey covenanted that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Indenture and to make subject to the lien of the Indenture any property thereafter acquired, made or constructed and intended to be subject to the lien thereof; and

WHEREAS, the Company-New Jersey executed and delivered to the Trustees its First Supplemental Indenture, dated as of May 1, 1954 (hereinafter called the “ First Supplemental Indenture ”), and its Second Supplemental Indenture, dated as of April 1, 1959 (hereinafter called the “ Second Supplemental Indenture ”); and

WHEREAS, the Company-New Jersey was merged into the Company-Montana on November 30, 1961, and to evidence the succession of the Company-Montana to the Company-New Jersey for purposes of the bonds and the Indenture and the assumption by the Company-Montana of the covenants and conditions of the Company-New Jersey in the bonds and in the Indenture contained and to enable the Company-Montana to have and exercise the powers and rights of the Company-New Jersey under the Indenture in accordance with the terms thereof, the Company-Montana executed and delivered to the Trustees its Third Supplemental Indenture, dated as of November 30, 1961 (hereinafter called the “ Third Supplemental Indenture ”); and

WHEREAS, the Company-Montana executed and delivered to the Trustees its Fourth Supplemental Indenture, dated as of April 1, 1970 (hereinafter called the “ Fourth Supplemental Indenture ”); its Fifth Supplemental Indenture, dated as of April 1, 1971 (hereinafter called the “ Fifth Supplemental Indenture ”); its Sixth Supplemental Indenture, dated as of March 1, 1974 (hereinafter called the “ Sixth Supplemental Indenture ”); its Seventh Supplemental Indenture, dated as of December 1, 1974 (hereinafter called the

“ Seventh Supplemental Indenture ”); its Eighth Supplemental Indenture, dated as of July 1, 1975 (hereinafter called the “ Eighth Supplemental Indenture ”); its Ninth Supplemental Indenture, dated as of December 1, 1975 (hereinafter called the “ Ninth Supplemental Indenture ”); its Tenth Supplemental Indenture, dated as of January 1, 1979 (hereinafter called the “ Tenth Supplemental Indenture ”); its Eleventh Supplemental Indenture, dated as of October 1, 1983 (hereinafter called the “ Eleventh Supplemental Indenture ”); its Twelfth Supplemental Indenture, dated as of January 1, 1984 (hereinafter called the “ Twelfth Supplemental Indenture ”); its Thirteenth Supplemental Indenture, dated as of December 1, 1991 (hereinafter called the “ Thirteenth Supplemental Indenture ”); its Fourteenth Supplemental Indenture, dated as of January 1, 1993 (hereinafter called the “ Fourteenth Supplemental Indenture ”); its Fifteenth Supplemental Indenture, dated as of March 1, 1993 (hereinafter called the “ Fifteenth Supplemental Indenture ”); its Sixteenth Supplemental Indenture, dated as of May 1, 1993 (hereinafter called the “ Sixteenth Supplemental Indenture ”); its Seventeenth Supplemental Indenture, dated as of December 1, 1993 (hereinafter called the “ Seventeenth Supplemental Indenture ”); its Eighteenth Supplemental Indenture, dated as of August 5, 1994 (hereinafter called the “ Eighteenth Supplemental Indenture ”); its Nineteenth Supplemental Indenture, dated as of December 16, 1999 (hereinafter called the “ Nineteenth Supplemental Indenture ”); and its Twentieth Supplemental Indenture, dated as of November 1, 2001 (hereinafter called the “ Twentieth Supplemental Indenture ”); and

WHEREAS, the Company-Montana was merged into NorthWestern Energy (under its then name, The Montana Power, L.L.C.) on February 13, 2002; and to evidence the succession of NorthWestern Energy (under its then name, The Montana Power, L.L.C.) to the Company-Montana for purposes of the bonds and the Indenture and the assumption by NorthWestern Energy (under its then name, The Montana Power, L.L.C.) of the covenants and conditions of the Company-Montana in the bonds and in the Indenture contained and to enable NorthWestern Energy (under its then name, The Montana Power, L.L.C.) to have and exercise the powers and rights of the Company-Montana under the Indenture in accordance with the terms thereof, NorthWestern Energy (under its then name, The Montana Power, L.L.C.) executed and delivered to the Trustees its Twenty-first Supplemental Indenture, dated as of February 13, 2002 (hereinafter called the “ Twenty-first Supplemental Indenture ”); and

WHEREAS, NorthWestern Energy changed its name from The Montana Power, L.L.C. to NorthWestern Energy, L.L.C. on March 19, 2002; and

WHEREAS, NorthWestern Energy transferred, subject to the Lien of the Indenture, substantially all of the Mortgaged and Pledged Property as an entirety to the Company on November 20, 2002 (the “ Transfer Date ”), and to evidence the succession of the Company to NorthWestern Energy for purposes of the bonds and the Indenture and the assumption by the Company of the covenants and conditions of NorthWestern Energy in the bonds and in the Indenture contained and to enable the Company to have and exercise the powers and rights of NorthWestern Energy under the Indenture in accordance with the terms thereof, the Company executed and delivered to the Trustees its Twenty-second Supplemental Indenture, dated as of November 15, 2002 (hereinafter called the “ Twenty-second Supplemental Indenture ”); and

WHEREAS, the Company executed and delivered to the Trustees its Twenty-third Supplemental Indenture, dated as of February 1, 2003 (hereinafter called the “ Twenty-third Supplemental Indenture ”); its Twenty-fourth Supplemental Indenture, dated as of November 1, 2004 (hereinafter called the “ Twenty-fourth Supplemental Indenture ”); its Twenty-fifth Supplemental Indenture, dated as of April 1, 2006 (hereinafter called the “Twenty-fifth Supplemental Indenture” ); its Twenty-sixth Supplemental Indenture, dated as of September 1, 2006 (hereinafter called the “ Twenty-sixth Supplemental Indenture ”); its Twenty-seventh Supplemental Indenture, dated as of March 1, 2009 (hereinafter called the “ Twenty-seventh Supplemental Indenture ”); its Twenty-eighth Supplemental Indenture, dated as of October 1, 2009 (hereinafter called the “ Twenty-eighth Supplemental Indenture ”); its Twenty-ninth Supplemental Indenture, dated as of May 1,

2010 (hereinafter called the “ Twenty-ninth Supplemental Indenture ”); its Thirtieth Supplemental Indenture, dated as of August 1, 2012 (hereinafter called the “ Thirtieth Supplemental Indenture ”); its Thirty-first Supplemental Indenture, dated as of December 1, 2013 (hereinafter called the “ Thirty-first Supplemental Indenture ”); its Thirty-second Supplemental Indenture, dated as of November 1, 2014 (hereinafter called the “ Thirty-second Supplemental Indenture ”); its Thirty-third Supplemental Indenture, dated as of November 1, 2014 (hereinafter called the “ Thirty-third Supplemental Indenture ”); its Thirty-fourth Supplemental Indenture, dated as of January 1, 2015 (hereinafter called the “ Thirty-fourth Supplemental Indenture ”); its Thirty-fifth Supplemental Indenture, dated as of June 1, 2015 (hereinafter called the “ Thirty-fifth Supplemental Indenture ”) and its Thirty-sixth Supplemental Indenture, dated as of August 1, 2016 (hereinafter called the “ Thirty-sixth Supplemental Indenture ”); and

WHEREAS, the Mortgage and the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-first, Twenty-second, Twenty-third, Twenty-fourth, Twenty-fifth, Twenty-sixth, Twenty-seventh, Twenty-eighth, Twenty-ninth, Thirtieth, Thirty-first, Thirty-second, Thirty-third, Thirty-fourth, Thirty-fifth, and Thirty-sixth Supplemental Indentures were recorded in the official records of various counties and states as required by the Indenture; and

WHEREAS, the Company expects to record this Thirty-seventh Supplemental Indenture in the official records of various counties and states as required by the Indenture; and

WHEREAS, an instrument dated March 15, 1955 was executed by the Company-New Jersey appointing Karl R. Henrich as Co-Trustee in succession to said Arthur E. Burke, resigned, under the Mortgage and by Karl R. Henrich accepting the appointment as Co-Trustee under the Mortgage in succession to said Arthur E. Burke, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and

WHEREAS, an instrument dated June 29, 1962 was executed by the Company-Montana appointing H.H. Gould as Co-Trustee in succession to said Karl R. Henrich, resigned, under the Mortgage and by H.H. Gould accepting the appointment as Co-Trustee under the Mortgage in succession to said Karl R. Henrich, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and

WHEREAS, an instrument dated June 22, 1973 was executed by the Company-Montana appointing R. Amundsen as Co-Trustee in succession to said H.H. Gould, resigned, under the Mortgage and by R. Amundsen accepting the appointment as Co-Trustee under the Mortgage in succession to said H.H. Gould, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and

WHEREAS, an instrument dated July 1, 1986 was executed by the Company-Montana appointing P.J. Crowley as Co-Trustee in succession to said R. Amundsen, resigned, under the Mortgage and by P.J. Crowley accepting the appointment as Co-Trustee under the Mortgage in succession to said R. Amundsen, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and

WHEREAS, by the Eighteenth Supplemental Indenture, the Company-Montana appointed (i) W.T. Cunningham as Co-Trustee in succession to said P.J. Crowley, resigned, under the Mortgage and W.T. Cunningham accepted the appointment as Co-Trustee under the Mortgage in succession to said P.J. Crowley, and (ii) The Bank of New York Mellon as Corporate Trustee in succession to Morgan Guaranty Trust Company of New York, resigned, under the Mortgage and The Bank of New York Mellon accepted the appointment as Corporate Trustee under the Mortgage in succession to said Morgan Guaranty Trust Company of New York, which supplemental indenture was recorded in various counties in the states of Montana, Idaho and Wyoming; and

WHEREAS, an instrument dated March 29, 1999 was executed by the Company-Montana appointing Douglas J. MacInnes as Co-Trustee in succession to said W.T. Cunningham, resigned, under the Mortgage and by Douglas J. MacInnes accepting the appointment as Co-Trustee under the Mortgage in succession to said W.T. Cunningham, which instrument was recorded in various counties in the states of Montana, Idaho and Wyoming; and

WHEREAS, by the Twenty-third Supplemental Indenture, the Company appointed MaryBeth Lewicki as Co-Trustee in succession to said Douglas J. MacInnes, removed, under the Mortgage and MaryBeth Lewicki accepted the appointment as Co-Trustee under the Mortgage in succession to said Douglas J. MacInnes; and

WHEREAS, by the Twenty-fifth Supplemental Indenture, the Company appointed Ming Ryan as Co-Trustee in succession to said MaryBeth Lewicki, removed, under the Mortgage and Ming Ryan accepted the appointment as Co-Trustee under the Mortgage in succession to said Mary Beth Lewicki; and

WHEREAS, by the Thirtieth Supplemental Indenture, the Company appointed Philip L. Watson as Co-Trustee in succession to said Ming Ryan, removed, under the Mortgage and Philip L. Watson accepted the appointment as Co-Trustee under the Mortgage in succession to said Ming Ryan; and

WHEREAS, by the Thirty-fifth Supplemental Indenture, the Company appointed Beata Harvin as Co-Trustee in succession to said Philip L. Watson, removed, under the Mortgage and Beata Harvin accepted the appointment as Co-Trustee under the Mortgage in succession to said Philip L. Watson; and

WHEREAS, the Company-New Jersey, the Company-Montana or the Company has heretofore issued, in accordance with the provisions of the Mortgage, the following series of First Mortgage Bonds:



Series	Principal Amount Issued	Principal Amount Outstanding
2-7/8% Series due 1975	$40,000,000	NONE
3-1/8% Series due 1984	6,000,000	NONE
4-1/2% Series due 1989	15,000,000	NONE
8-1/4% Series due 1974	30,000,000	NONE
7-1/2% Series due 2001	25,000,000	NONE
8-5/8% Series due 2004	60,000,000	NONE
8-3/4% Series due 1981	30,000,000	NONE
9.60% Series due 2005	35,000,000	NONE
9.70% Series due 2005	65,000,000	NONE
9-7/8% Series due 2009	50,000,000	NONE
11-3/4% Series due 1993	75,000,000	NONE
10/10-1/8% Series due 2004/2014	80,000,000	NONE
8-1/8% Series due 2014	41,200,000	NONE
7.70% Series due 1999	55,000,000	NONE
8-1/4% Series due 2007	55,000,000	NONE
8.95% Series 2022	50,000,000	NONE
Secured Medium-Term Notes	68,000,000	NONE
7% Series due 2005	50,000,000	NONE
6-1/8% Series due 2023	90,205,000	NONE
5.90% Series due 2023	80,000,000	NONE
0% Series due 1999	210,321,007	NONE



7.30% Series due 2006	150,000,000	NONE
Collateral (2002) Series due 2006	280,000,000	NONE
Collateral (2004) Series A due 2009	90,000,000	NONE
Collateral (2004) Series B due 2011......................	72,000,000	NONE
Collateral (2004) Series C due 2014 .....................	161,000,000	NONE
4.65% Series due 2023 (Twenty-seventh) .............	170,205,000	NONE
6.04% Series due 2016 (Twenty-eighth) ...............	150,000,000	NONE
6.34% Series due 2019 (Twenty-ninth) …………..	250,000,000	250,000,000 Being surrendered for cancellation concurrently with the execution and delivery of this Thirty-seventh Supplemental Indenture.
5.71% Series due 2039 (Thirtieth) ………………..	55,000,000	55,000,000
5.01% Series due 2025 (Thirty-first) ……………..	161,000,000	161,000,000
4.15% Series due 2042 (Thirty-second) …………..	60,000,000	60,000,000
4.30% Series due 2052 (Thirty-third) …………….	40,000,000	40,000,000
3.99% Series due 2028 (Thirty-fourth) …………...	35,000,000	35,000,000
4.85% Series due 2043 (Thirty-fifth) ……………..	15,000,000	15,000,000
4.176% Series due 2044 (Thirty-sixth) …………...	450,000,000	450,000,000
3.11% Series due 2025 (Thirty-seventh) ………….	75,000,000	75,000,000
4.11% Series due 2045 (Thirty-eighth) …………...	125,000,000	125,000,000
2.00% Series due 2023 (Thirty-ninth) …………….	144,660,000	144,660,000

which bonds are also hereinafter sometimes called “ Bonds of the First through Thirty-ninth Series ”, respectively; and

WHEREAS, Section 8 of the Mortgage provides that the form of each series of bonds (other than the First Series) issued thereunder and of the coupons to be attached to coupon bonds of such series shall be established by Resolution of the Board of Directors of the Company and that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof, and may also contain such provisions not inconsistent with the provisions of the Indenture as the Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Indenture; and

WHEREAS, Section 120 of the Mortgage provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Indenture, whether such power, privilege or right is in any way restricted or is unrestricted, may be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued thereunder; or the Company may cure any ambiguity contained therein or in any supplemental indenture or correct or supplement any provision therein or in any supplemental indenture which may be defective or inconsistent with any other provision therein or in any supplemental indenture; or the Company may make other changes to the provisions thereof or of any supplemental indenture or add new provisions thereto or to any supplemental indenture or eliminate provisions therefrom or from any supplemental indenture, provided that the same does not adversely affect the interests of the Holders of any of the bonds then Outstanding in any material respect; or the Company may (in lieu of establishment by Resolution as provided in Section 8 of the Mortgage) establish the terms

and provisions of any series of bonds other than the First Series; each by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to record in all of the states in which any property at the time subject to the lien of the Indenture shall be situated; and

WHEREAS, the Company now desires to create a new series of bonds (Bonds of the Fortieth Series (as defined below)) and (pursuant to the provisions of Section 120 of the Mortgage) to add to its covenants and agreements contained in the Mortgage certain other covenants and agreements to be observed by it and to alter and amend in certain respects the covenants and provisions contained in the Indenture; and

WHEREAS, the execution and delivery by the Company of this Thirty-seventh Supplemental Indenture, and the terms of the Bonds of the Fortieth Series, hereinafter referred to, have been duly authorized by the Board of Directors of the Company by appropriate Resolutions of said Board of Directors.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

That the Company, in consideration of the premises and of $1.00 to it duly paid by the Trustees at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in further evidence of assurance of the estate, title and rights of the Trustees and in order further to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under the Indenture, according to their tenor and effect and the performance of all the provisions of the Indenture (including any modification made as in the Mortgage provided) and of said bonds, and to confirm the lien of the Mortgage, as heretofore supplemented, on certain after-acquired property, hereby grants, bargains, sells, releases, conveys, assigns, transfers, mortgages, pledges, sets over and confirms (subject, however, to Excepted Encumbrances as defined in Section 6 of the Mortgage, as heretofore supplemented) unto Beata Harvin, Co-Trustee, and (to the extent of its legal capacity to hold the same for the purposes hereof) to The Bank of New York Mellon, the Corporate Trustee, as Trustees under the Indenture, and to their successor or successors in said trust, and to said Trustees and their successors and assigns forever, all the following described properties of the Company located in the State of Montana, namely:

BLAINE COUNTY

TOWNSHIP 32 NORTH, RANGE 19 EAST, M.P.M.

Chinook Gas Office/Warehouse (NWE-01218) AND Q#251426000

Section 12:

A portion of the NE¼NE¼, more particularly described as Lot 1 of the Powell Minor Subdivision (C.O.S. 325540, consisting of 27.95 gross acres, more or less.

(Recording Reference: Warranty Deed recorded December 19, 2016, in Book 85 of Deeds, Page 456 as Document 325540).

CASCADE COUNTY

TOWNSHIP 20 NORTH, RANGE 4 EAST, P.M.M.

Great Falls Eastside Substation Addition (NWE-438)

Lot 1A of the amended plat of Sunrise Terrance, an addition to the City of Great Falls, Montana, amending Lot 1 and Clara Park of Block 6, located in the southwest ¼, of Section 9, Township 20 North, Range 4 East, Principal Meridian, Cascade County, Montana, according to the official map or plat recorded in the Office of the Clerk and Recorder October 18, 2016 as P-2016-0000032.

Commonly known as: 4110 Ella Avenue, Great Falls, MT 59404

(Recording Reference: Plat recorded on October 18, 2016 as P-2016-0000032)

DEER LODGE COUNTY

TOWNSHIP 4 NORTH, RANGE 11 WEST, P.M.M.

Anaconda Office & Service Center Addition (NWE-618)

Section 2:

A piece, parcel or tract of land situated in the Northeast Quarter of the Southwest Quarter (NE1/4SW1/4) of Section Two (2), Township Four (4) North, Range Eleven (11) West, Montana Principal Meridian, County of Deer Lodge, State of Montana and more particularly bounded and described as follows, to wit:

Beginning at a point on the Northerly boundary line of Commercial Avenue (from which point of beginning the one-quarter (1/4) section corner on the West side of said of said Sec. 2 T.4N., R.11W., M.P.M., bears N.76°20'W., a distance of One thousand Four hundred Thirty Four and Sixty Six hundredth (1434.66) feet, thence N.0°35'E., a distance of One hundred Sixty Three and One Tenth (163.1) feet and running thence N.13°40'E., One hundred Forty (140.0) feet to a point; thence N.76°20'W., a distance of One hundred (100.0) feet to a point; thence S13°40'W., a distance of One hundred Forty (140.0) feet to a point; thence S.76°20'E., a distance of One hundred (100.0) feet to the point of beginning from which said point the Northeast corner of Lot numbered One (1) in Block numbered Twenty (20) of the Eastern Addition to the City of Anaconda, Montana bears S.13°40'W., a distance of seventy (70.0) feet.

(Recording Reference: Warranty Deed recorded February 3, 2017 in Book 344, Page 737 as Document No. 199235)

PARK COUNTY

TOWNSHIP 2 SOUTH, RANGE 9 EAST, P.M.M.

Fee Access to Clyde Park-Livingston #1 50kv (NWE-1236)

Section 14:

Lot 40 and Lot 41 in Block 30, Palace Addition to the City of Livingston, Montana, and being located in a portion of the Southeast Quarter (SE¼) of Section 14.

(Recording Reference: Warranty deed recorded on August 14, 2017 as Document No. 399499.)

STILLWATER COUNTY

TOWNSHIP 1 SOUTH, RANGE 18 EAST, M.P.M.

Reed Point Substation (NWE-1238)

Section 31: Brockway’s Second Addition to the Town of Reed Point

Block 3: Frac. Lots 11 and 12 south of I-90, Lots 13-17

Block 4: Frac. Lots 7-9 south of I-90, Lots 10-17 and Lots 27-34

Block 5: Frac. Lots 4 and 5 south of I-90, Lots 6-17 and Frac. Lots 22-24 south of I-90, Lots 25-34

Block 6: Lots 4-17, Lots 22-34

EXCEPTING THEREFROM Quit Claim Deed 63-286; Quit Claim Deed 63-290; Quit Claim Deed 63-292; Quit Claim Deed 63-294; Bargain and Sale Deed 63-300; Bargain and Sale Deed 63-311; all deeded to the State of Montana for benefit and use of its State Highway.

TOGETHER WITH those portions of Abandoned Pine Street, Bridge Street, Park Street, Division Street and all alleys described in Resolution No. 94-19 recorded as Document No. 277362 in the records of the Clerk and Recorder of Stillwater County, MT (the Real Property); consisting of seven gross acres, more or less.

SC-12282

(Recording Reference: Warranty Deed recorded September 7, 2017 as Document 370092 Deeds)

TOWNSHIP 5 SOUTH, RANGE 15, EAST P.M.M.

Nye Electric Substation (NWE-1234)

Section 15:

Tract 1 of Certificate of Survey No. 364535, located in the Southwest Quarter of Section 15, Township 5 South, Range 15 East, Principal Meridian Montana, Stillwater County, Montana.

(Recording Reference: Warranty Deed, recorded on September 18, 2016, as Document No. 366460; Certificate of Survey No. 364535, recorded on map 1173.)

SWEET GRASS COUNTY

TOWNSHIP 1 NORTH, RANGE 17 EAST, M.P.M.

Big Timber Wind

Section 8:

Per Certificate of Survey No. 156034. Utility Parcel created outside a platted subdivision situated said Section.

Utility Parcel 1: A tract of land beginning at the Northeast Corner of the parcel herein described, from which the Northwest Section Corner of said Section 8 bears North 52°00’39” West, 376.96 feet;

thence from said Point of Beginning South 6°00’00” East, 300.00 feet; thence 84°00’00” West, 300.00 feet; thence North 6°00’00” West, 300.00 feet; thence North 84°00’00” East, 300.00 feet to the Point of Beginning. Containing an area of (90,000 sq. feet) 2.066 Acres, more or less.

(Recording Reference: Certificate of Survey No. 156034 recorded on July 5, 2017 as Document No. 156034, Book Filed, page 572. Warranty Deed recorded July 12, 2017 as Document No. 156064, Book 91D, Page 878, records of Sweet Grass County, MT)

Together with all other property, real, personal and mixed, of the kind or nature specifically mentioned in the Mortgage, as heretofore supplemented, or of any other kind or nature (whether or not located in the State of Montana), acquired by the Company after the date of the execution and delivery of the Mortgage, as heretofore supplemented (except any herein or in the Mortgage, as heretofore supplemented, expressly excepted), now owned or, subject to the provisions of subsection (I) of Section 87 of the Mortgage, as heretofore supplemented, hereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) and wheresoever situated, including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing, or of any general description contained in the Indenture) all lands, power sites, flowage rights, water rights, water locations, water appropriations, ditches, flumes, reservoirs, reservoir sites, canals, raceways, dams, dam sites, aqueducts and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity by steam, water and/or other power; all powerhouses, gas plants, street lighting systems, standards and other equipment incidental thereto, telephone, radio and television systems, air-conditioning systems and equipment incidental thereto, water works, water systems, steam heat and hot water plants, substations, lines, service and supply systems, bridges, culverts, tracks, ice or refrigeration plants and equipment, offices, buildings and other structures and the equipment thereof, all machinery, engines, boilers, dynamos, electric, gas and other machines, regulators, meters, transformers, generators, motors, electrical, gas and mechanical appliances, conduits, cables, water, steam heat, gas or other pipes, gas mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, wires, cables, tools, implements, apparatus, furniture and chattels; all franchises, consents or permits, all lines for the transmission and distribution of electric current, gas, steam heat or water for any purpose including towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith; all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to real estate or the occupancy of the same and (except as herein or in the Mortgage, as heretofore supplemented, expressly excepted) all the right, title and interest of the Company in and to all other property of any kind or nature appertaining to and/or used and/or occupied and/or enjoyed in connection with any property hereinbefore or in the Mortgage, as heretofore supplemented, described.

TOGETHER with all and singular the tenements, hereditaments, prescriptions, servitudes and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 57 of the Mortgage) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof.

IT IS HEREBY AGREED by the Company that, subject to the provisions of subsection (I) of Section 87 of the Mortgage, as heretofore supplemented, all the property, rights and franchises acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) after the date hereof, except any herein or in the Mortgage, as heretofore supplemented, expressly excepted, shall be and are as fully granted and conveyed hereby and as fully embraced within the lien hereof and the lien of the Mortgage, as heretofore supplemented, as if such property, rights and franchises were now owned by the Company and were specifically described herein and conveyed hereby.

PROVIDED that the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, hypothecated, affected, pledged, set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of the Mortgage, as supplemented, viz: (1) cash, shares of stock, bonds, notes and other obligations and other securities not specifically pledged, paid, deposited, delivered or held under the Mortgage, as supplemented, or covenanted so to be; (2) merchandise, equipment, apparatus, materials or supplies held for the purpose of sale or other disposition in the usual course of business; fuel, oil and similar materials and supplies consumable in the operation of any of the properties of the Company; all aircraft, tractors, rolling stock, trolley coaches, buses, motor coaches, automobiles, motor trucks, and other vehicles and materials and supplies held for the purpose of repairing or replacing (in whole or part) any of the same; (3) bills, notes and accounts receivable, judgments, demands and choses in action, and all contracts, leases and operating agreements not specifically pledged under the Mortgage, as supplemented, or covenanted so to be; the Company’s contractual rights or other interest in or with respect to tires not owned by the Company; (4) the last day of the term of any lease or leasehold which may be or become subject to the lien of the Mortgage, as supplemented; (5) electric energy, gas, steam, water, ice, and other materials or products generated, manufactured, produced, purchased or acquired by the Company for sale, distribution or use in the ordinary course of its business; all timber, minerals, mineral rights and royalties and all Gas and Oil Production Property, as defined in Section 4 of the Mortgage, as supplemented; (6) the Company’s franchise to be a corporation; and (7) any property heretofore released pursuant to any provisions of the Indenture and not heretofore disposed of by the Company-New Jersey, the Company-Montana, NorthWestern Energy or the Company; provided, however, that the property and rights expressly excepted from the lien and operation of the Mortgage, as supplemented, in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that either or both of the Trustees or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XIII of the Mortgage by reason of the occurrence of a Default as defined in Section 65 thereof.

TO HAVE AND TO HOLD all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto the Co-Trustee and (to the extent of its legal capacity to hold the same for the purposes hereto) unto the Corporate Trustee, as Trustees, and their successors and assigns forever.

IN TRUST NEVERTHELESS, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as are set forth in the Mortgage, as supplemented, this Thirty-seventh Supplemental Indenture being supplemental thereto.

AND IT IS HEREBY COVENANTED by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Mortgage, as supplemented, shall affect and apply to the property hereinbefore described and conveyed and to the estate, rights, obligations and duties of the Company and the Trustees and the beneficiaries of the trust with respect to said property, and to the Trustees and their successors as Trustees of said property in the same manner and with the same effect as if the said property had been owned by the Company-New Jersey at the time of the execution of the Mortgage, and had been specifically and at length described in and conveyed to the Trustees, by the Mortgage as a part of the property therein stated to be conveyed.

SUBJECT NEVERTHELESS, to the limitation permitted by subsection (I) of Section 87 of the Mortgage, as supplemented, namely, that notwithstanding the foregoing, the Mortgage, as supplemented, shall not become or be or be required to become or be a lien upon any of the properties or franchises owned by the Company on the Transfer Date or thereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) except (a) those acquired by it from NorthWestern Energy, and improvements, extensions and additions thereto and renewals and replacements

thereof, (b) the property made and used by the Company as the basis under any of the provisions of the Indenture for the authentication and delivery of additional bonds or the withdrawal of cash or the release of property or a credit under Section 39 or Section 40 of the Indenture, and (c) such franchises, repairs and additional property as may be acquired, made or constructed by the Company (1) to maintain, renew and preserve the franchises covered by the Indenture, or (2) to maintain the property mortgaged and intended to be mortgaged under the Indenture as an operating system or systems in good repair, working order and condition, or (3) in rebuilding or renewal of property, subject to the Lien under the Indenture, damaged or destroyed, or (4) in replacement of or substitution for machinery, apparatus, equipment, frames, towers, poles, wire, pipe, tools, implements and furniture, subject to the Lien thereunder, which shall have become old, inadequate, obsolete, worn out, unfit, unadapted, unserviceable, undesirable or unnecessary for use in the operation of the property mortgaged and intended to be mortgaged thereunder; provided, however, that said limitation permitted by subsection (I) of Section 87 of the Mortgage, as supplemented, shall not apply to the Colstrip Property (as defined in the Twenty-ninth Supplemental Indenture), which pursuant to the Twenty-ninth Supplemental Indenture was expressly made subject to the Lien of the Mortgage, as supplemented, and constitutes Mortgaged and Pledged Property.

The Company further covenants and agrees to and with the Trustees and their successors in said trust under the Indenture, as follows:

ARTICLE I

Fortieth Series of Bonds

Section 1.01. General Terms of Bonds to be Issued .

(a) There is hereby created a series of bonds designated: "4.03% Series due 2047” (herein sometimes referred to as the “ Fortieth Series ”; and the bonds of such Fortieth Series are sometimes hereinafter referred to as the “ Bonds of the Fortieth Series ”), each of which shall bear the descriptive title “First Mortgage Bond.” Bonds of the Fortieth Series shall mature on November 6, 2047 and shall be issued as fully registered bonds in denominations of $1,000 and in integral multiples thereof; they shall bear interest at the rate of 4.03% per annum, payable in arrears, the first interest payment to be made on May 6, 2018, and shall be for the period from the date of first authentication of the Bonds of the Fortieth Series through May 5, 2018, with subsequent interest payments payable semiannually on May 6 and November 6 of each year (each such payment date, an “ Interest Payment Date ”) until the principal of the Bonds of the Fortieth Series is paid or made available for payment; the principal of and interest on each Bond of the Fortieth Series to be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts. The Bonds of the Fortieth Series shall be dated as in Section 10 of the Mortgage provided.

The Bonds of the Fortieth Series shall be issued substantially in the form of Exhibit A hereto.

At the option of the Holder, any Bonds of the Fortieth Series, upon surrender thereof for cancellation at the office or agency of the Company in the Borough of Manhattan, The City of New York, shall be exchangeable for a like aggregate principal amount of bonds of the same series of other authorized denominations.

The Bonds of the Fortieth Series shall be transferable upon the surrender thereof for cancellation, together with a written instrument of transfer in form approved by the Registrar, duly executed by the registered owner or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York.

Upon any exchange or transfer of Bonds of the Fortieth Series, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other governmental charge, as provided in Section 12 of the Mortgage, but the Company hereby waives any right to make a charge in addition thereto for any exchange or transfer of Bonds of the Fortieth Series.

(b) Upon the delivery of this Thirty-seventh Supplemental Indenture, Bonds of the Fortieth Series in the aggregate principal amount of $250,000,000 are to be issued and delivered, pursuant to Article V of the Mortgage, forthwith and will be Outstanding in addition to $55,000,000 aggregate principal amount of Bonds of the Thirtieth Series Outstanding, $161,000,000 aggregate principal amount of Bonds of the Thirty-first Series Outstanding, $60,000,000 aggregate principal amount of Bonds of the Thirty-second Series Outstanding, $40,000,000 aggregate principal amount of Bonds of the Thirty-third Series Outstanding, $35,000,000 aggregate principal amount of Bonds of the Thirty-fourth Series Outstanding, $15,000,000 aggregate principal amount of Bonds of the Thirty-fifth Series Outstanding, $450,000,000 aggregate principal amount of Bonds of the Thirty-sixth Series Outstanding, $75,000,000 aggregate principal amount of Bonds of the Thirty-seventh Series Outstanding, $125,000,000 aggregate principal amount of Bonds of the Thirty-eighth Series Outstanding, and $144,660,000 aggregate principal amount of Bonds of the Thirty-ninth Series Outstanding at the date of delivery of this Thirty-seventh Supplemental Indenture.

Section 1.02. Redemption .

(a) Except upon the occurrence of a Default as in the Indenture provided, the Bonds will not be subject to any mandatory redemption, sinking fund or other obligation of the Company to amortize, redeem or retire the Bonds prior to maturity and, in any case, the Bonds shall not be redeemable prior to maturity at the option of any Holder of Bonds.

(b)(i) Bonds shall be redeemable, however, at the option of the Company subject to the requirements of the Indenture in whole or in part at any time and from time to time, prior to maturity, upon notice to the Holders of such Bonds at his, her or its address last appearing in the Bond Register by first class mail, mailed not less than 30 days but not more than 60 days prior to the date on which such Bonds are fixed to be redeemed (such date fixed for redemption, the “Redemption Date”), in cash at a redemption price (the “Redemption Price”) equal to (i) the sum of: (A) one hundred per centum (100%) of the principal amount of Bonds to be redeemed then Outstanding, and (B) if, with respect to the Bonds of the Fortieth Series the Redemption Date is earlier than August 6, 2047, the Make-Whole Amount, if any; plus (ii) accrued and unpaid interest to the Redemption Date. In the case of each partial redemption of the Bonds of the Fortieth Series pursuant to this Section 1.02(b)(i), the principal amount of the Bonds of the Fortieth Series to be redeemed shall be allocated by the Company among all of the Bonds of the Fortieth Series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for redemption. Any notice of intention to redeem need not specify the Redemption Price but shall be sufficient if it sets forth in brief terms the manner in which the Redemption Price is to be calculated. Each such notice of intention to redeem shall specify the Redemption Date (which shall be a Business Day), the aggregate principal amount of the Bonds of the Fortieth Series to be redeemed on such date, the principal amount of each Bond held by such Holder to be redeemed, and the interest to be paid on the Redemption Date with respect to such principal amount being redeemed, and shall be accompanied by a certificate of an officer of the Company as to the estimated Make-Whole Amount, if any, due in connection with such redemption (calculated as if the date of such notice were the Redemption Date), setting forth the details of such computation. Two Business Days prior to the Redemption Date, the Company shall deliver to each Holder of such Bonds, with a copy to the Corporate Trustee, a certificate of an officer specifying the calculation of such Make-Whole Amount, if any, as of the specified Redemption Date.

(ii) The Company shall not be required to make transfers or exchanges of Bonds for a period of ten (10) days next preceding any Interest Payment Date, or next preceding any designation of Bonds to be redeemed. The Company shall not be required to make transfers or exchanges of any Bonds designated in whole or in part for redemption. Unless the Company defaults in payment of the Redemption Price, on or after the Redemption Date interest will cease to accrue on the Bonds or portions thereof called for redemption.

The term “Make-Whole Amount” means, with respect to any Bond, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Bond over the amount of such Called Principal; provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:

“Called Principal” means, with respect to any Bond, the principal of such Bond that is to be prepaid pursuant to Section 1.02(b)(i).

“Discounted Value” means, with respect to the Called Principal of any Bond, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on such Bond is payable) equal to the Reinvestment Yield with respect to such Called Principal.

“Reinvestment Yield” means, with respect to the Called Principal of any Bond, .50% (50 basis points) over the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1) on Bloomberg Financial Markets for the most recently issued actively traded on the run U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable (including by way of interpolation), the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. In the case of each determination under clause (i) or clause (ii), as the case may be, of the preceding sentence, such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the applicable U.S. Treasury security with the maturity closest to and greater than such Remaining Average Life and (2) the applicable U.S. Treasury security with the maturity closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable Bond.

“Remaining Average Life” means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (ii) the number of years (calculated to the nearest

one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.

“Remaining Scheduled Payments” means, with respect to the Called Principal of any Bond, all payments of such Called Principal and interest thereon that would be due after the Settlement Date until November 6, 2047 with respect to the Bonds of the Fortieth Series with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date; provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of such Bond, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 1.02(b)(i).

“Settlement Date” means, with respect to the Called Principal of any Bond, the date on which such Called Principal is to be prepaid pursuant to Section 1.02(b)(i).

The Corporate Trustee shall be under no duty to inquire into, may conclusively presume the correctness of, and shall be fully protected in acting upon the calculation by the Company of any Redemption Price of the Bonds.

Section 1.03. Interest .

The Bonds of the Fortieth Series shall bear interest for each Interest Period (as hereinafter defined) at a rate per annum of 4.03%.

The period commencing on an Interest Payment Date and ending on the day next preceding the next succeeding Interest Payment Date shall be an “Interest Period”; provided that the first Interest Period shall begin on the date of the first authentication of the Bonds and extend through May 5, 2018, the day preceding the first Interest Payment Date.

Interest payments for the Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months. If (x) an Interest Payment Date falls on a day that is not a Business Day, subject to clause (y) such Interest Payment Date will be the immediately succeeding Business Day with the same force and effect as if made on the original Interest Payment Date, and no interest shall accrue for the period from and after such original Interest Payment Date, and (y) any payment of principal of or Make-Whole Amount on any Bond (including principal due on the Redemption Date or Stated Maturity of such Bond) and the accrued interest thereon that is due on a date that is not a Business Day shall be made on the next succeeding Business Day with the same force and effect as if made on the scheduled due date, except that in calculating the accrued interest due on such next succeeding Business Day the additional days elapsed shall be included. All dollar amounts resulting from such calculation will be rounded, if necessary, to the nearest cent with one-half cent rounded upward.

Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Bond (or one or more Predecessor Bonds) is registered at the close of business on the Record Date for such interest; provided, however, that interest payable at maturity (whether the stated maturity or maturity resulting from declaration of acceleration, call for redemption or otherwise) shall be payable to the Person to whom the principal of such Bond shall be payable.

ARTICLE II

Definitions

The following terms shall have the meanings provided herein for all purposes of this Supplemental Indenture, unless the context clearly requires otherwise (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“ Bond Purchase Agreement ” means that certain Bond Purchase Agreement dated [October 31], 2017 between the Company and the Purchasers of the Bonds listed in Schedule A thereto.

“ Business Day ” means any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law or executive order to close in The City of New York.

“ Holder ” means a Person in whose name a Bond is registered.

“ Person ” means an individual, partnership, corporation, limited liability company, unincorporated organization, association, joint-stock company, trust, joint venture, government, or any agency or political subdivision thereof or any other entity.

“ Predecessor Bond ” of any particular Bond means every previous Bond evidencing all or a portion of the same debt as that evidenced by such particular Bond; and, for the purposes of this definition, any Bond authenticated and delivered under Section 2 of the Indenture in exchange for or in lieu of a mutilated, destroyed, lost or stolen Bond shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Bond.

“ Record Date ” means, with respect to any Interest Payment Date, the April 20 or October 21 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date.

“ Registrar ” means the Person appointed by the Company to maintain the Bond register, in which register, subject to such reasonable regulations as the Company may prescribe, the Company shall provide for the registration of Bonds and for the exchange and transfer of Bonds.

“ Stated Maturity ” when used with respect to any obligation or any installment of principal thereof or interest thereon, means the date on which the principal of such obligation or such installment of principal (whether as a result of scheduled amortization or otherwise) or interest is due and payable (without regard to any provisions for redemption, prepayment, acceleration, purchase or extension).

ARTICLE III

Reservation of Right to Make Amendments

Section 3.01 The Company reserves the right, without any consent or other action by the Holders of Bonds of the Fortieth Series, or bonds of any subsequent series, to make such amendments to the Mortgage (as supplemented) as shall be necessary in order to cause there to be excluded from the Mortgaged and Pledged Property and the Lien of the Mortgage (as supplemented) at all times, including, without limitation, in the event and following the date that either or both of the Trustees or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XIII of the Mortgage (as supplemented) by reason of the occurrence of a Default as defined in Section 65 thereof, all of the Company’s right, title and interest, whenever arising or acquired, in, to and under all accounts (as defined in the Uniform Commercial Code as in effect from time to time in the State of New York), all accounts

receivable, all payments for goods sold or leased or for services rendered (whether or not they have been earned by performance), all rights in any merchandise or goods which any of the foregoing may represent, all rights, title, security and guaranties with respect to any or all of the foregoing, and all proceeds (as defined in the Uniform Commercial Code as in effect from time to time in the State of New York) of, and all collections from or with respect to, any or all of the foregoing.

ARTICLE IV

Amendments to Mortgage

Section 4.01. So long as any of the Bonds of the Fortieth Series remain Outstanding, Section 7 of the Mortgage is amended by adding at the end thereof the following additional paragraphs:

If any bonds Outstanding at the date of a Net Earning Certificate (except any for the refunding of which the bonds applied for are to be issued) or any bonds then applied for in pending applications (including the application in connection with which such Net Earning Certificate is made) bear or are to bear interest at a variable rate or variable rates such that the interest requirements with respect to such bonds for any twelve (12) month period prior to the stated maturity date of such bonds are not determinable at the date of such Net Earning Certificate (any such bonds being referred to as “ Variable Rate Bonds ”), then (in lieu of setting forth the Annual Interest Requirements (as otherwise prescribed by this Section 7), such Net Earning Certificate shall (A) set forth (i) the sum of the amounts required by clauses (i) through (iv) of paragraph (B) of this Section 7 (in the case of such clauses (i) and (ii), excluding the interest requirements in respect of the Variable Rate Bonds) (the sum of such amounts being referred to herein and to be referred to in such Net Earning Certificate as the “ Fixed Rate Interest Amount ”), and (ii) the amount (referred to herein and to be referred to in such Net Earning Certificate as the “ Maximum Permitted Variable Rate Interest Amount ”) by which (x) one-half of the Adjusted Net Earnings of the Company set forth in such Net Earning Certificate, exceeds (y) the Fixed Rate Interest Amount set forth in such Net Earning Certificate, and (ii) if such Net Earning Certificate is accompanied by a certificate of an independent (as hereinafter defined) investment banking firm, signed by a managing director or officer thereof, to the effect that, based upon historical fluctuations in the indices upon which the variable rate or variable rates borne by the Variable Rate Bonds are based, and taking into account the margins to be added to or subtracted from such indices and/or any other adjustments to be made in determining such variable rate or variable rates and prevailing and projected conditions in the markets influencing such indices, such independent (as hereinafter defined) investment banking firm believes (or is of the view), as of the date of such certificate, that the aggregate amount of interest to be payable on all of the Variable Rate Bonds during any period of twelve (12) months prior to the stated maturity date last to occur of any of the Variable Rate Bonds will not exceed the Maximum Permitted Variable Rate Interest Amount (as calculated by the Company in such Net Earning Certificate without any responsibility on the part of such independent (as hereinafter defined) investment banking firm for the calculation thereof), such Net Earning Certificate shall be deemed for all purposes of the Mortgage (including, without limitation, Sections 26, 28 and 29 of the Mortgage) to show Adjusted Net Earnings of the Company to be as required by Section 27 of the Mortgage. As used in this Section 7, “independent” means, with respect to an investment banking firm that provides a certificate pursuant to this Section 7, that: (i) such investment banking firm is competent to provide such certificate (and such investment banking firm shall be conclusively presumed to be competent to provide such certificate if such investment banking firm is an investment banking firm of nationally recognized standing and engages in interest rate swap

transactions in the ordinary course of its business); (ii) such investment banking firm does not have any direct or indirect investment in the Company or in any bonds that, as of the date of such certificate, are Outstanding or the subject of a pending application for authentication and delivery under the Mortgage (including, without limitation, any bonds that are subject of the Net Earning Certificate to which such certificate relates) or in any affiliate of the Company (other than de minimus amounts of loans or securities of the Company or affiliates of the Company held in its or its affiliates’ accounts and any investment in, or ownership of, additional securities or loans of the Company or affiliates of the Company resulting from its market making activities in the ordinary course of its business); (iii) such investment banking firm is not, and none of its officers or directors is, an affiliate of the Company; and (iv) such investment banking firm is not acting as an underwriter with respect to any bonds that are the subject of the Net Earning Certificate to which such certificate relates or as an arranger or provider of the loans, extensions of credit or other securities (if any) for which such bonds are collateral security.

If the Company is a successor corporation (within the meaning of Section 86 of this Indenture), the “Adjusted Net Earnings of the Company” as set forth in each Net Earning Certificate shall be calculated as described in the last two sentences of Section 86 of this Indenture.

Section 4.02. So long as any of the Bonds of the Fortieth Series remain Outstanding, Section 27 of the Mortgage is amended by adding at the end thereof the following additional sentence:

As described in the penultimate paragraph of Section 7 hereof, and subject to the conditions therein specified, a Net Earning Certificate shall be deemed to show Adjusted Net Earnings of the Company to be as required by this Section 27 (without any necessity for such Net Earning Certificate to specify Annual Interest Requirements).

Section 4.03. So long as any of the Bonds of the Fortieth Series are Outstanding, Section 86 of the Mortgage is amended by adding at the end thereof the following additional sentences:

For the avoidance of any doubt, it is expressly stated that in the event that a successor corporation (having succeeded to and having been substituted for the Company in accordance with this Section 86) shall exercise any right under this Indenture (whether as to the issuance of additional bonds (including, without limitation, the Bonds of the Fortieth Series), the withdrawal of cash, the release of property, the taking of credit under Section 39 or Section 40 hereof, or otherwise) and a Net Earning Certificate shall be required by the terms of this Indenture in connection therewith, the “Adjusted Net Earnings of the Company” shall be, and shall be stated in such Net Earning Certificate to be, the lesser of (A) the amount (for the applicable period selected in accordance with paragraph (A) of Section 7 of this Indenture) determined in accordance with paragraph (A) of Section 7 of this Indenture (and the other provisions of such Section 7 that are relevant to such paragraph) on the basis of (i) the items set forth in clauses (1), (2), (4) and (6) of paragraph (A) of such Section 7 being such portions of such items of such successor corporation as are reasonably allocated by such successor corporation to or from the Mortgaged and Pledged Property as a plant or plants and an operating system or operating systems (and if, on the date of a Net Earning Certificate, such successor corporation shall be a party to any other general or first mortgage indenture and deed of trust relating to property other than the Mortgaged and Pledged Property and the lien of such other mortgage indenture and deed of trust shall not have been discharged, such reasonable allocation shall be in a manner consistent with the manner of allocation utilized and/or to be

utilized by such successor corporation in making calculations of the “Adjusted Net Earnings of the Company” (or other comparable term) under and as defined in such other mortgage indenture and deed of trust), (ii) the item set forth in clause (8) of paragraph (A) of such Section 7 being calculated without regard to income (net) derived from any electric and/or gas utility business of the successor corporation in which the Mortgaged and Pledged Property is not utilized (but otherwise in accordance with such Section 7), and (iii) the item set forth in clause (10) of paragraph (A) of such Section 7 being calculated without regard to sub-clause (b) of such clause and without regard to the proviso to such clause (but otherwise in accordance with such clause), and (B) the amount (for the applicable period selected in accordance with paragraph (A) of Section 7 of this Indenture) determined in accordance with paragraph (A) of Section 7 of this Indenture (and the other provisions of such Section 7 that are relevant to such paragraph) (without any allocation or distinction as to the derivation of the items set forth in any of the clauses of paragraph (A) of such Section 7, other than allocation or distinction between (i) the electric and/or gas utility business or businesses in which such successor corporation is engaged (whether or not the Mortgaged and Pledged Property is utilized in connection therewith), and (ii) the other business or businesses in which such successor corporation is engaged (with such other business or businesses being given effect under the items set forth in clauses (8) and (10) of paragraph (A) of such Section 7)). Each such Net Earning Certificate shall contain a statement of the signers of such Net Earning Certificate that, in the opinion of such signers, the allocations made in the calculations of “Adjusted Net Earnings of the Company” as set forth in such Net Earning Certificate are in accordance with the requirements of the preceding sentence of this Section 86.

Section 4.04 For so long as any Bonds of the Fortieth Series are Outstanding, the Company shall not subject, or permit to be subjected, any Mortgaged and Pledged Property under the Mortgage to the lien of the Company’s General Mortgage Indenture and Deed of Trust dated as of August 1, 1993, as amended and supplemented.

ARTICLE V

Home Office Payment

So long as any Purchaser (as such term is defined in the Bond Purchase Agreement) or its nominee shall be the Holder of any Bond, and notwithstanding anything contained in the Indenture or in such Bond to the contrary, the Company will pay all sums becoming due on such Bond for principal or premium, if any, and interest by the method and at the address specified for such purpose below such Holder’s name in Schedule A to the Bond Purchase Agreement, as certified to the Corporate Trustee by the Company, or by such other method or at such other address as such Holder shall have from time to time specified to the Company and the Corporate Trustee in writing for such purpose, without the presentation or surrender of such Bond unless such Bond is to be paid or redeemed in full, in which case, as a condition to such payment, such Bond shall be presented and surrendered at the place of payment most recently designated by the Company pursuant to Section 13 of the Indenture. Prior to any sale or other disposition of any Bond held by any such Holder, such Holder, by its acceptance of a Bond, agrees that it will, at its election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Bond to the Corporate Trustee in exchange for a new Bond or Bonds of the same series in a principal amount giving effect to such payments of principal and interest pursuant to Section 13 of the Indenture, and in either case shall promptly notify the Company and the Corporate Trustee of the name and address of the transferee of any such Bond so sold or disposed of. The Company will afford the benefits of this Article V to any Institutional Investor (as such term is defined in the Bond Purchase Agreement) that is

the direct or indirect transferee of any Bond purchased by any such Purchaser or its nominee and that has made the same agreement relating to such Bond as is contemplated by this Article V.

ARTICLE VI

Miscellaneous Provisions

Section 6.01. Subject to the amendments provided for in this Thirty-seventh Supplemental Indenture, the terms defined in the Mortgage, as heretofore supplemented, shall, for all purposes of this Thirty-seventh Supplemental Indenture, have the meanings specified in the Mortgage, as heretofore supplemented.

Section 6.02. The Trustees hereby accept the trusts herein declared, provided, created or supplemented and agree to perform the same upon the terms and conditions herein and in the Mortgage, as heretofore supplemented, set forth and upon the following terms and conditions:

The Trustees shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Thirty-seventh Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XVII of the Mortgage shall apply to and form part of this Thirty-seventh Supplemental Indenture with the same force and effect as if the same were herein set forth in full with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Thirty-seventh Supplemental Indenture.

Section 6.03. Whenever in this Thirty-seventh Supplemental Indenture any of the parties hereto is named or referred to, this shall, subject to the provisions of Articles XVI and XVII of the Mortgage, be deemed to include the successors and assigns of such party, and all the covenants and agreements in this Thirty-seventh Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the Trustees shall, subject as aforesaid, bind and inure to the respective benefit of the respective successors and assigns of such parties, whether so expressed or not.

Section 6.04. Nothing in this Thirty-seventh Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or to give to, any person, firm or corporation, other than the parties hereto and the Holders of the bonds and coupons Outstanding under the Indenture, any right, remedy or claim under or by reason of this Thirty-seventh Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Thirty-seventh Supplemental Indenture contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the Holders of the bonds and coupons Outstanding under the Indenture.

Section 6.05. This Thirty-seventh Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

IN WITNESS WHEREOF, NORTHWESTERN CORPORATION has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents, and its seal to be attested by its Corporate Secretary or one of its Assistant Corporate Secretaries for and in its behalf, and THE BANK OF NEW YORK MELLON, in token of its acceptance of the trust hereby created, has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents, and its corporate seal to be attested by one of its Assistant Vice Presidents, Assistant Secretaries or Assistant Treasurers, and BEATA HARVIN, for all like purposes, has hereunto set his hand and affixed his seal, as of the day and year first above written.

NORTHWESTERN CORPORATION

By: _________________________________

Brian B. Bird

Vice President and Chief Financial Officer

[SEAL]

Attest:

_____________________________

Emily Larkin

Assistant Corporate Secretary

Executed, sealed and delivered by

NORTHWESTERN CORPORATION

in the presence of:

_______________________________________

STATE OF SOUTH DAKOTA )

) ss.

COUNTY OF MINNEHAHA )

This instrument was acknowledged before me on this ___ day of November, 2017, by Brian B. Bird, Vice President and Chief Financial Officer, of NORTHWESTERN CORPORATION, a Delaware corporation.

________________________________

Notary Public

[SEAL]

THE BANK OF NEW YORK MELLON,

as Corporate Trustee

By: _________________________________

Name:

Title:

[SEAL]

Attest:

_______________________________

Name:

Title:

Executed, sealed and delivered by

THE BANK OF NEW YORK MELLON

in the presence of:

_________________________________

STATE OF NEW YORK )

) ss.

COUNTY OF NEW YORK )

This instrument was acknowledged before me on this ___ day of November, 2017, by _____________------------________________---______, ___________________________________ of THE BANK OF NEW YORK MELLON, a New York corporation.

________________________________

Notary Public

[L.S.]

Beata Harvin, as Co-Trustee

Executed, sealed and delivered by

bEATA hARVIN in the presence of:

_________________________________

STATE OF NEW YORK )

) ss.

COUNTY OF NEW YORK )

This instrument was acknowledged before me on this ___ day of November, 2017, by Beata Harvin, as Co-Trustee under the Mortgage and Deed of Trust dated as of October 1, 1945, with NorthWestern Corporation.

________________________________

Notary Public

EXHIBIT A

FORM OF BOND

(FACE OF BOND)

THIS BOND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND MAY NOT BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR PLEDGED UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF SUCH ACT OR AN EXEMPTION THEREFROM IS AVAILABLE, EXCEPT UNDER CIRCUMSTANCES WHERE NEITHER SUCH REGISTRATION NOR SUCH AN EXEMPTION IS REQUIRED BY LAW.

NORTHWESTERN CORPORATION

FIRST MORTGAGE BOND, 4.03% SERIES DUE 2047



No. TR-[_____]	PPN: 668074 G*2 $_______________

NORTHWESTERN CORPORATION, a corporation organized and existing under the laws of the State of Delaware (hereinafter called the “Company”), for value received, hereby promises to pay to ______________________ or its registered assigns, on November 6, 2047 at the office or agency of the Company in the Borough of Manhattan, The City of New York, $______________ dollars in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts, and to pay to the Holder hereof interest thereon from the date of first authentication of Bonds of the series herein designated, at the rate per annum of 4.03% (computed on the basis of a 360-day year of twelve 30-day months), in like coin or currency at such office or agency on May 6 and November 6 in each year, until the Company’s obligation with respect to the payment of such principal shall have been discharged; provided, however that, to the extent permitted by law, during the continuance of a Default, the interest rate shall be a rate per annum from time to time equal to the greater of (i) the Interest Rate plus 2% or (ii) 2% over the rate of interest publicly announced by The Bank of New York Mellon from time to time in New York, New York as its “base” or “prime” rate.

This Bond is issued by the Company pursuant to the Thirty-seventh Supplemental Indenture, dated as of November 1, 2017, between the Company and the Trustees (such supplemental indenture, the “Thirty-seventh Supplemental Indenture”). The terms of this Bond shall be those specified herein and pursuant to the Mortgage (as hereinafter defined), as heretofore amended and supplemented, including by the Thirty-seventh Supplemental Indenture.

The provisions of this Bond are continued on the reverse hereof and such continued provisions shall for all purposes have the same effect as though set fully forth at this place.

This Bond shall not become obligatory until The Bank of New York Mellon, the Corporate Trustee under the Mortgage, or its successor thereunder, shall have signed the form of authentication certificate endorsed hereon.

IN WITNESS WHEREOF, NORTHWESTERN CORPORATION has caused this instrument to be signed in its corporate name by its Chairman of the Board or its President or one of its Vice-Presidents by his signature or a facsimile thereof, and its corporate seal to be impressed or imprinted hereon and attested by its Secretary or one of its Assistant Secretaries by his/her signature or a facsimile thereof.

Dated: _____________________

NORTHWESTERN CORPORATION

By ____________________________

Attest: ____________________________

CORPORATE TRUSTEE’S AUTHENTICATION CERTIFICATE

This Bond is one of the Bonds, of the series herein designated, described or provided for in the within-mentioned Mortgage.

THE BANK OF NEW YORK MELLON,

as Corporate Trustee

By ____________________________

Authorized Signatory

(REVERSE OF BOND)

General

This Bond is one of an issue of Bonds of the Company issuable in series and is one of a series known as its First Mortgage Bonds, 4.03% Series due 2047, all Bonds of all series issued and to be issued under and equally secured by (except in so far as any sinking or other fund, established in accordance with the provisions of the Mortgage hereinafter mentioned, may afford additional security for the Bonds of any particular series) a Mortgage and Deed of Trust (herein, together with any indenture supplemental thereto, called the “Mortgage”), dated as of October 1, 1945, executed by the Company to Guaranty Trust Company of New York (The Bank of New York Mellon, successor) and Arthur E. Burke (Beata Harvin, successor), as Trustees. Reference is made to the Mortgage for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of the Bonds and of the Trustees in respect thereof, the duties and immunities of the Trustees and the terms and conditions upon which the Bonds are, and are to be, secured and the circumstances under which additional Bonds may be issued. With the consent of the Company and to the extent permitted by and as provided in the Mortgage, the rights and obligations of the Company and/or the rights of the holders of the Bonds and/or coupons and/or the terms and provisions of the Mortgage may be modified or altered by affirmative vote of the holders of at least 66 2/3% in principal amount of the Bonds then outstanding under the Mortgage and, if the rights of the holders of one or more, but less than all, series of Bonds then outstanding are to be affected, then also by affirmative vote of the holders of at least 66 2/3% in principal amount of the Bonds then outstanding of each series of Bonds so to be affected (excluding in any case Bonds disqualified from voting by reason of the Company’s interest therein as provided in the Mortgage); provided that, without the consent of the holder hereof, no such modification or alteration shall, among other things, impair or affect the right of the holder to receive payment of the principal of (and premium, if any) and interest on this Bond, on or after the respective due dates expressed herein, or permit the creation of any lien equal or prior to the lien of the Mortgage or deprive the holder of the benefit of a lien on the mortgaged and pledged property.

The principal hereof may be declared or may become due prior to the maturity date hereinbefore named on the conditions, in the manner and at the time set forth in the Mortgage, upon the occurrence of a Default as in the Mortgage provided.

This Bond is transferable as prescribed in the Mortgage by the Holder hereof in person, or by his duly authorized attorney, at the office or agency of the Company in the Borough of Manhattan, The City of New York, upon surrender and cancellation of this Bond, and upon payment, if the Company shall require it, of the transfer charges provided for in the Thirty-seventh Supplemental Indenture, and, thereupon, a new fully registered Bond of the same series for a like principal amount will be issued to the transferee in exchange herefor as provided in the Mortgage; provided that, this Bond shall also be subject to the restrictions on transfer and exchange that appear above. The Company and the Trustees may deem and treat the person in whose name this Bond is registered as the absolute owner hereof for the purpose of receiving payment and for all other purposes and neither the Company nor the Trustees shall be affected by any notice to the contrary.

In the manner prescribed in the Mortgage, any Bonds of this series, upon surrender thereof, for cancellation, at the office or agency of the Company in the Borough of Manhattan, The City of New York, are exchangeable for a like aggregate principal amount of registered Bonds of the same series of other authorized denominations.

No recourse shall be had for the payment of the principal of or interest on this Bond against any incorporator or any past, present or future subscriber to the capital stock, stockholder, officer or director of

the Company or of any predecessor or successor corporation, as such, either directly or through the Company or any predecessor or successor corporation, under any rule of law, statute or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, stockholders, officers and directors being released by the holder or owner hereof by the acceptance of this Bond and being likewise waived and released by the terms of the Mortgage.

Capitalized terms used in this Bond shall have the meanings ascribed to them in the Thirty-seventh Supplemental Indenture or in the Mortgage.

Interest

The Bonds shall bear interest for each Interest Period (as hereinafter defined) at a rate per annum of 4.03% (the “Interest Rate”), as set forth in Section 1.03 of the Thirty-seventh Supplemental Indenture.

The period commencing on an Interest Payment Date and ending on the day preceding the next succeeding Interest Payment Date shall be an “Interest Period,” provided that the first Interest Period shall begin on the date of the first authentication of the Bonds and extend through May 5, 2018, the day preceding the first Interest Payment Date. Interest on this Bond shall accrue from the date of the first authentication of the Bonds to the first Interest Payment Date and, thereafter, shall accrue from the most recent Interest Payment Date to which interest has been paid or duly provided for.

Redemption

The Bonds shall be redeemable at the option of the Company in whole or in part at any time and from time to time, prior to maturity, upon notice to the Holders of such Bonds at his, her or its address last appearing in the Bond Register by first class mail, mailed not less than 30 days but not more than 60 days prior to the date on which such Bonds are fixed to be redeemed (such date fixed for redemption, the “Redemption Date”), in cash at a redemption price (the “Redemption Price”) equal to (i) the sum of: (A) one hundred per centum (100%) of the principal amount of Bonds to be redeemed then Outstanding, and (B) if the Redemption Date is earlier than August 6, 2047, the Make-Whole Amount, if any; plus (ii) accrued and unpaid interest to the Redemption Date. Any notice of intention to redeem need not specify the Redemption Price but shall be

sufficient if it sets forth in brief terms the manner in which the Redemption Price is to be calculated. Each such notice shall specify the Redemption Date (which shall be a Business Day), the aggregate principal amount of the Bonds to be redeemed on such date, the principal amount of each Bond held by such Holder to be redeemed, and the interest to be paid on the Redemption Date with respect to such principal amount being redeemed, and shall be accompanied by a certificate of an officer of the Company as to the estimated Make-Whole Amount, if any, due in connection with such redemption (calculated as if the date of such notice were the Redemption Date), setting forth the details of such computation. Two Business Days prior to the Redemption Date, the Company shall deliver to each Holder of such Bonds a certificate of an officer specifying the calculation of such Make-Whole Amount, if any, as of the specified Redemption Date.

“Called Principal” means, with respect to any Bond, the principal of such Bond that is to be prepaid pursuant to Section 1.02(b)(i) of the Thirty-seventh Supplemental Indenture.

Payment with respect to such Called Principal by (ii) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.

“Remaining Scheduled Payments” means, with respect to the Called Principal of any Bond, all payments of such Called Principal and interest thereon that would be due after the Settlement Date until November 6, 2047 with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date; provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of such Bond, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 1.02(b)(i).

“Settlement Date” means, with respect to the Called Principal of any Bond, the date on which such Called Principal is to be prepaid pursuant to Section 1.02(b)(i) of the Thirty-seventh Supplemental Indenture.

The Company shall not be required to make transfers or exchanges of Bonds for a period of ten (10) days next preceding any Interest Payment Date, or next preceding any designation of Bonds to be redeemed. The Company shall not be required to make transfers or exchanges of any Bonds designated in whole or in part for redemption.

INSTRUMENT OF ASSIGNMENT AND TRANSFER

FOR VALUE-RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto

Identifying Number of Assignee _________________________________________________

__________________________________________________________________________________

(Please print or typewrite name and address,

including zip code of Assignee)

the within Bond and all rights thereunder, hereby irrevocably constituting and appointing _____ attorney to transfer said Bond on the books of the Company, with full power of substitution in the premises.

Dated: ____________________________

___________________________________

Name:


NOTICE:	The signature to this assignment must correspond with the name as written upon the first page of the within instrument in every particular, without alteration or enlargement or any change whatsoever.

__________________________

Signature Guarantee

SIGNATURE GUARANTEE

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

Form of Opinion of Special Counsel

for the Company

1. The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Delaware; has the full corporate power and authority to execute this Agreement, the Thirty‑Seventh Supplemental Indenture and the Bonds and to perform its obligations under the Transaction Documents to which it is party and to issue and sell the Bonds; has the full corporate power and authority to conduct the activities in which it is now engaged; and is duly licensed or qualified and is in good standing as a foreign corporation in each jurisdiction in which the character of the properties owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary, except in jurisdictions where the failure to be so qualified or licensed would not have a Material Adverse Effect.

2. The Purchase Agreement and the Thirty‑Seventh Supplemental Indenture have been duly authorized by all necessary corporate action on the part of the Company and have been duly executed and delivered by the Company, and the Transaction Documents constitute the legal, valid and binding contracts of the Company enforceable in accordance with their respective terms.

3. The Bonds have been duly authorized by all necessary corporate action on the part of the Company, have been duly executed and delivered by the Company and established in conformity with the provisions of the Indenture, as amended by the Thirty-Seventh Supplemental Indenture, and, upon authentication of the Bonds by the Corporate Trustee, the Bonds will be entitled to the benefits of the Indenture, as amended by the Thirty-Seventh Supplemental Indenture, and will constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms.

4. The issuance and sale of the Bonds by the Company, the execution, delivery and performance by the Company of the Purchase Agreement and the Thirty‑Seventh Supplemental Indenture, as the case may be, and the consummation of the transactions contemplated therein, do not violate any provision of the Delaware General Corporation Law or New York State laws or Federal Laws or regulations applicable to the Company or conflict with or result in any breach of any of the provisions of or constitute a default under or result in the creation or imposition of any Lien (other than the Lien of the Indenture) upon any of the property of the Company pursuant to the provisions of the Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws of the Company or any agreement or other instrument known to us to which the Company is a party or by which the Company may be bound.

5. The issuance, sale and delivery of the Bonds by the Company under the circumstances contemplated by the Purchase Agreement, the Thirty‑Seventh Supplemental Indenture and the Indenture do not, under existing law, require the registration of the Bonds under the Securities Act.

6. Neither the execution and delivery of the Purchase Agreement or the Thirty‑Seventh Supplemental Indenture nor the consummation of the transactions contemplated thereby, including the issuance and sale of the Bonds, will require the qualification of the Indenture under the Trust Indenture Act of 1939, as amended.

7. Neither the issuance of the Bonds nor the application of the proceeds of the sale of the Bonds will violate or result in a violation of Section 7 of the Exchange Act, or any regulation issued pursuant thereto, including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System.

8. The Company is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

9. No consent, approval, authorization or order of, or filing with, any federal governmental agency or body or any court is required pursuant to any law, rule or regulation or, to our knowledge, pursuant to any order, judgment, decree, agreement or other instrument, to authorize, or is otherwise required in connection with, the execution, delivery and performance in compliance with the terms of the Transaction Documents by the Company, including, without limitation, the issuance by the Company of the Bonds, upon the terms and subject to the conditions provided in the Transaction Documents (collectively, the “Issuance of Bonds” ), except for (i) the approval of the Issuance of Bonds pursuant to the FERC Order, which is in full force and effect, and has become final since the applicable rehearing period has expired, and (ii) required post-issuance compliance filings; and the Issuance of Bonds is in conformity with the terms of the FERC Order (including, without limitation, the aggregate amounts of securities authorized to be issued thereby).

Form of Opinion of General or In-House Counsel

for the Company

1. The Indenture has been duly authorized, executed and delivered (and/or duly assumed) by the Company (or its predecessors) and (assuming due authorization, execution and delivery by the Trustees (or their predecessors)), is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as the same may be limited by applicable bankruptcy, reorganization or similar laws affecting creditors’ rights generally.

The foregoing opinion as to enforceability of the Indenture is also subject to the qualification that certain provisions contained in the Indenture may not be enforceable; provided, however the unenforceability of such provisions will not render the Indenture invalid as a whole or substantially interfere with realization of the Principal Benefits and Security provided thereby. As used herein, the term “Principal Benefits and Security” means the remedies of: (i) judicial enforcement of the obligation of the Company to repay the principal, together with interest thereon as provided in the Bonds and (ii) judicial foreclosure of the Indenture upon failure to pay such principal and interest at maturity or upon acceleration.

2. The Indenture (excluding the Thirty‑Seventh Supplemental Indenture) and any necessary related financing statements, have been filed and recorded wherever and to the extent necessary to perfect the lien thereof upon the properties specifically described therein. No other filing or recordation is necessary in order to perfect the lien of the Indenture on such properties.

3. To the best of my knowledge, all fees or taxes in connection with the filing or recording of the Indenture (excluding the Thirty‑Seventh Supplemental Indenture) have been paid.

4. The Indenture, excluding the Thirty‑Seventh Supplemental Indenture, now constitutes, and the Indenture, when the Thirty‑Seventh Supplemental Indenture shall have been duly filed for recording and is recorded, will continue to constitute, a legally valid and directly enforceable first mortgage lien (subject only to the matters described in paragraph 7 below and the exception set forth in paragraph 1 above) for the equal and proportionate security of the Bonds and of the outstanding first mortgage bonds of other series heretofore issued and hereafter to be issued under the Indenture, upon the mortgaged properties specifically described therein as subject to the lien thereof (excluding all properties heretofore disposed of in accordance with the terms thereof or expressly excepted therefrom), and such mortgaged properties, other than said excluded and excepted properties, comprise and constitute substantially all of the utility property of the Company in the States of Montana and Wyoming.

5. The Thirty‑Seventh Supplemental Indenture has not yet been filed or recorded, but no such filing or recording is necessary to perfect the lien of the Indenture upon the properties now owned by the Company in the States of Montana and Wyoming and described in the Indenture (excluding the Thirty‑Seventh Supplemental Indenture) or to extend such lien for the benefit of the Bonds. No re-recording or refiling of the Indenture or any other instruments or documents (except for periodic filings which extend the effectiveness of financing statements) is required to preserve and protect the lien of the Indenture.

6. The after-acquired property clause in the Indenture subjects to the lien of the Indenture all after-acquired utility property of the Company (other than such after-acquired property as may be expressly excepted from the lien of the Indenture) to the extent and as described in Section 9-204 of the UCC; provided that additional recording will be required to create a valid and enforceable lien on after-acquired real property and fixtures not specifically described in the Indenture.

7. The Company has good and marketable fee simple title to all of the real properties, and good and marketable title to all other properties, located in the States of Montana and Wyoming owned by it, subject only to the lien of the Indenture and such other Excepted Encumbrances (as defined in the Indenture), and such other liens, encumbrances, defects and irregularities which are customarily found with respect to properties of like size and character and which, in the opinion of the undersigned, do not materially impair the use of the property affected thereby in the operation of the utility business of the Company in the States of Montana and Wyoming; and the properties in the States of Montana and Wyoming held under leases by the Company are held under valid and enforceable leases subject only to such exceptions as do not materially interfere with the conduct of the utility business of the Company in the States of Montana and Wyoming.

8. No consent, approval or authorization of, or filing with, any Montana State governmental or public body or authority is required to authorize, or is otherwise required in connection with, the execution, delivery and performance of the Transaction Documents by the Company, including, without limitation, the incurrence of indebtedness or the issuance of the Bonds covering Montana property as contemplated by the Transaction Documents, except for the approval of the MPSC, which approval has been duly and validly obtained and is subject to the terms and conditions stated in the below-described orders; provided, however, it is also understood that the undersigned expresses no opinion as to any consents or approvals required to be obtained or other actions required to be taken under the securities or Blue Sky laws of the state of Montana or any other jurisdiction.

Said approval of the MPSC is documented in the MPSC Order, a copy of which is attached hereto as Exhibit A. The MPSC Order was done in open session on September 19, 2017 and bears a service date of September 21, 2017. The time period for any party or nonparty to seek reconsideration of the MPSC Order has expired; and, to my knowledge, after due inquiry by reviewing applicable MPSC docket sheets and contacting MPSC staff to ensure no pleading was filed that was not otherwise entered on the MPSC docket sheet, no such filing was made during such time period for such purpose. The time period for any party or nonparty to seek judicial appeal or review of the MPSC Order has expired; and, to my knowledge, after due inquiry by reviewing applicable MPSC docket sheets, contacting MPSC staff to ensure no pleading was filed that was not otherwise entered on the MPSC docket sheet, and reviewing the records of the Clerk of Court for the Montana First Judicial District Court as of the close of business on ___________, 2017, no such filing was made during such time period for such purpose.

9. In addition to complying with the MPSC Order, the Company must further comply with the terms and conditions of that certain Consent Order, Order No. 6505e, issued by the MPSC on September 2, 2004, in the docket entitled In the Matter of An Investigation of NorthWestern Energy’s Financial and Related Transactions with NorthWestern Corporation, its Affiliates and Creditors That May Impair Its Financial Solvency and Public Utility Service Obligations , before the MPSC’s Utility Division, Docket No. D2003.8.109, which incorporated that certain Stipulation and Settlement Agreement executed by and between the Company, the Montana Consumer Counsel and the MPSC on July 8, 2004 in the same docket, a copy of which is attached hereto as Exhibit B. The Consent Order was done in open session on August 24, 2004, and bears a service date of September 2, 2004. The time period for any party or nonparty to seek judicial or administrative appeal, review or reconsideration of the Consent Order has expired; and to my knowledge, after due inquiry by reviewing applicable MPSC docket sheets, contacting MPSC staff to ensure no pleading was filed that was not otherwise entered on the MPSC docket sheet, and reviewing the records of the Clerk of Court for the Montana First Judicial District Court, no such filing was made with the appropriate district court or with the MPSC during such time period for such purpose.

The terms, conditions, and requirements set forth in the Consent Order and Stipulation and Settlement Agreement may contain additional restrictions and limitations on permitted Company activities not found

in or that may differ from those activities permitted or restricted by the Transaction Documents. Therefore, nothing set forth in this opinion shall be deemed an opinion that the Company is not required to otherwise comply with all MPSC regulatory requirements or restrictions.

The opinion above is limited to matters of Montana law and therefore the undersigned expresses no opinion as to whether the Company must comply with any other regulatory requirements of any other state or federal jurisdiction.

10. The issuance of the Bonds pursuant to and in accordance with the Transaction Documents, including the Thirty‑Seventh Supplemental Indenture, conforms with the MPSC Order.

11. The execution and delivery of the Transaction Documents by the Company and the performance by it of its obligations thereunder, do not violate any Montana law or regulation, or violate any order or decree of any Montana State court or governmental instrumentality applicable to the Company and of which I have knowledge.

12. The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, has all requisite corporate power and authority (a) to execute, deliver (or assume) and perform its obligations under the Transaction Documents, and (b) to own and encumber its assets and conduct its business as described in the Disclosure Documents. The Company is duly qualified to transact business, and is in good standing as a foreign corporation, in the States of Montana, Wyoming, South Dakota, Nebraska, North Dakota and Iowa.

13. Each of the Transaction Documents has been duly authorized by all necessary corporate action on the part of, and duly executed and delivered (or assumed) by, the Company. The Bonds have been duly and validly authorized and issued.

14. The execution and delivery (or the assumption) by the Company of the Transaction Documents, and the performance by the Company of its obligations thereunder, do not: (i) violate any of the terms, conditions or provisions of the Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws of the Company, as in effect as of the Closing Date; (ii) violate any of the terms, conditions or provisions of any order, writ, judgment, decree or award of any court or administrative decree binding on or affecting the Company; (iii) result in a breach of, constitute a default under, require the termination of, or the approval or consent of any Person under, any material agreement to which the Company is a party or by which the Company or any of its properties is bound, which breach, default or termination, or the failure to obtain such approval or consent, could reasonably be expected to have a Material Adverse Effect; or (iv) to my knowledge, result in or require the creation or imposition of any Lien whatsoever upon or with respect to any of the properties or assets of the Company (other than the Lien of the Indenture).

15. To my knowledge, other than as disclosed in the Disclosure Documents, (i) there are no material judgments outstanding against the Company, and (ii) there is no action, suit, proceeding, governmental investigation or arbitration, at law or in equity or before any Governmental Authority, pending or overtly threatened against the Company or any of its properties, which could reasonably be expected to have a Material Adverse Effect, or which purports to affect the legality, validity or enforceability of the Transaction Documents or which prevents, enjoins or prohibits, or seeks to prevent, enjoin or prohibit, the execution or enforcement of the Transaction Documents or the consummation of the transactions contemplated by the Transaction Documents.

16. The Company is not subject to regulation as a utility company under any statute or regulation of the State of South Dakota or the State of Nebraska such that its ability to incur indebtedness or to consummate the transactions contemplated by the Transaction Documents is limited. The Company is not subject to regulation as a utility company in any states other than Montana, South Dakota and Nebraska (and the Company is not subject to such regulation in the States of Iowa, North Dakota and Delaware).

17. The FERC has issued appropriate authorization with respect to the issuance and sale of the Bonds in accordance with the Purchase Agreement; the MPSC has issued appropriate authorization with respect to the issuance and delivery of the Bonds in accordance with the Indenture and the Purchase Agreement; to my knowledge, after due inquiry, such authorizations are in full force and effect and the issuance of the Bonds is in conformity with the terms of such authorizations and no other consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required for the execution, delivery or consummation of the transactions contemplated by the Transaction Documents, except (i) in the case of any thereof related to the operation by the Company of its properties or the filing or recording of documents or instruments in respect of the Liens created or purported to be created thereunder, which will be made in the ordinary course of the Company’s business, (ii) those which the failure to obtain would not have a Material Adverse Effect, or (iii) such as may be required under state securities laws. With respect to the opinions related to approval by the FERC, I am relying, with your permission, on the opinion of even date herewith of Stinson Leonard Street LLP.

18. Neither the Company nor any of its Subsidiaries is in violation of its respective charter or by-laws or in default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its Subsidiaries, taken as a whole, to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or their respective property is bound.

19. To my knowledge, there are no material franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or filed as an exhibit to the Company’s reports filed under the Exchange Act other than those described or referred to therein or filed or incorporated by reference as exhibits thereto.

Form of Opinion of Special Counsel

for the Purchasers

1. The Agreement constitutes the legal and valid obligation of the Company, enforceable against the Company in accordance with its terms.

2. The issuance, sale and delivery of the Bonds under the circumstances contemplated by the Agreement does not, under existing law, require the registration of the Bonds under the Securities Act of 1933, as amended, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended.