NORTHWESTERN CORP (Form: 10-Q, Received: 07/28/2021 06:06:16)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended		June 30, 2021

OR

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

For the transition period from to

Commission File Number: 1-10499

NORTHWESTERN CORP

(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. 69th Street

Sioux Falls

South Dakota

57108

(Address of principal executive offices)

(Zip Code)

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

N/A

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

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


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

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

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

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

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

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

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

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

Common Stock, Par Value $0.01, 51,561,227 shares outstanding at July 23, 2021

NORTHWESTERN CORPORATION

FORM 10-Q

INDEX


		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3
PART I. FINANCIAL INFORMATION		4
Item 1.	Financial Statements	4
	Condensed Consolidated Statements of Income — Three and Six Months Ended J une 30 , 2021 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income — Three and Six Months Ended June 30 , 2021 and 2020	5
	Condensed Consolidated Balance Sheets —June 30 , 2021 and December 31, 2020	6
	Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30 , 2021 and 2020	7
	Condensed Consolidated Statements of Shareholders ’ Equity — Three and Six Months Ended June 30 , 2021 and 2020	8
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	51
PART II. OTHER INFORMATION		52
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 6.	Exhibits	61
SIGNATURES		62

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;

•the impact of extraordinary external events, such as the COVID-19 pandemic, 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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues
Electric	$	241,440	$	217,938	$	511,511	$	462,563
Gas	56,777		51,422		187,509		142,052
Total Revenues	298,217		269,360		699,020		604,615
Operating Expenses
Cost of sales	67,965		61,043		212,478		152,315
Operating, general and administrative	77,113		71,715		157,965		150,720
Property and other taxes	47,287		46,981		94,765		91,480
Depreciation and depletion	46,809		44,782		93,784		90,047
Total Operating Expenses	239,174		224,521		558,992		484,562
Operating Income	59,043		44,839		140,028		120,053
Interest Expense, net	(23,473)		(24,287)		(46,983)		(48,621)
Other Income (Expense), net	3,032		224		8,606		(1,758)
Income Before Income Taxes	38,602		20,776		101,651		69,674
Income Tax (Expense) Benefit	(1,365)		718		(1,343)		2,524
Net Income	$	37,237	$	21,494	$	100,308	$	72,198

Average Common Shares Outstanding	50,989		50,570		50,811		50,538
Basic Earnings per Average Common Share	$	0.72	$	0.43	$	1.97	$	1.43
Diluted Earnings per Average Common Share	$	0.72	$	0.43	$	1.96	$	1.43
Dividends Declared per Common Share	$	0.62	$	0.60	$	1.24	$	1.20

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net Income	$	37,237	$	21,494	$	100,308	$	72,198
Other comprehensive income, net of tax:
Foreign currency translation adjustment	21		(8)		(55)		93
Postretirement medical liability adjustment	(159)		—		(317)		—
Reclassification of net losses on derivative instruments	113		113		226		226
Total Other Comprehensive (Loss) Income	(25)		105		(146)		319
Comprehensive Income	$	37,212	$	21,599	$	100,162	$	72,517

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)


	June 30, 2021		December 31, 2020
ASSETS
Current Assets:
Cash and cash equivalents	$	5,942	$	5,811
Restricted cash	13,656		11,285
Accounts receivable, net	143,497		168,229
Inventories	69,946		61,010
Regulatory assets	95,326		44,973
Prepaid expenses and other	19,365		17,372
Total current assets	347,732		308,680
Property, plant, and equipment, net	5,071,826		4,952,935
Goodwill	357,586		357,586
Regulatory assets	724,575		701,444
Other noncurrent assets	64,521		68,804
Total Assets	$	6,566,240	$	6,389,449
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of finance leases	$	2,768	$	2,668
Short term borrowings	—		100,000
Accounts payable	89,622		100,388
Accrued expenses	230,444		207,514
Regulatory liabilities	25,618		55,853
Total current liabilities	348,452		466,423
Long-term finance leases	13,388		14,771
Long-term debt	2,503,347		2,315,261
Deferred income taxes	494,477		471,777
Noncurrent regulatory liabilities	631,127		631,419
Other noncurrent liabilities	398,134		410,703
Total Liabilities	4,388,925		4,310,354
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Common stock, par value $0.01; authorized 200,000,000 shares; issued and outstanding 55,117,575 and 51,560,013 shares, respectively; Preferred stock, par value 0.01; authorized 50,000,000 shares; none issued	551		541
Treasury stock at cost	(98,578)		(98,075)
Paid-in capital	1,575,159		1,513,787
Retained earnings	707,598		670,111
Accumulated other comprehensive loss	(7,415)		(7,269)
Total Shareholders' Equity	2,177,315		2,079,095
Total Liabilities and Shareholders' Equity	$	6,566,240	$	6,389,449

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	Six Months Ended June 30,
	2021		2020
OPERATING ACTIVITIES:
Net income	$	100,308	$	72,198
Items not affecting cash:
Depreciation and depletion	93,784		90,047
Amortization of debt issuance costs, discount and deferred hedge gain	2,637		2,371
Stock-based compensation costs	4,538		4,195
Equity portion of allowance for funds used during construction	(4,562)		(2,318)
(Gain) loss on disposition of assets	(55)		3
Deferred income taxes	(641)		—
Changes in current assets and liabilities:

Accounts receivable	24,732		42,301
Inventories	(8,936)		(7,299)
Other current assets	(1,994)		570
Accounts payable	(15,042)		(7,319)
Accrued expenses	22,828		9,382
Regulatory assets	(50,353)		6,912
Regulatory liabilities	(30,235)		12,365
Other noncurrent assets	(3,800)		(346)
Other noncurrent liabilities	(28,689)		(3,843)
Cash Provided by Operating Activities	104,520		219,219
INVESTING ACTIVITIES:
Property, plant, and equipment additions	(182,194)		(176,482)

Investment in equity securities	(646)		(37)
Cash Used in Investing Activities	(182,840)		(176,519)
FINANCING ACTIVITIES:
Treasury stock activity	32		(2,076)
Proceeds from issuance of common stock, net	56,311		—
Dividends on common stock	(62,821)		(60,172)
Issuance of long-term debt, net	99,915		150,000

Line of credit borrowings (repayments), net	88,000		(225,000)

(Repayments) issuance of short-term borrowings	(100,000)		100,000
Financing costs	(615)		(1,109)
Cash Provided by (Used in) Financing Activities	80,822		(38,357)
Increase in Cash, Cash Equivalents, and Restricted Cash	2,502		4,343
Cash, Cash Equivalents, and Restricted Cash, beginning of period	17,096		12,070
Cash, Cash Equivalents, and Restricted Cash, end of period	$	19,598	$	16,413
Supplemental Cash Flow Information:
Cash paid during the period for:
Income taxes	$	1,960	$	55
Interest	43,474		42,115
Significant non-cash transactions:
Capital expenditures included in accounts payable	25,955		13,835

See Notes to Condensed Consolidated Financial Statements

NORTHWESTERN CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(in thousands, except per share data)


	Three Months Ended June 30,
	Number of Common Shares	Number of Treasury Shares	Common Stock		Treasury Stock		Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
Balance at March 31, 2020	54,145	3,578	$	541	$	(98,644)	$	1,512,148	$	655,865	$	(9,434)	$	2,060,476

Net income	—	—	—		—		—		21,494		—		21,494
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		(8)		(8)
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		113		113
Stock-based compensation	—	—	—		—		1,139		—		—		1,139
Issuance of shares	—	(7)	—		206		223		—		—		429
Dividends on common stock ($0.600 per share)	—	—	—		—		—		(30,087)		—		(30,087)
Balance at June 30, 2020	54,145	3,571	$	541	$	(98,438)	$	1,513,510	$	647,272	$	(9,329)	$	2,053,556

Balance at March 31, 2021	54,238	3,563	$	542	$	(98,730)	$	1,517,355	$	702,058	$	(7,390)	$	2,113,835

Net income	—	—	—		—		—		37,237		—		37,237
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		21		21
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		113		113
Postretirement medical liability adjustment, net of tax	—	—	—		—		—		—		(159)		(159)
Stock-based compensation	—	—	—		—		1,299		—		—		1,299
Issuance of shares	880	(5)	9		152		56,505		—		—		56,666

Dividends on common stock ($0.620 per share)	—	—	—		—		—		(31,697)		—		(31,697)
Balance at June 30, 2021	55,118	3,558	$	551	$	(98,578)	$	1,575,159	$	707,598	$	(7,415)	$	2,177,315


	Six Months Ended June 30,
	Number of Common Shares	Number of Treasury Shares	Common Stock		Treasury Stock		Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
Balance at December 31, 2019	53,999	3,547	$	541	$	(96,015)	$	1,508,970	$	635,246	$	(9,648)	$	2,039,094

Net income	—	—	—		—		—		72,198		—		72,198
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		93		93
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		226		226
Stock-based compensation	146	35	—		(2,740)		4,170		—		—		1,430
Issuance of shares	—	(11)	—		317		370		—		—		687
Dividends on common stock ($1.200 per share)	—	—	—		—		—		(60,172)		—		(60,172)
Balance at June 30, 2020	54,145	3,571	$	541	$	(98,438)	$	1,513,510	$	647,272	$	(9,329)	$	2,053,556

Balance at December 31, 2020	54,145	3,558	$	541	$	(98,075)	$	1,513,787	$	670,111	$	(7,269)	$	2,079,095

Net income	—	—	—		—		—		100,308		—		100,308
Foreign currency translation adjustment, net of tax	—	—	—		—		—		—		(55)		(55)
Reclassification of net losses on derivative instruments from OCI to net income, net of tax	—	—	—		—		—		—		226		226
Postretirement medical liability adjustment, net of tax	—	—	—		—		—		—		(317)		(317)
Stock-based compensation	93	17	1		(970)		4,510		—		—		3,541
Issuance of shares	880	(17)	9		467		56,862		—		—		57,338

Dividends on common stock ($1.240 per share)	—	—	—		—		—		(62,821)		—		(62,821)
Balance at June 30, 2021	55,118	3,558	$	551	$	(98,578)	$	1,575,159	$	707,598	$	(7,415)	$	2,177,315

See Notes to Condensed Consolidated Financial Statements

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

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 June 30, 2021 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 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, 2020.

Reclassification

In the fourth quarter of 2020, we changed our classification of excess deferred income taxes in the Consolidated Balance Sheets from a regulatory asset to a regulatory liability, such that the excess deferred income tax regulatory liabilities are reflected on a gross basis, rather than net within our income tax regulatory asset based on our right to offset. The impact to our Consolidated Statements of Cash Flows for the six months ended June 30, 2020 is a gross up of non-cash activity within the Other noncurrent assets and Other noncurrent liabilities captions, both within the operating activities section, that offset one another with no impact to cash provided by operating activities. The impact to the total assets reported as of June 30, 2020 in the segment information table within Note 6 - Segment Information was an increase of $169.4 million. This reclassification had no effect on previously reported Net income in our Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Comprehensive Income, and Condensed Consolidated Statements of Shareholders' Equity.

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, as of June 30, 2021 our estimated remaining gross contractual payments aggregate approximately $80.7 million through 2024.

Supplemental Cash Flow Information

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


	June 30,		December 31,		June 30,		December 31,
	2021		2020		2020		2019
Cash and cash equivalents	$	5,942	$	5,811	$	7,464	$	5,145
Restricted cash	13,656		11,285		8,949		6,925
Total cash, cash equivalents, and restricted cash shown in the Condensed Consolidated Statements of Cash Flows	$	19,598	$	17,096	$	16,413	$	12,070

Goodwill

We completed our annual goodwill impairment test as of April 1, 2021 and no impairment was identified. We calculate the fair value of our reporting units by considering various factors, including valuation studies based primarily on a discounted cash flow analysis, with published industry valuations and market data as supporting information. Key assumptions in the determination of fair value include the use of an appropriate discount rate and estimated future cash flows. In estimating cash flows, we incorporate expected long-term growth rates in our service territory, regulatory stability, and commodity prices (where appropriate), as well as other factors that affect our revenue, expense and capital expenditure projections.

(2) Regulatory Matters

FERC Filing - Montana Transmission Service Rates

In May 2019, we submitted a filing with the Federal Energy Regulatory Commission (FERC) for our Montana transmission assets. In June 2019, the FERC issued an order accepting our filing, and granting interim rates (subject to refund) effective July 1, 2019. In November 2020, we filed a settlement and implemented settlement rates on December 1, 2020. In January 2021, the FERC approved our settlement and during the first quarter of 2021 we refunded approximately $20.5 million to our FERC regulated wholesale customers.

Revenues from FERC regulated wholesale customers associated with our Montana FERC assets are reflected in our Montana Public Service Commission (MPSC) jurisdictional rates as a credit to retail customers. In March 2021, we submitted a compliance filing with the MPSC adjusting the revenue credit in our Montana retail rates to reflect the FERC approved settlement rates and a refund to retail customers of the difference between the FERC interim rates and the FERC approved settlement rates that were collected during the period from July 1, 2019 through March 31, 2021. On May 19, 2021, the MPSC approved the proposed tariffs and rates on a final basis. During the three month period ended June 30, 2021, we recognized a $4.7 million favorable adjustment related to excess deferred revenues based on the final MPSC approval. As of June 30, 2021, we had cumulative deferred revenue of approximately $6.1 million.

Montana Community Renewable Energy Projects (CREPs)

We were required to acquire, as of December 31, 2020, approximately 65 MW of CREPs. While we have made progress towards meeting this obligation by acquiring approximately 50 MW of CREPs, we have been unable to acquire the remaining MWs required for various reasons, including the fact that proposed projects fail to qualify as CREPs or do not meet the statutory cost cap. The MPSC granted us waivers for 2012 through 2016. The validity of the MPSC’s action as it related to waivers granted for 2015 and 2016 has been challenged legally and we are waiting on a final decision from the Montana Supreme Court.

On May 14, 2021, the Montana Governor signed a bill that repealed the CREP requirement. We notified the Montana Supreme Court of the repeal as it considers the legal challenge concerning the MPSC's decision granting our waiver requests from full compliance for years 2015 and 2016. We also dismissed our pending application filed with the MPSC for a waiver from full compliance for years 2017 through 2020. If the Montana Supreme Court and/or MPSC determine that the repeal should not be applied retroactively and find that waivers should not be granted, we could be liable for penalties. However, we do not believe any such penalties would be material.

(3) Income Taxes

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

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


	Three Months Ended June 30,
	2021				2020
Income Before Income Taxes	$	38,602			$	20,776

Income tax calculated at federal statutory rate	8,107		21.0	%	4,363		21.0	%

Permanent or flow-through adjustments:
State income tax, net of federal provisions	222		0.6		5		0.0
Flow-through repairs deductions	(4,227)		(11.0)		(3,208)		(15.4)
Production tax credits	(2,262)		(5.9)		(1,737)		(8.5)

Plant and depreciation of flow-through items	(184)		(0.5)		59		0.3
Amortization of excess deferred income tax	(143)		(0.4)		(153)		(0.7)

Other, net	(148)		(0.4)		(47)		(0.2)
	(6,742)		(17.6)		(5,081)		(24.5)

Income tax expense (benefit)	$	1,365	3.4	%	$	(718)	(3.5)	%


	Six Months Ended June 30,
	2021				2020
Income Before Income Taxes	$	101,651			$	69,674

Income tax calculated at federal statutory rate	21,347		21.0	%	14,631		21.0	%

Permanent or flow through adjustments:
State income, net of federal provisions	277		0.3		27		0.1
Flow-through repairs deductions	(12,080)		(11.9)		(10,646)		(15.3)
Production tax credits	(6,569)		(6.5)		(5,348)		(7.7)
Plant and depreciation of flow through items	(524)		(0.5)		196		0.3
Amortization of excess deferred income tax	(408)		(0.4)		(509)		(0.7)

Share-based compensation	(261)		(0.3)		(609)		(0.9)

Other, net	(439)		(0.4)		(266)		(0.4)
	(20,004)		(19.7)		(17,155)		(24.6)

Income tax expense (benefit)	$	1,343	1.3	%	$	(2,524)	(3.6)	%

Uncertain Tax Positions

We recognize tax positions that meet the more-likely-than-not threshold as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. We had unrecognized tax benefits of approximately $32.6 million as of June 30, 2021, including approximately $27.9 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. As of June 30, 2021, we did not have any amounts accrued for the payment of interest and penalties.

Tax years 2017 and forward remain subject to examination by the Internal Revenue Service (IRS) and state taxing authorities. In addition, the available federal net operating loss carryforward may be reduced by the IRS for losses originating in certain tax years from 2003 forward.

(4) Comprehensive (Loss) Income

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


	Three Months Ended
	June 30, 2021						June 30, 2020
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount
Foreign currency translation adjustment	$	21	$	—	$	21	$	(8)	$	—	$	(8)
Reclassification of net income on derivative instruments	153		(40)		113		153		(40)		113
Postretirement medical liability adjustment	(212)		53		(159)		—		—		—
Other comprehensive (loss) income	$	(38)	$	13	$	(25)	$	145	$	(40)	$	105


	Six Months Ended
	June 30, 2021						June 30, 2020
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Expense		Net-of-Tax Amount
Foreign currency translation adjustment	$	(55)	$	—	$	(55)	$	93	$	—	$	93
Reclassification of net income on derivative instruments	306		(80)		226		306		(80)		226
Postretirement medical liability adjustment	(424)		107		(317)		—		—		—
Other comprehensive (loss) income	$	(173)	$	27	$	(146)	$	399	$	(80)	$	319

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


	June 30, 2021		December 31, 2020
Foreign currency translation	$	1,445	$	1,500
Derivative instruments designated as cash flow hedges	(10,503)		(10,729)
Postretirement medical plans	1,643		1,960
Accumulated other comprehensive loss	$	(7,415)	$	(7,269)

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


		Three Months Ended
		June 30, 2021
	Affected Line Item in the Condensed Consolidated Statements of Income	Interest Rate Derivative Instruments Designated as Cash Flow Hedges		Postretirement Medical Plans		Foreign Currency Translation		Total
Beginning balance		$	(10,616)	$	1,802	$	1,424	$	(7,390)
Other comprehensive income before reclassifications		—		—		21		21
Amounts reclassified from AOCL	Interest Expense	113		—		—		113
Amounts reclassified from AOCL		—		(159)		—		(159)
Net current-period other comprehensive income (loss)		113		(159)		21		(25)
Ending balance		$	(10,503)	$	1,643	$	1,445	$	(7,415)


		Three Months Ended
		June 30, 2020
	Affected Line Item in the Condensed Consolidated Statements of Income	Interest Rate Derivative Instruments Designated as Cash Flow Hedges		Postretirement Medical Plans		Foreign Currency Translation		Total
Beginning balance		$	(11,068)	$	120	$	1,514	$	(9,434)
Other comprehensive loss before reclassifications		—		—		(8)		(8)
Amounts reclassified from AOCL	Interest Expense	113		—		—		113
Net current-period other comprehensive income (loss)		113		—		(8)		105
Ending balance		$	(10,955)	$	120	$	1,506	$	(9,329)


		Six Months Ended
		June 30, 2021
	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		$	(10,729)	$	1,960	$	1,500	$	(7,269)
Other comprehensive loss before reclassifications		—		—		(55)		(55)
Amounts reclassified from AOCL	Interest Expense	226		—		—		226
Amounts reclassified from AOCL		—		(317)		—		(317)
Net current-period other comprehensive income (loss)		226		(317)		(55)		(146)
Ending balance		$	(10,503)	$	1,643	$	1,445	$	(7,415)


		Six Months Ended
		June 30, 2020
	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		$	(11,181)	$	120	$	1,413	$	(9,648)
Other comprehensive income before reclassifications		—		—		93		93
Amounts reclassified from AOCL	Interest Expense	226		—		—		226
Net current-period other comprehensive income		226		—		93		319
Ending balance		$	(10,955)	$	120	$	1,506	$	(9,329)

(5) Financing Activities

In March 2021, we issued and sold $100.0 million aggregate principal amount of Montana First Mortgage Bonds (the bonds) at a fixed interest rate of 1.00% maturing on March 26, 2024. The net proceeds were used to repay in full our outstanding $100.0 million term loan that was due April 2, 2021. We may redeem some or all of the bonds at any time in whole, or from time to time in part, at our option, on or after March 26, 2022, at a redemption price equal to 100% of the principal amount of the bonds to be redeemed, plus accrued and unpaid interest on the principal amount of the bonds being redeemed to, but excluding, the redemption date. The bonds are secured by our electric and natural gas assets in Montana and Wyoming.

In April 2021, we entered into an Equity Distribution Agreement with BofA Securities, Inc., CIBC World Markets Corp, Credit Suisse Securities (USA) LLC, 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 $200.0 million, through an At-the-Market (ATM) offering program, including an equity forward sales component. During the three months ended June 30, 2021, we issued 879,309 shares of our common stock under the ATM program at an average price of $64.91, for net proceeds of $56.3 million, which is net of sales commissions and other fees paid of approximately $0.8 million.

(6) Segment Information

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

We evaluate the performance of these segments based on 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
June 30, 2021	Electric		Gas		Other		Eliminations		Total
Operating revenues	$	241,440	$	56,777	$	—	$	—	$	298,217
Cost of sales	49,239		18,726		—		—		67,965
Gross margin	192,201		38,051		—		—		230,252
Operating, general and administrative	58,035		19,265		(187)		—		77,113
Property and other taxes	36,957		10,328		2		—		47,287
Depreciation and depletion	38,540		8,269		—		—		46,809
Operating income	58,669		189		185		—		59,043
Interest expense, net	(20,849)		(1,422)		(1,202)		—		(23,473)
Other income (expense), net	2,215		1,036		(219)		—		3,032
Income tax expense	(804)		(208)		(353)		—		(1,365)
Net income (loss)	$	39,231	$	(405)	$	(1,589)	$	—	$	37,237
Total assets	$	5,281,173	$	1,279,923	$	5,144	$	—	$	6,566,240
Capital expenditures	$	82,460	$	21,880	$	—	$	—	$	104,340


Three Months Ended
June 30, 2020	Electric		Gas		Other		Eliminations		Total
Operating revenues	$	217,938	$	51,422	$	—	$	—	$	269,360
Cost of sales	48,305		12,738		—		—		61,043
Gross margin	169,633		38,684		—		—		208,317
Operating, general and administrative	53,599		18,988		(872)		—		71,715
Property and other taxes	36,811		10,167		3		—		46,981
Depreciation and depletion	36,846		7,936		—		—		44,782
Operating income	42,377		1,593		869		—		44,839
Interest expense, net	(21,483)		(1,646)		(1,158)		—		(24,287)
Other income (expense), net	959		309		(1,044)		—		224
Income tax benefit (expense)	756		(337)		299		—		718
Net income (loss)	$	22,609	$	(81)	$	(1,034)	$	—	$	21,494
Total assets(1)	$	4,947,183	$	1,189,460	$	4,568	$	—	$	6,141,211
Capital expenditures	$	79,744	$	18,367	$	—	$	—	$	98,111


Six Months Ended
June 30, 2021	Electric		Gas		Other		Eliminations		Total
Operating revenues	$	511,511	$	187,509	$	—	$	—	$	699,020
Cost of sales	129,427		83,051		—		—		212,478
Gross margin	382,084		104,458		—		—		486,542
Operating, general and administrative	115,790		40,444		1,731		—		157,965
Property and other taxes	73,984		20,777		4		—		94,765
Depreciation and depletion	77,224		16,560		—		—		93,784
Operating income (loss)	115,086		26,677		(1,735)		—		140,028
Interest expense, net	(41,578)		(2,910)		(2,495)		—		(46,983)
Other income	5,044		2,019		1,543		—		8,606
Income tax (expense) benefit	(689)		(2,230)		1,576		—		(1,343)
Net income (loss)	$	77,863	$	23,556	$	(1,111)	$	—	$	100,308
Total assets	$	5,281,173	$	1,279,923	$	5,144	$	—	$	6,566,240
Capital expenditures	$	151,400	$	30,794	$	—	$	—	$	182,194


Six Months Ended
June 30, 2020	Electric		Gas		Other		Eliminations		Total
Operating revenues	$	462,563	$	142,052	$	—	$	—	$	604,615
Cost of sales	112,139		40,176		—		—		152,315
Gross margin	350,424		101,876		—		—		452,300
Operating, general and administrative	112,487		41,289		(3,056)		—		150,720
Property and other taxes	71,547		19,928		5		—		91,480
Depreciation and depletion	74,022		16,025		—		—		90,047
Operating income	92,368		24,634		3,051		—		120,053
Interest expense, net	(42,299)		(3,250)		(3,072)		—		(48,621)
Other (expense) income	1,572		404		(3,734)		—		(1,758)
Income tax (expense) benefit	1,412		(1,074)		2,186		—		2,524
Net income (loss)	$	53,053	$	20,714	$	(1,569)	$	—	$	72,198
Total assets(1)	$	4,947,183	$	1,189,460	$	4,568	$	—	$	6,141,211
Capital expenditures	$	143,092	$	33,390	$	—	$	—	$	176,482

___________________________

(1) Subsequent to the issuance of our Annual Report on Form 10-K for the year ended December 31, 2020, we determined that Total Assets - Electric and Total Assets - Gas had been incorrectly reported due to an error in the allocation methodology utilized to calculate assets by segment. As a result the June 30, 2020 Total Assets - Electric and Total Assets - Gas amounts have been corrected from the amounts previously reported to reflect an increase of Total Assets - Electric and a decrease of Total Assets - Gas of $457.8 million. The correction had no impact on net income or the presentation of total assets on the consolidated balance sheets and was determined not to be material.

(7) Revenue from Contracts with Customers

Nature of Goods and Services

We provide retail electric and natural gas services to three primary customer classes. Our residential customers include single private dwellings and individual apartments. Our commercial customers consist primarily of main street businesses, and our industrial customers consist primarily of manufacturing and processing businesses that turn raw materials into products.

Electric Segment - Our regulated electric utility business primarily provides generation, transmission, and distribution services to customers in our Montana and South Dakota jurisdictions. We recognize revenue when electricity is delivered to the customer. Payments on our tariff based sales are generally due 20-30 days after the billing date.

Natural Gas Segment - Our regulated natural gas utility business primarily provides production, storage, transmission, and distribution services to customers in our Montana, South Dakota, and Nebraska jurisdictions. We recognize revenue when natural gas is delivered to the customer. Payments on our tariff based sales are generally due 20-30 days after the billing date.

Disaggregation of Revenue

The following tables disaggregate our revenue by major source and customer class (in millions):


	Three Months Ended
	June 30, 2021						June 30, 2020
	Electric		Natural Gas		Total		Electric		Natural Gas		Total
Montana	$	69.9	$	25.5	$	95.4	$	70.6	$	17.5	$	88.1
South Dakota	14.4		6.4		20.8		14.6		4.7		19.3
Nebraska	—		3.9		3.9		—		3.5		3.5
Residential	84.3		35.8		120.1		85.2		25.7		110.9
Montana	84.6		13.0		97.6		77.4		8.2		85.6
South Dakota	24.1		4.3		28.4		23.2		2.9		26.1
Nebraska	—		1.8		1.8		—		1.5		1.5
Commercial	108.7		19.1		127.8		100.6		12.6		113.2
Industrial	9.2		0.2		9.4		9.2		0.1		9.3
Lighting, Governmental, Irrigation, and Interdepartmental	9.1		0.4		9.5		9.2		0.3		9.5
Total Customer Revenues	211.3		55.5		266.8		204.2		38.7		242.9
Other Tariff and Contract Based Revenues	25.4		9.1		34.5		14.3		8.6		22.9
Total Revenue from Contracts with Customers	236.7		64.6		301.3		218.5		47.3		265.8

Regulatory amortization and other	4.7		(7.8)		(3.1)		(0.6)		4.1		3.5
Total Revenues	$	241.4	$	56.8	$	298.2	$	217.9	$	51.4	$	269.3


	Six Months Ended
	June 30, 2021						June 30, 2020
	Electric		Natural Gas		Total		Electric		Natural Gas		Total
Montana	$	165.9	$	72.5	$	238.4	$	159.2	$	55.8	$	215.0
South Dakota	32.2		16.5		48.7		33.5		15.0		48.5
Nebraska	—		12.1		12.1		—		11.2		11.2
Residential	198.1		101.1		299.2		192.7		82.0		274.7
Montana	171.4		36.8		208.2		163.4		27.4		190.8
South Dakota	48.2		10.8		59.0		49.7		10.2		59.9
Nebraska	—		6.2		6.2		—		5.5		5.5
Commercial	219.6		53.8		273.4		213.1		43.1		256.2
Industrial	18.9		0.7		19.6		18.0		0.4		18.4
Lighting, Governmental, Irrigation, and Interdepartmental	13.7		0.9		14.6		14.5		0.6		15.1
Total Customer Revenues	450.3		156.5		606.8		438.3		126.1		564.4
Other Tariff and Contract Based Revenues	42.3		18.8		61.1		29.2		18.3		47.5
Total Revenue from Contracts with Customers	492.6		175.3		667.9		467.5		144.4		611.9

Regulatory amortization and other	18.9		12.2		31.1		(5.0)		(2.3)		(7.3)
Total Revenues	$	511.5	$	187.5	$	699.0	$	462.5	$	142.1	$	604.6

(8) Earnings Per Share

Basic earnings per share are computed by dividing earnings applicable to common stock by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of common stock equivalent shares that could occur if 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 restricted stock and performance share awards. Average shares used in computing the basic and diluted earnings per share are as follows:


	Three Months Ended
	June 30, 2021	June 30, 2020
Basic computation	50,989,182	50,569,725
Dilutive effect of:
Performance share awards(1)	132,138	69,280

Diluted computation	51,121,320	50,639,005


	Six Months Ended
	June 30, 2021	June 30, 2020
Basic computation	50,811,303	50,538,260
Dilutive effect of:
Performance share awards(1)	131,507	75,159

Diluted computation	50,942,810	50,613,419

_______________________

(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.

As of June 30, 2021, there were 23,924 shares from performance and restricted share awards which were antidilutive

and excluded from the earnings per share calculations.

(9) Employee Benefit Plans

We sponsor and/or contribute to pension and postretirement health care and life insurance benefit plans for eligible employees. Net periodic benefit cost (credit) for our pension and other postretirement plans consists of the following (in thousands):


	Pension Benefits				Other Postretirement Benefits
	Three Months Ended June 30,				Three Months Ended June 30,
	2021		2020		2021		2020
Components of Net Periodic Benefit Cost (Credit)
Service cost	$	3,286	$	2,712	$	104	$	93
Interest cost	4,814		5,694		84		137
Expected return on plan assets	(6,841)		(6,536)		(229)		(245)
Amortization of prior service credit	—		—		(459)		(470)
Recognized actuarial loss (gain)	2,261		1,234		(4)		(12)
Net periodic benefit cost (credit)	$	3,520	$	3,104	$	(504)	$	(497)


	Pension Benefits				Other Postretirement Benefits
	Six Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Components of Net Periodic Benefit Cost (Credit)
Service cost	$	6,549	$	5,558	$	203	$	185
Interest cost	9,410		11,420		159		246
Expected return on plan assets	(13,684)		(13,081)		(459)		(492)
Amortization of prior service cost (credit)	—		—		(918)		(941)
Recognized actuarial loss (gain)	3,489		2,514		(15)		(30)
Net periodic benefit cost (credit)	$	5,764	$	6,411	$	(1,030)	$	(1,032)

We contributed $4.5 million to our pension plans during the six months ended June 30, 2021. We expect to contribute an additional $6.7 million to our pension plans during the remainder of 2021.

(10) Commitments and Contingencies

ENVIRONMENTAL LIABILITIES AND REGULATION

Environmental Matters

The operation of electric generating, transmission and distribution facilities, and gas gathering, storage, transportation and distribution facilities, along with the development (involving site selection, environmental assessments, and permitting) and construction of these assets, are subject to extensive federal, state, and local environmental and land use laws and regulations. Our activities involve compliance with diverse laws and regulations that address emissions and impacts to the environment, including air and water, 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, our environmental reserve, which relates primarily to the remediation of former manufactured gas plant sites owned by us, is estimated to range between $25.5 million to $31.1 million. As of June 30, 2021, we had a reserve of approximately $27.8 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 available and 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 $21.6 million of our environmental reserve accrual is related to the following manufactured gas plants.

South Dakota - 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 June 30, 2021, the reserve for remediation costs at this site was approximately $8.0 million, and we estimate that approximately $2.9 million of this amount will be incurred during the next five years.

Nebraska - We 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.

Montana - 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. 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.

In August 2016, the MDEQ sent us a Notice of Potential Liability and Request for Remedial Action regarding the Helena site. In October 2019, we submitted a third revised Remedial Investigation Work Plan (RIWP) for the Helena site addressing MDEQ comments. The MDEQ approved the RIWP in March 2020 and we expect work at the Helena site to continue through 2021.

MDEQ has indicated it expects to proceed in listing the Missoula site as a Montana superfund site. After researching historical ownership we have identified another potentially responsible party with whom we have entered into an agreement allocating third-party costs to be incurred in addressing the site. The other party is assuming the lead role at the site and has expressed its intent to pursue a voluntary remediation at the Missoula 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 greenhouse gas (GHG) including, most significantly, carbon dioxide (CO2). These actions include legislative proposals, Executive and Environmental Protection Agency (EPA) actions at the federal level, actions at the state level, investor activism 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, Congress has not passed any federal climate change legislation regarding GHG emissions from coal fired plants, and we cannot predict the timing or form of any potential legislation. In 2019, the EPA finalized the Affordable Clean Energy Rule (ACE), which repealed the 2015 Clean Power Plan (CPP) in regulating GHG emissions from coal-fired plants. The U.S. Court of Appeals for the District of Columbia Circuit issued an opinion on January 19, 2021, vacating the ACE and remanding it to EPA for further action. It is widely expected that the Biden Administration will develop an alternative plan for reducing GHG emissions from coal-fired plants, and in a memorandum dated February 12, 2021, EPA stated its belief that the January 19, 2021 opinion left neither the ACE nor the CPP rules in place.

We cannot predict whether or how GHG emission regulations will be applied to our plants, including any actions taken by the relevant state authorities. In addition, it is unclear how pending or future litigation relating to GHG matters will impact us. As GHG regulations are implemented, it could result in additional compliance costs impacting 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 impact customers in our region.

Future additional environmental requirements 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.

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 (CAA) that could require the installation of emission control equipment at the generation plants in which we have joint ownership. Air emissions at our thermal generating plants are managed by the use of emissions and combustion controls and monitoring, and sulfur dioxide allowances. These measures are anticipated to be sufficient to permit the facilities to continue to meet current air emissions compliance requirements.

Regional Haze Rules - In January 2017, the EPA published amendments to the requirements under the CAA for state plans for protection of visibility - regional haze rules. 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.

By July 31, 2021, Montana must develop and submit to the EPA for approval a revised plan that demonstrates reasonable progress toward eliminating man-made emissions of visibility impairing pollutants, which could impact Colstrip Unit 4. In March 2017, we filed a Petition for Review of these amendments with the D.C. Circuit, which was consolidated with other petitions challenging the final rule. The D.C. Circuit has granted the EPA’s request to hold the case in abeyance while the EPA considers further administrative action to revisit the rule.

The North Dakota Department of Environmental Quality (ND DEQ) is expected to decide on statewide reduction strategy in 2021 which could impact the Coyote generating facility. Once the ND DEQ establishes a State Implementation Plan (SIP) for regional haze compliance, the SIP will be submitted for approval to the North Dakota Governor’s office and finally to EPA for approval. Following EPA’s approval, which is not expected to occur until the second half of 2021 or later, the joint owners of the Coyote generating facility will assess the requirements, if any, and determine whether to move forward with the installation of additional emissions controls. Additional controls, if any, to meet new emission restrictions would have to be in place by the end of 2028 under the current schedule.

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 or may be issued or proposed.

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

Pacific Northwest Solar Litigation

Pacific Northwest Solar, LLC (PNWS) is a solar QF developer seeking to construct small solar facilities in Montana. We began negotiating with PNWS in early 2016 to purchase the output from 21 of its proposed facilities pursuant to our standard QF-1 Tariff, which is applicable to projects no larger than 3 MWs.

On June 16, 2016, however, the MPSC suspended the availability of the QF-1 Tariff standard rates for that category of solar projects, which included the projects proposed by PNWS. The MPSC exempted from the suspension any projects for which a QF had both submitted a signed power purchase agreement and had executed an interconnection agreement with us by June 16, 2016. Although we had signed four power purchase agreements with PNWS as of that date, we had not entered into interconnection agreements with PNWS for any of those projects. As a result, none of the PNWS projects in Montana qualified for the exemption.

In November 2016, PNWS sued us in state court seeking unspecified damages for breach of contract and a judicial declaration that some or all of the 21 proposed power purchase agreements it had proposed to us were in effect despite the MPSC's Order. We removed the state lawsuit to the United States District Court for the District of Montana (Court).

PNWS also requested the MPSC to exempt its projects from the tariff suspension and allow those projects to receive the QF-1 tariff rate that had been in effect prior to the suspension. We joined in PNWS’s request for relief with respect to four of the projects, but the MPSC did not grant any of the relief requested by PNWS or us.

In August 2017, pursuant to a non-monetary, partial settlement with us, PNWS amended its original complaint to limit its claims for enforcement and/or damages to only four of the 21 power purchase agreements. As a result, the amount of damages sought by the plaintiff was reduced to approximately $8.0 million for the alleged breach of the four power purchase agreements. We participated in an unsuccessful mediation on January 24, 2019 and subsequent settlement efforts also have been unsuccessful. A jury trial was scheduled to begin on June 2, 2020, but the trial was postponed because of the court closure due to the COVID-19 pandemic and has not yet been rescheduled.

The parties recently agreed that the remaining liability issues can be decided by the court as a matter of law. The parties have submitted briefs addressing key liability issues in the case and expect the court to grant full or partial summary judgement in favor of either party, and then schedule a trial date for any remaining issues.

We dispute the remaining claims in PNWS’ lawsuit and will continue to vigorously defend against them. We cannot currently predict an outcome in this litigation. If the plaintiff prevails and obtains damages for a breach of contract, we may seek to recover those damages in rates from customers. We cannot predict the outcome of any such effort.

State of Montana - Riverbed Rents

On April 1, 2016, the State of Montana (State) filed a complaint on remand (the State’s Complaint) with the Montana First Judicial District Court (State District Court), naming us, along with Talen Montana, LLC (Talen) as defendants. The State claimed it owns the riverbeds underlying 10 of our, and formerly Talen’s, 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 include the Hebgen, Madison, Hauser, Holter, Black Eagle, Rainbow, Cochrane, Ryan, and Morony facilities on the Missouri and Madison Rivers and the Thompson Falls facility on the Clark Fork River. We acquired these facilities from Talen in November 2014.

The litigation has a long prior history. In 2012, the United States Supreme Court issued a decision holding that the Montana Supreme Court erred in not considering a segment-by-segment approach to determine navigability and relying on present day recreational use of the rivers. It also held that what it referred to as the Great Falls Reach “at least from the head of the first waterfall to the foot of the last” 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’s Complaint was filed with the State District Court. 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). The State filed a motion to remand. Following briefing and argument, on October 10, 2017, the Federal District Court entered an order denying the State’s motion.

Because the State’s Complaint included a claim that the State owned the riverbeds in the Great Falls Reach, on October 16, 2017, we and Talen renewed our earlier-filed motions seeking to dismiss the portion of the State’s Complaint concerning the Great Falls Reach in light of the United States Supreme Court’s decision. On August 1, 2018, the Federal District Court granted the motions to dismiss the State’s Complaint as it pertains to approximately 8.2 miles of riverbed from “the head of the Black Eagle Falls to the foot of the Great Falls.” In particular, the dismissal pertained to the Black Eagle Dam, Rainbow Dam and reservoir, Cochrane Dam and reservoir, and Ryan Dam and reservoir. While the dismissal of these four facilities may be subject to appeal, that appeal would not likely occur until after judgment in the case. On February 12, 2019, the Federal District Court granted our motion to join the United States as a defendant to the litigation. As a result, on October 31, 2019, the State filed and served an Amended Complaint including the United States as a defendant and removing claims of ownership for the hydroelectric facilities on the Great Falls Reach, except for the Morony and the Black Eagle Developments. We and Talen filed answers to the Amended Complaint on December 13, 2019, and the United States answered on February 5, 2020. On May 12, 2021, the Federal District Court reset the trial date on the issue of navigability to January 3, 2022. Damages were bifurcated by agreement and will be tried separately, should the Federal District Court find any segments navigable.

We dispute the State’s claims and intend to vigorously defend the lawsuit. At this time, we cannot predict an outcome. If the Federal District Court determines the riverbeds are navigable under the remaining six facilities that were not dismissed and if it calculates damages as the State District Court did in 2008, we estimate the annual rents could be approximately $3.8 million commencing when we acquired the facilities in November 2014. 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.

Colstrip Arbitration and Litigation

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 those units no later than July 2022. In January 2020, the owners of Units 1 and 2 closed those two units. We do not have ownership in Units 1 and 2, and decisions regarding those units, including their shut down, were made by their respective owners. The six owners of Units 3 and 4 currently share the operating costs pursuant to the terms of an operating agreement among them, the Ownership and Operation Agreement (O&O Agreement). Costs of common facilities were historically shared among the owners of all four units. With the closure of Units 1 and 2, we have incurred additional operating costs with respect to our interest in Unit 4 and expect to experience a negative impact on our transmission revenue due to reduced amounts of energy transmitted across our transmission lines. We expect to incorporate any reduction in revenue in our next general electric rate filing, resulting in lower revenue credits to certain customers.

The remaining depreciable life of our investment in Colstrip Unit 4 is through 2042. Recovery of costs associated with the closure of the facility is subject to MPSC approval. Three of the joint owners of Units 3 and 4 are subject to regulation in Washington and in May 2019, the Washington state legislature enacted a statute mandating Washington electric utilities to “eliminate coal-fired resources from [their] allocation of electricity” on or before December 31, 2025, after which date they may no longer include their share of coal-fired resources in their regulated electric supply portfolio. As a result of the Washington legislation, four of the six joint owners of Units 3 and 4 requested the operator prepare a 2021 budget reflecting closure of Units 3 and 4 by 2025, and alternately a closure of Unit 3 by 2025 and a closure of Unit 4 by 2027. Differing viewpoints on closure dates delayed approval of the 2021 budget, until it was approved on March 22, 2021. We anticipate the annual budgeting process for Units 3 and 4 may raise similar efforts to tie budgeting to a closure date, resulting in future budgets that may not be sufficient to maintain the reliability of Units 3 and 4.

While we believe closure requires each owner’s consent, there are differences among the owners as to this issue under the O&O Agreement. On March 12, 2021, we initiated an arbitration under the O&O Agreement (the “Arbitration”), which seeks to resolve the primary issue of whether closure of Units 3 and 4 can be accomplished without each joint owner's consent and to clarify the obligations of the joint owners to continue to fund operations until all joint owners agree on closure.

The Arbitration has given rise to three lawsuits concerning the number of arbitrators, the venue and the applicable arbitration laws. The four joint owners from the Pacific Northwest assert the Arbitration must be conducted under the O&O Agreement, with one arbitrator, in Spokane County, Washington, and pursuant to the Washington Arbitration Act. The fifth joint owner asserts the Arbitration must be conducted per the terms of Montana Senate Bill 265 (SB 265), which requires the Arbitration be conducted, with three arbitrators, in Montana and pursuant to the Montana Uniform Arbitration Act. The three initiated lawsuits do not make direct financial demands, and instead, are intended to address issues related to process for the Arbitration.

Since the Arbitration was initiated, and despite the litigation, we have worked and continue to work with the other joint owners to arrive at an agreed upon process for the Arbitration.

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

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 excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. We define Gross Margin as Operating Revenues less Cost of Sales as presented in our Condensed Consolidated Statements of Income. This measure differs from the GAAP definition of Gross Margin due to the exclusion of Depreciation and depletion expenses, which are presented separate from Cost of Sales in our Condensed Consolidated Statements of Income. The following discussion includes a reconciliation of Gross Margin to Operating Revenues, the most directly comparable GAAP measure.

Management believes that Gross Margin provides a useful measure for investors and other financial statement users to analyze our financial performance in that it excludes the effect on total revenues caused by volatility in energy costs and associated regulatory mechanisms. This information is intended to enhance an investor’s overall understanding of results. Under our various state regulatory mechanisms, as detailed below, our supply costs are generally collected from customers. In addition, Gross Margin is used by us to determine whether we are collecting the appropriate amount of energy costs from customers to allow for recovery of operating costs, as well as to analyze how changes in loads (due to weather, economic or other conditions), rates and other factors impact our results of operations. Our Gross Margin measure may not be comparable to that of other companies’ presentations or more useful than the GAAP information provided elsewhere in this report.

OVERVIEW

NorthWestern Corporation, doing business as NorthWestern Energy, provides electricity and/or natural gas to approximately 743,000 customers in Montana, South Dakota, Nebraska and Yellowstone National Park. 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, 2020.

We are working to deliver safe, reliable and innovative energy solutions that create value for customers, communities, employees and investors. This includes bridging our history as a regulated utility safely providing low-cost and reliable service with our future as a globally-aware company offering a broader array of services performed by highly-adaptable and skilled employees. We seek to deliver value to our customers by providing high reliability and customer service, and an environmentally sustainable generation mix at an affordable price. We are focused on delivering long-term shareholder value through:

•Infrastructure investment focused on a stronger and smarter grid to improve the customer experience, while enhancing grid reliability and safety. This includes automation in distribution and substations that enables the use of changing technology.

•Integrating supply resources that balance reliability, cost, capacity, and sustainability considerations with more predictable long-term commodity prices.

•Continually improving our operating efficiency. Financial discipline is essential to earning our authorized return on invested capital and maintaining a strong balance sheet, stable cash flows, and quality credit ratings.

We expect to pursue these investment opportunities and manage our business in a manner that allows us to be flexible in adjusting to changing economic conditions by adjusting the timing and scale of the projects.

As you read this discussion and analysis, refer to our Condensed Consolidated Statements of Income, which present the results of our operations for the three and six months ended June 30, 2021 and 2020.

HOW WE PERFORMED AGAINST OUR SECOND QUARTER 2020 RESULTS


	Three Months Ended June 30, 2021 vs. 2020
		Income Before Income Taxes		Income Tax (Expense) Benefit		Net Income
				(in millions)
Second Quarter 2020		$	20.8	$	0.7	$	21.5
Items increasing (decreasing) net income:
Higher Montana electric transmission revenue		9.1		(2.3)		6.8
Electric QF liability adjustment		6.1		(1.5)		4.6

Higher electric retail volumes		5.6		(1.4)		4.2

Higher operating, general, and administrative expenses impacting net income		(3.2)		0.7		(2.5)
Higher depreciation and depletion		(2.0)		0.5		(1.5)
Lower Montana electric supply cost recovery		(0.8)		0.2		(0.6)
Lower Montana natural gas volumes		(0.5)		0.2		(0.3)
Other		3.5		1.5		5.0
Second Quarter 2021		$	38.6	$	(1.4)	$	37.2
Change in Net Income						$	15.7

Consolidated net income for the three months ended June 30, 2021 was $37.2 million as compared with $21.5 million for the same period in 2020. This increase was primarily due to improved gross margin driven by higher Montana transmission loads and rates, a favorable electric QF liability adjustment as compared with the prior period, and warmer spring weather, partly offset by higher operating costs and income tax expense.

SIGNIFICANT TRENDS AND REGULATION

Electric Resource Planning - Montana

We are currently 630 MW short of our peak needs and we cover the shortfall through market purchases. Absent resource additions, we forecast that our portfolio will be 725 MW short by 2025, considering expiring contracts and a modest increase in customer demand. We issued an all-source competitive solicitation request in January 2020 for up to 280 MWs of peaking and flexible capacity to be available for commercial operation in late 2023 or early 2024 (the January 2020 request for proposal (RFP)). Further, we expect to issue additional all-source competitive solicitation requests during 2022.

Initial bids for the January 2020 RFP were received in July 2020. A third-party RFP Administrator evaluated the bids

with the following portfolio of projects selected:

•Laurel Generating Station - the construction of a 175 MW natural gas-fired generation plant near Laurel, Montana, at a cost of approximately $250 million, which we will own;

•Beartooth Battery - A 20-year agreement to purchase capacity and ancillary services produced from a 50 MW battery energy storage facility that will be constructed in Yellowstone County, Montana; and

•Powerex Transaction - a 5-year power purchase agreement for 100 MWs of capacity and energy products originating predominately from hydroelectric resources.

On May 19, 2021, we filed an application with the MPSC for approval to acquire the Laurel Generating Station and Beartooth Battery agreement as new capacity resources. These resources, together with the Powerex Transaction, will help address our identified capacity shortage. The Powerex Transaction, is not part of this application with the MPSC. On July 26, 2021, the MPSC concluded that the application met the minimum filing requirements and is adequate. This triggers the requirement that the MPSC issue an order within 270 days of receipt of an adequate application. The MPSC can grant itself an

additional 90 days if it determines that extraordinary circumstances require it. Assuming approval of the Laurel Generating Station project, the costs would be incremental to our current capital and financing projections.

Regulatory Update

We do not expect to make general rate case filings in any of our regulatory jurisdictions during 2021. We have recently filed several other regulatory filings, primarily in our Montana jurisdiction, including:

•An April 15, 2021 filing of a motion requesting to delay the implementation of our fixed cost recovery mechanism pilot in our Montana jurisdiction for another year until July 2022 or beyond, due to the continued uncertainties created by the COVID-19 pandemic. On June 29, 2021, the MPSC granted our motion and a written order is pending; and

•An April 21, 2021 filing requesting approval to increase the forecasted costs used to develop rates for the recovery of electric power costs through our Power Costs and Credits Adjustment Mechanism (PCCAM) by approximately $17 million, or potentially a greater increase to reflect current market prices and new capacity contracts. On June 29, 2021, the MPSC approved implementing our request for interim rates reflecting the $17 million increase, subject to refund.

February Cold Weather Event

The February 2021 prolonged cold spell resulted in record winter peak demand for electricity and natural gas. The broad reach of this event across the United States and other market factors resulted in an extreme price excursion for purchased power and natural gas. In our South Dakota and Nebraska service territories, natural gas costs for the month of February 2021 exceeded the total cost for all of 2020. Fuel and purchased power costs in these jurisdictions are recovered through fuel adjustment clauses. We’ve incorporated the liquidity impacts into our overall 2021 financing plans.

The Nebraska Public Service Commission (NPSC) opened a docket on March 2, 2021 to investigate the effect of this cold weather event on natural gas supply. In this docket, we proposed recovery of our costs for February 13, 2021 to February 18, 2021 over a two-year period, which was subsequently approved by the NPSC on May 11, 2021, and a regulatory asset of approximately $26 million was recorded for these costs, with a remaining balance of $26.0 million as of June 30, 2021.

The South Dakota Public Utilities Commission issued an order allowing recovery of natural gas costs for the same time period over a one-year period, effective March 2, 2021. A regulatory asset of approximately $22.0 million was recorded for these costs, with a remaining balance of $17.5 million as of June 30, 2021.

COVID-19 Pandemic

The COVID-19 pandemic has had widespread impacts on people, economies, businesses and financial markets. Beginning in March 2020, the pandemic and resulting economic conditions began impacting our business operations and financial results. Our 2020 financial results were impacted by lower sales volumes, an increase in reserves for uncollectible accounts and an increase in interest expense, partly offset by lower operating, general and administrative expenses. We have experienced improving conditions in our service territories during 2021, which has positively impacted our business as compared to 2020. The ultimate impact of the pandemic on our financial results for 2021 and beyond depends on the evolving landscape of the pandemic and the public health responses to contain it, as well as the substance and pace of the macroeconomic recovery. If health conditions deteriorate or the economic recovery stalls, it could have the result of lower demand for electricity and natural gas, as well as reduced ability of various customers, contractors, suppliers and other business partners to fulfill their obligations. These impacts could have a material adverse effect on our results of operations, financial condition and prospects.

Financing Activity

We anticipate financing our ongoing maintenance and capital programs with a combination of cash flows from operations,

first mortgage bonds and equity issuances.

In March 2021, we issued and sold $100.0 million aggregate principal amount of Montana First Mortgage Bonds at a fixed interest rate of 1.00% maturing on March 26, 2024. The net proceeds were used to repay in full our outstanding $100.0 million one-year term loan that was due April 2, 2021.

response to our Montana electric supply resource planning would be incremental to these amounts. Financing plans are subject to change, depending on capital expenditures, regulatory outcomes, internal cash generation, market conditions and other factors.

RESULTS OF OPERATIONS

Our consolidated results include the results of our divisions and subsidiaries constituting each of our business segments. The overall consolidated discussion is followed by a detailed discussion of gross margin by segment.

Factors Affecting Results of Operations

Our revenues may fluctuate substantially 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.

Revenues are also 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.

OVERALL CONSOLIDATED RESULTS

Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020

Consolidated operating revenues for the three months ended June 30, 2021 were $298.2 million as compared with $269.3 million for the same period in 2020. Consolidated gross margin for the three months ended June 30, 2021 was $230.3 million as compared with $208.3 million for the same period in 2020, an increase of $22.0 million.


	Electric				Natural Gas				Total
	2021		2020		2021		2020		2021		2020
	(dollars in millions)
Reconciliation of operating revenue to gross margin:
Operating Revenues	$	241.4	$	217.9	$	56.8	$	51.4	$	298.2	$	269.3
Cost of Sales	49.2		48.3		18.7		12.7		67.9		61.0

Gross Margin(1)	$	192.2	$	169.6	$	38.1	$	38.7	$	230.3	$	208.3

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.


	Three Months Ended June 30,
	2021		2020		Change		% Change
	(dollars in millions)
Gross Margin
Electric	$	192.2	$	169.6	$	22.6	13.3	%
Natural Gas	38.1		38.7		(0.6)		(1.6)

Total Gross Margin(1)	$	230.3	$	208.3	$	22.0	10.6	%

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.

Primary components of the change in gross margin include the following (in millions):


	Gross Margin 2021 vs. 2020
Gross Margin Items Impacting Net Income
Electric transmission	$	9.1
Electric QF liability adjustment	6.1
Electric retail volumes	5.6
Montana electric supply cost recovery	(0.8)
Natural gas retail volumes	(0.5)
Montana natural gas production rates	(0.2)
Other	0.9
Change in Gross Margin Impacting Net Income	20.2
Gross Margin Items Offset Within Net Income
Operating expenses recovered in revenue, offset in operating expense	0.8
Production tax credits reducing revenue, offset in income tax benefit	0.5
Property taxes recovered in revenue, offset in property tax expense	0.3
Gas production taxes recovered in revenue, offset in property and other taxes	0.2
Change in Gross Margin Items Offset Within Net Income	1.8
Increase in Consolidated Gross Margin(1)	$	22.0

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.

Consolidated gross margin increased $22.0 million, including a $20.2 million increase from items impacting net income and a $1.8 million increase from items offset within net income.

The change in consolidated gross margin for items impacting net income includes the following:

•Higher Montana transmission rates, the recognition of approximately $4.7 million of deferred interim revenues, and higher demand to transmit energy across our transmission lines due to market conditions and pricing;

•A favorable adjustment of our electric QF liability (unrecoverable costs associated with the Public Utility Regulatory Policies Act of 1978 (PURPA) contracts as part of a 2002 stipulation with the MPSC and other parties) reflecting a $9.2 million gain in 2021, as compared with a $3.1 million gain for the same period in 2020, due to the combination of:

•A $2.6 million favorable reduction in costs for the current contract year to record the annual adjustment for actual output and pricing as compared with a $0.9 million favorable reduction in costs in the prior period;

•A negative adjustment, increasing the QF liability by $2.1 million, reflecting annual actual contract price escalation, which was more than previously estimated, compared to a favorable adjustment of $2.2 million in the prior year due to lower actual price escalation; and

•A favorable adjustment of approximately $8.7 million decreasing the QF liability due to a one-time clarification in contract term.

•An increase in electric retail revenue due to warmer spring weather, overall customer growth, and increased commercial volume as compared to the prior year. Residential retail volumes remained flat with warmer spring weather offset by lower usage than in the prior period;

•Higher Montana electric supply costs as compared with the prior period;

•A decrease in gas volumes due to warmer weather, partly offset by customer growth; and

•A reduction of rates from the step down of our Montana gas production assets.


	Three Months Ended June 30,
	2021		2020		Change		% Change
	(dollars in millions)
Operating Expenses (excluding cost of sales)
Operating, general and administrative	$	77.1	$	71.7	$	5.4	7.5	%
Property and other taxes	47.3		47.0		0.3		0.6
Depreciation and depletion	46.8		44.8		2.0		4.5
	$	171.2	$	163.5	$	7.7	4.7	%

Consolidated operating, general and administrative expenses were $77.1 million for the three months ended June 30, 2021, as compared with $71.7 million for the three months ended June 30, 2020. Primary components of the change include the following (in millions):


	Operating, General & Administrative Expenses
	2021 vs. 2020
Operating, General & Administrative Expenses Impacting Net Income
Generation maintenance	$	2.0
Employee benefits	1.0
Technology implementation and maintenance	0.9
Labor	0.3
Travel and training	0.2
Uncollectible accounts	(2.8)
Other	1.6
Change in Items Impacting Net Income	3.2

Operating, General & Administrative Expenses Offset Within Net Income
Non-employee directors deferred compensation, offset in other income	0.8
Operating expenses recovered in trackers, offset in revenue	0.8
Pension and other postretirement benefits, offset in other income	0.6
Change in Operating, General & Administrative Expense Items Offset Within Net Income	2.2
Increase in Operating, General & Administrative Expenses	$	5.4

Consolidated operating, general and administrative expenses increased $5.4 million, including a $3.2 million increase from items impacting net income and a $2.2 million increase from items offset within net income.

The change in consolidated operating, general and administrative expenses for items impacting net income includes the following:

•Higher maintenance costs at our electric generation facilities;

•Higher employee benefit costs primarily due to an increase in medical benefits;

•Higher technology implementation and maintenance costs;

•Higher labor costs due primarily to compensation increases, partly offset by more time being spent by employees on capital projects than maintenance projects (which are expensed);

•Higher travel and training costs; and

•Decreased uncollectible accounts due to collections of previously written off amounts in the current period. In the second quarter of 2020, we voluntarily suspended service disconnections for non-payment, to help customers who may be financially impacted by the COVID-19 pandemic.

Property and other taxes were $47.3 million for the three months ended June 30, 2021, as compared with $47.0 million in the same period of 2020. This increase was due primarily to an increase in Montana state and local taxes. We estimate property taxes throughout each year, and update those estimates based on valuation reports received from the Montana Department of

Revenue. Under Montana law, we are allowed to track the increases in the actual level of state and local taxes and fees and adjust our rates to recover the increase between rate cases less the amount allocated to FERC-jurisdictional customers and net of the associated income tax benefit.

Depreciation and depletion expense was $46.8 million for the three months ended June 30, 2021, as compared with $44.8 million in the same period of 2020. This increase was primarily due to plant additions.

Consolidated operating income for the three months ended June 30, 2021 was $59.0 million as compared with $44.8 million in the same period of 2020. This increase was primarily due to improved gross margin driven by higher Montana transmission loads and rates, a favorable electric QF liability adjustment as compared with the prior period, and warmer spring weather, offset in part by higher operating expenses.

Consolidated interest expense was $23.5 million for the three months ended June 30, 2021 as compared with $24.3 million for the same period of 2020. This decrease was primarily due to higher capitalization of Allowance for Funds Used During Construction (AFUDC), partly offset by higher borrowings.

Consolidated other income was $3.0 million for the three months ended June 30, 2021 as compared to $0.2 million during the same period of 2020. This increase includes approximately $1.4 million related to items offset in operating, general and administrative expense with no impact to net income, and higher capitalization of AFUDC. Items offset in operating, general and administrative expense includes approximately $0.8 million increase in the value of deferred shares held in trust for non-employee directors deferred compensation and a decrease in other pension expense of $0.6 million.

Consolidated income tax expense for the three months ended June 30, 2021 was $1.4 million as compared to an income tax benefit of $0.7 million in the same period of 2020. Our effective tax rate for the three months ended June 30, 2021 was 3.4% as compared with (3.5)% for the same period in 2020. We expect our effective tax rate to range between (2.5)% to 2.5% in 2021.

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


	Three Months Ended June 30,
	2021				2020
Income Before Income Taxes	$	38.6			$	20.8

Income tax calculated at federal statutory rate	8.1		21.0	%	4.4		21.0	%

Permanent or flow-through adjustments:
State income tax, net of federal provisions	0.2		0.6		0.0		0.0
Flow-through repairs deductions	(4.2)		(11.0)		(3.2)		(15.4)
Production tax credits	(2.3)		(5.9)		(1.8)		(8.5)


Plant and depreciation of flow-through items	(0.2)		(0.5)		0.1		0.3
Amortization of excess deferred income tax	(0.1)		(0.4)		(0.2)		(0.7)
Other, net	(0.1)		(0.4)		0.0		(0.2)
	(6.7)		(17.6)		(5.1)		(24.5)

Income tax expense (benefit)	$	1.4	3.4	%	$	(0.7)	(3.5)	%

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020

Consolidated net income for the six months ended June 30, 2021 was $100.3 million as compared with $72.2 million for the same period in 2020. This increase was primarily due to improved gross margin driven by higher Montana transmission loads and rates, a favorable electric QF liability adjustment as compared with the prior period, favorable weather, and higher commercial demand as compared to the prior year due to the COVID-19 pandemic related shutdowns, partly offset by higher Montana electric supply costs, depreciation expense, and income tax expense.

Consolidated operating revenues for the six months ended June 30, 2021 were $699.0 million as compared with $604.6 million for the same period in 2020. Consolidated gross margin for the six months ended June 30, 2021 was $486.5 million as compared with $452.3 million for the same period in 2020, an increase of $34.2 million.


	Electric				Natural Gas				Total
	2021		2020		2021		2020		2021		2020
	(dollars in millions)
Reconciliation of operating revenue to gross margin:
Operating Revenues	$	511.5	$	462.5	$	187.5	$	142.1	$	699.0	$	604.6
Cost of Sales	129.4		112.1		83.1		40.2		212.5		152.3

Gross Margin(1)	$	382.1	$	350.4	$	104.4	$	101.9	$	486.5	$	452.3

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.


	Six Months Ended June 30,
	2021		2020		Change		% Change
	(dollars in millions)
Gross Margin
Electric	$	382.1	$	350.4	$	31.7	9.0	%
Natural Gas	104.4		101.9		2.5		2.5

Total Gross Margin(1)	$	486.5	$	452.3	$	34.2	7.6	%

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.

Primary components of the change in gross margin include the following (in millions):


	Gross Margin 2021 vs. 2020
Gross Margin Items Impacting Net Income
Electric transmission	$	11.2
Electric retail volumes	9.7
Electric QF liability adjustment	6.1
Natural gas retail volumes	2.3
Montana electric supply cost recovery	(2.2)
Montana natural gas production rates	(0.7)
Other	3.7
Change in Gross Margin Impacting Net Income	30.1
Gross Margin Items Offset Within Net Income
Property taxes recovered in revenue, offset in property tax expense	2.3
Production tax credits reducing revenue, offset in income tax benefit	1.6
Gas production taxes recovered in revenue, offset in property and other taxes	0.2

Change in Gross Margin Items Offset Within Net Income	4.1
Increase in Consolidated Gross Margin(1)	$	34.2

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.

Consolidated gross margin increased $34.2 million, including a $30.1 million increase from items impacting net income and a $4.1 million increase from items offset within net income.

The change in consolidated gross margin for items impacting net income includes the following:

•An increase in electric retail revenue driven by colder winter weather in Montana, warmer spring weather in both Montana and South Dakota jurisdictions, customer growth, and increased commercial volume in the current period as compared to the COVID-19 pandemic related shutdowns in the prior year, partly offset by warmer winter weather in South Dakota;

•A more favorable adjustment of our electric QF liability (unrecoverable costs associated with PURPA contracts as part of a 2002 stipulation with the MPSC and other parties) reflecting a $9.2 million gain in 2021, as compared with a $3.1 million gain for the same period in 2020, due to the combination of:

•A favorable adjustment of approximately $8.7 million decreasing the QF liability due to a one-time clarification in contract term.

•An increase in gas retail volumes due to colder winter weather in our Montana and Nebraska jurisdictions and customer growth, partly offset by warmer winter weather in our South Dakota jurisdiction and warmer spring weather in all jurisdictions;

•Higher Montana electric supply costs as compared with the prior period; and

•A reduction of rates from the step down of our Montana gas production assets.


	Six Months Ended June 30,
	2021		2020		Change		% Change
	(dollars in millions)
Operating Expenses (excluding cost of sales)
Operating, general and administrative	$	158.0	$	150.7	$	7.3	4.8	%
Property and other taxes	94.8		91.5		3.3		3.6
Depreciation and depletion	93.8		90.0		3.8		4.2
	$	346.6	$	332.2	$	14.4	4.3	%

Consolidated operating, general and administrative expenses were $158.0 million for the six months ended June 30, 2021, as compared with $150.7 million for the six months ended June 30, 2020. Primary components of the change include the following (in millions):


	Operating, General & Administrative Expenses
	2021 vs. 2020
Operating, General & Administrative Expenses Impacting Net Income
Generation maintenance	$	1.7
Employee benefits	1.4
Technology implementation and maintenance	0.6
Uncollectible accounts	(4.4)
Travel and training	(0.4)
Other	0.7
Change in Items Impacting Net Income	(0.4)

Operating, General & Administrative Expenses Offset Within Net Income
Non-employee directors deferred compensation, offset in other income	5.3
Pension and other postretirement benefits, offset in other income	2.4

Change in Operating, General & Administrative Expense Items Offset Within Net Income	7.7
Increase in Operating, General & Administrative Expenses	$	7.3

Consolidated operating, general and administrative expenses increased $7.3 million, including a $0.4 million decrease from items impacting net income and a $7.7 million increase from items offset within net income.

The change in consolidated operating, general and administrative expenses for items impacting net income includes the following:

•Higher maintenance costs at our electric generation facilities;

•Higher employee benefit costs primarily due to an increase in medical benefits;

•Higher technology implementation and maintenance costs;

•A reduction in travel and training costs due to the impacts of the COVID-19 pandemic.

Property and other taxes were $94.8 million for the six months ended June 30, 2021, as compared with $91.5 million in the same period of 2020. This increase was due primarily to an increase in Montana state and local taxes. We estimate property taxes throughout each year, and update those estimates based on valuation reports received from the Montana Department of Revenue. Under Montana law, we are allowed to track the increases in the actual level of state and local taxes and fees and adjust our rates to recover the increase between rate cases less the amount allocated to FERC-jurisdictional customers and net of the associated income tax benefit.

Depreciation and depletion expense was $93.8 million for the six months ended June 30, 2021, as compared with $90.0 million in the same period of 2020. This increase was primarily due to plant additions.

Consolidated operating income for the six months ended June 30, 2021 was $140.0 million as compared with $120.1 million in the same period of 2020. This increase was primarily due to improved gross margin driven by higher Montana transmission loads and rates, a favorable electric QF liability adjustment as compared with the prior period, and favorable weather, partly offset by higher operating costs.

Consolidated interest expense was $47.0 million for the six months ended June 30, 2021 as compared with $48.6 million for the same period of 2020. This decrease was primarily due to higher capitalization of AFUDC, partly offset by higher borrowings.

Consolidated other income was $8.6 million for the six months ended June 30, 2021 as compared to consolidated other expense of $1.8 million during the same period of 2020. This increase includes approximately $7.7 million related to items offset in operating, general and administrative expense with no impact to net income and higher capitalization of AFUDC. Items offset in operating, general and administrative expense includes a $5.3 million increase in the value of deferred shares held in trust for non-employee directors deferred compensation and a decrease in other pension expense of $2.4 million.

Consolidated income tax expense for the six months ended June 30, 2021 was $1.3 million as compared to an income tax benefit of $2.5 million in the same period of 2020. Our effective tax rate for the six months ended June 30, 2021 was 1.3% as compared with (3.6)% for the same period in 2020. We expect our effective tax rate to range between (2.5)% to 2.5% in 2021.

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


	Six Months Ended June 30,
	2021				2020
Income Before Income Taxes	$	101.7			$	69.7

Income tax calculated at federal statutory rate	21.3		21.0	%	14.6		21.0	%

Permanent or flow-through adjustments:
State income tax, net of federal provisions	0.3		0.3		0.0		0.1
Flow-through repairs deductions	(12.1)		(11.9)		(10.6)		(15.3)
Production tax credits	(6.6)		(6.5)		(5.3)		(7.7)
Plant and depreciation of flow-through items	(0.5)		(0.5)		0.2		0.3

Amortization of excess deferred income tax	(0.4)		(0.4)		(0.5)		(0.7)
Share-based compensation	(0.3)		(0.3)		(0.6)		(0.9)
Other, net	(0.4)		(0.4)		(0.3)		(0.4)
	(20.0)		(19.7)		(17.1)		(24.6)

Income tax expense (benefit)	$	1.3	1.3	%	$	(2.5)	(3.6)	%

ELECTRIC SEGMENT

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

•Retail: Sales of electricity to residential, commercial and industrial customers, and the impact of regulatory

mechanisms.

•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, which is also reflected in

cost of sales and therefore has minimal impact on gross margin. The amortization of these amounts are offset in retail

revenue.

•Transmission: Reflects transmission revenues regulated by the FERC.

•Wholesale and other are largely gross margin neutral as they are offset by changes in cost of sales.

Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020


	Revenues				Change				Megawatt Hours (MWH)		Avg. Customer Counts
	2021		2020		$		%		2021	2020	2021	2020
	(in thousands)
Montana	$	69,884	$	70,589	$	(705)	(1.0)	%	575	577	311,264	306,797
South Dakota	14,401		14,597		(196)		(1.3)		119	123	50,734	50,660
Residential	84,285		85,186		(901)		(1.1)		694	700	361,998	357,457
Montana	84,555		77,426		7,129		9.2		762	684	71,400	69,837
South Dakota	24,053		23,190		863		3.7		252	243	12,805	12,830
Commercial	108,608		100,616		7,992		7.9		1,014	927	84,205	82,667
Industrial	9,224		9,192		32		0.3		618	730	77	78
Other	9,118		9,242		(124)		(1.3)		49	50	6,373	6,403
Total Retail Electric	$	211,235	$	204,236	$	6,999	3.4	%	2,375	2,407	452,653	446,605
Regulatory amortization	5,201		(116)		5,317		(4583.6)
Transmission	23,862		12,895		10,967		85.0
Wholesale and Other	1,142		923		219		23.7
Total Revenues	$	241,440	$	217,938	$	23,502	10.8	%
Total Cost of Sales	49,239		48,305		934		1.9
Gross Margin(1)	$	192,201	$	169,633	$	22,568	13.3	%

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.


	Cooling Degree Days			2021 as compared with:
	2021	2020	Historic Average	2020	Historic Average
Montana	139	55	55	153% warmer	153% warmer
South Dakota	148	89	61	66% warmer	143% warmer
	Heating Degree Days			2021 as compared with:
	2021	2020	Historic Average	2020	Historic Average
Montana	1,167	1,227	1,164	5% warmer	remained flat
South Dakota	1,365	1,464	1,487	7% warmer	8% warmer

The following summarizes the components of the changes in electric gross margin for the three months ended June 30, 2021 and 2020 (in millions):


	Gross Margin 2021 vs. 2020
Gross Margin Items Impacting Net Income
Transmission	$	9.1
Electric QF liability adjustment	6.1
Retail volumes	5.6
Montana electric supply cost recovery	(0.8)
Other	0.8
Change in Gross Margin Impacting Net Income	20.8

Gross Margin Items Offset Within Net Income
Operating expenses recovered in revenue, offset in operating expense	1.1
Production tax credits reducing revenue, offset in income tax benefit	0.5
Property taxes recovered in revenue, offset in property tax expense	0.2
Change in Gross Margin Items Offset Within Net Income	1.8
Increase in Gross Margin(1)	$	22.6

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.

Gross margin increased $22.6 million, including a $20.8 million increase from items impacting net income and a $1.8 million increase from items offset within net income.

The change in gross margin for items impacting net income includes the following:

•A favorable adjustment of approximately $8.7 million decreasing the QF liability due to a one-time clarification in contract term.

•Higher Montana electric supply costs as compared with the prior period.

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, which has a minimal impact on gross margin. In addition, while heating and cooling degree days may fluctuate significantly during the second quarter, our electric customer usage is not highly sensitive to these changes between the heating and cooling seasons. Our wholesale and other revenues are largely gross margin neutral as they are offset by changes in cost of sales. Our wholesale and other revenues are largely gross margin neutral as they are offset by changes in cost of sales.

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020


	Revenues				Change				Megawatt Hours (MWH)		Avg. Customer Counts
	2021		2020		$		%		2021	2020	2021	2020
	(in thousands)
Montana	$	165,903	$	159,228	$	6,675	4.2	%	1,375	1,310	310,750	306,384
South Dakota	32,150		33,515		(1,365)		(4.1)		295	303	50,770	50,651
Residential	198,053		192,743		5,310		2.8		1,670	1,613	361,520	357,035
Montana	171,396		163,432		7,964		4.9		1,551	1,476	71,273	69,764
South Dakota	48,171		49,685		(1,514)		(3.0)		530	534	12,763	12,782
Commercial	219,567		213,117		6,450		3.0		2,081	2,010	84,036	82,546
Industrial	18,939		17,951		988		5.5		1,231	1,405	77	78
Other	13,710		14,490		(780)		(5.4)		66	71	5,561	5,604
Total Retail Electric	$	450,269	$	438,301	$	11,968	2.7	%	5,048	5,099	451,194	445,263
Regulatory amortization	19,991		(3,749)		23,740		(633.2)
Transmission	38,591		25,504		13,087		51.3
Wholesale and Other	2,660		2,507		153		6.1
Total Revenues	$	511,511	$	462,563	$	48,948	10.6	%
Total Cost of Sales	129,427		112,139		17,288		15.4
Gross Margin(1)	$	382,084	$	350,424	$	31,660	9.0	%

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.


	Cooling Degree Days			2020 as compared with:
	2021	2020	Historic Average	2020	Historic Average
Montana	139	55	55	153% warmer	153% warmer
South Dakota	148	89	61	66% warmer	143% warmer
	Heating Degree Days			2021 as compared with:
	2021	2020	Historic Average	2020	Historic Average
Montana	4,429	4,355	4,457	2% cooler	1% warmer
South Dakota	5,165	5,493	5,561	6% warmer	7% warmer

The following summarizes the components of the changes in electric gross margin for the six months ended June 30, 2021 and 2020 (in millions):


	Gross Margin 2021 vs. 2020
Gross Margin Items Impacting Net Income
Transmission	$	11.2
Retail volumes	9.7
Electric QF liability adjustment	6.1
Montana electric supply cost recovery	(2.2)
Other	3.2
Change in Gross Margin Impacting Net Income	28.0

Gross Margin Items Offset Within Net Income
Property taxes recovered in revenue, offset in property tax expense	1.8
Production tax credits reducing revenue, offset in income tax benefit	1.6
Operating expenses recovered in revenue, offset in operating expense	0.3
Change in Gross Margin Items Offset Within Net Income	3.7
Increase in Gross Margin(1)	$	31.7

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.

Gross margin increased $31.7 million, including a $28.0 million increase from items impacting net income and a $3.7 million increase from items offset within net income.

The change in gross margin for items impacting net income includes the following:

•Higher Montana transmission rates, the recognition of approximately$4.7 million of deferred interim revenues, and higher demand to transmit energy across our transmission lines due to market conditions and pricing;

•An increase in electric retail revenue driven by colder winter weather in Montana, warmer spring weather in both Montana and South Dakota, customer growth, and increased commercial volume as compared to the prior year due to the COVID-19 pandemic related shutdowns, partly offset by warmer winter weather in South Dakota;

•A favorable adjustment of approximately $8.7 million decreasing the QF liability due to a one-time clarification in contract term.

•Higher Montana electric supply costs as compared with the prior period.

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, 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, and the impact of regulatory

mechanisms.

•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. The amortization of these amounts are

offset in retail revenue.

•Wholesale: Primarily represents transportation and storage for others.

Three Months Ended June 30, 2021 Compared with the Three Months Ended June 30, 2020


	Revenues				Change				Dekatherms (Dkt)		Avg. Customer Counts
	2021		2020		$		%		2021	2020	2021	2020
	(in thousands)
Montana	$	25,503	$	17,483	8,020		45.9	%	2,188	2,344	179,454	177,089
South Dakota	6,372		4,724		1,648		34.9		572	612	40,962	40,501
Nebraska	3,914		3,522		392		11.1		494	533	37,540	37,537
Residential	35,789		25,729		10,060		39.1		3,254	3,489	257,956	255,127
Montana	13,000		8,236		4,764		57.8		1,181	1,140	24,903	24,489
South Dakota	4,257		2,888		1,369		47.4		536	598	6,874	6,886
Nebraska	1,878		1,539		339		22.0		343	362	4,956	4,975
Commercial	19,135		12,663		6,472		51.1		2,060	2,100	36,733	36,350
Industrial	168		111		57		51.4		14	16	229	231
Other	355		177		178		100.6		42	30	163	152
Total Retail Gas	$	55,447	$	38,680	$	16,767	43.3	%	5,370	5,635	295,081	291,860
Regulatory amortization	(7,831)		4,048		(11,879)		(293.5)
Wholesale and other	9,161		8,694		467		5.4
Total Revenues	$	56,777	$	51,422	$	5,355	10.4	%
Total Cost of Sales	18,726		12,738		5,988		47.0
Gross Margin(1)	$	38,051	$	38,684	$	(633)	(1.6)	%

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.


	Heating Degree Days			2021 as compared with:
	2021	2020	Historic Average	2020	Historic Average
Montana	1,205	1,265	1,207	5% warmer	remained flat
South Dakota	1,365	1,464	1,487	7% warmer	8% warmer
Nebraska	1,069	1,136	1,216	6% warmer	12% warmer

The following summarizes the components of the changes in natural gas gross margin for the three months ended June 30, 2021 and 2020:


	Gross Margin 2021 vs. 2020
	(in millions)
Gross Margin Items Impacting Net Income
Retail volumes	$	(0.5)
Montana natural gas production rates	(0.2)
Other	0.1
Change in Gross Margin Impacting Net Income	(0.6)

Gross Margin Items Offset Within Net Income
Operating expenses recovered in trackers	(0.3)
Gas production taxes	0.2
Property tax revenue, offset in property tax expense	0.1
Change in Gross Margin Items Offset Within Net Income	—
Decrease in Gross Margin(1)	$	(0.6)

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.

Gross margin decreased $0.6 million, including a $0.6 million decrease for items impacting net income. The items offset within net income offset one another for no impact to gross margin.

The change in gross margin for items impacting net income includes the following:

•A decrease in gas volumes due to warmer spring weather, partly offset by customer growth; and

•A reduction of rates from the step down of our Montana gas production assets.

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

Six Months Ended June 30, 2021 Compared with the Six Months Ended June 30, 2020


	Revenues				Change				Dekatherms (Dkt)		Avg. Customer Counts
	2021		2020		$		%		2021	2020	2021	2020
	(in thousands)
Montana	$	72,514	$	55,778	16,736		30.0	%	8,274	7,980	179,226	176,847
South Dakota	16,475		14,995		1,480		9.9		2,142	2,196	41,050	40,544
Nebraska	12,155		11,209		946		8.4		1,843	1,828	37,638	37,580
Residential	101,144		81,982		19,162		23.4		12,259	12,004	257,914	254,971
Montana	36,780		27,390		9,390		34.3		4,374	4,062	24,877	24,477
South Dakota	10,781		10,183		598		5.9		1,881	2,191	6,887	6,902
Nebraska	6,279		5,600		679		12.1		1,253	1,250	4,969	4,988
Commercial	53,840		43,173		10,667		24.7		7,508	7,503	36,733	36,367
Industrial	650		451		199		44.1		80	70	230	232
Other	844		520		324		62.3		118	93	161	152
Total Retail Gas	$	156,478	$	126,126	$	30,352	24.1	%	19,965	19,670	295,038	291,722
Regulatory amortization	12,536		(2,298)		14,834		(645.5)
Wholesale and other	18,495		18,224		271		1.5
Total Revenues	$	187,509	$	142,052	$	45,457	32.0	%
Total Cost of Sales	83,051		40,176		42,875		106.7
Gross Margin(1)	$	104,458	$	101,876	$	2,582	2.5	%

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.


	Heating Degree Days			2021 as compared with:
	2021	2020	Historic Average	2020	Historic Average
Montana	4,467	4,401	4,538	1% cooler	2% warmer
South Dakota	5,165	5,493	5,561	6% warmer	7% warmer
Nebraska	4,423	4,210	4,599	5% cooler	4% warmer

The following summarizes the components of the changes in natural gas gross margin for the six months ended June 30, 2021 and 2020:


	Gross Margin 2021 vs. 2020
	(in millions)
Gross Margin Items Impacting Net Income
Retail volumes	$	2.3
Montana natural gas production rates	(0.7)
Other	0.5
Change in Gross Margin Impacting Net Income	2.1

Gross Margin Items Offset Within Net Income
Property tax revenue, offset in property tax expense	0.5
Gas production taxes	0.2
Operating expenses recovered in trackers	(0.3)
Change in Gross Margin Items Offset Within Net Income	0.4
Increase in Gross Margin(1)	$	2.5

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measure” above.

Gross margin increased $2.5 million, including a $2.1 million increase for items impacting net income and a $0.4 million increase from items offset within net income.

The change in gross margin for items impacting net income includes the following:

•An increase in gas volumes due to colder winter weather in our Montana and Nebraska jurisdictions and customer growth, partly offset by warmer winter weather in our South Dakota jurisdiction and warmer spring weather in all jurisdictions; and

•A reduction of rates from the step down of our Montana gas production assets.

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, borrowing capacity under existing credit facilities, and issuance of debt or equity securities are 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, the receipt of cash from operations, and available financing. A material change in operations, unfavorable credit metrics, 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.

Our liquidity is supported by the use of our credit facilities which includes a $425 million Credit Facility and a $25 million revolving credit facility to provide swingline borrowing capability. The $425 million Credit Facility includes uncommitted

features that allow us to request up to two one-year extensions to the maturity date and increase the size by an additional $75

million with the consent of the lenders. The $425 million Credit Facility does not amortize and is unsecured. Borrowings may be made at interest rates equal to the Eurodollar rate, plus a margin of 112.5 to 175.0 basis points, or a base rate, plus a margin of 12.5 to 75.0 basis points. A total of ten banks participate in the facility, with no one bank providing more than 16 percent of the total availability. The $25 million revolving credit facility bears interest at the lower of prime plus a credit spread of 0.13 percent, or available rates tied to the Eurodollar rate plus a credit spread of 0.80 percent.

We utilize availability under our credit facilities 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. As of June 30, 2021, our total net liquidity was approximately $145.9 million, including $5.9 million of cash and $140.0 million of revolving credit facility availability. As of June 30, 2021, there were no letters of credit outstanding and $310.0 million in outstanding borrowings under our credit facilities. Availability under our credit facilities was $143.0 million as of July 23, 2021.

We issue debt securities to refinance retiring maturities, 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. We target a 50 - 55 percent debt to total capital ratio excluding finance leases, and a long-term dividend payout ratio target of 60 - 70 percent of earnings per share; however, there can be no assurance that we will be able to maintain our ratios within these target ranges.

In March 2021, we issued and sold $100 million aggregate principal amount of Montana First Mortgage Bonds (the bonds) at a fixed interest rate of 1.00% maturing in March 26, 2024. The net proceeds were used to repay in full our outstanding $100 million term loan that was due April 2, 2021. We may redeem some or all of the bonds at any time in whole, or from time

to time in part, at our option, on or after March 26, 2022, at a redemption price equal to 100% of the principal amount of the

bonds to be redeemed, plus accrued and unpaid interest on the principal amount of the bonds being redeemed to, but excluding,

the redemption date. The bonds are secured by our electric and natural gas assets in Montana and Wyoming.

In April 2021, we entered into an Equity Distribution Agreement 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 $200.0 million, through an ATM program, including an equity forward sales component. During the three months ended June 30, 2021, we issued 879,309 shares of our common stock at an average price of $64.91, for net proceeds of $56.3 million, which is net of sales commissions and other fees paid of approximately $0.8 million. We expect to issue the remainder of the $200.0 million in 2021 to support our current capital program and maintain and protect our credit ratings. Capital investment in response to our Montana electric supply resource planning would be incremental to these amounts. Financing plans are subject to change, depending on capital expenditures, regulatory outcomes, internal cash generation, market conditions and other factors.

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. In addition, 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 typically 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.

We recover the cost of our electric and natural gas supply through tracking mechanisms. The natural gas supply tracking mechanism in each of our jurisdictions, and electric supply tracking mechanism in South Dakota are designed to provide stable recovery of supply costs, with a monthly adjustment to correct for any under or over collection. The Montana electric supply tracking mechanism implemented in 2018, the PCCAM, is designed for us to absorb risk through a sharing mechanism, with 90% of the variance above or below the established base revenues and actual costs collected from or refunded to customers. Our electric supply rates were adjusted monthly under the prior tracker, and under the PCCAM design are adjusted annually. In periods of significant fluctuation of loads and / or market prices, this design impacts our cash flows as application of the PCCAM requires that we absorb certain power cost increases before we are allowed to recover increases from customers.

As of June 30, 2021, we have under collected our costs recovered through tracking mechanisms by approximately $25.2 million. We under collected our costs by approximately $5.7 million as of December 31, 2020 and under collected our costs by approximately $12.8 million as of June 30, 2020.

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, may impact our trade credit availability, and could result in the need to issue additional equity securities. Fitch Ratings (Fitch), Moody’s Investors Service (Moody’s), and S&P Global Ratings (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 July 23, 2021, our current ratings with these agencies are as follows:

Senior Secured Rating

Senior Unsecured Rating

Commercial Paper

Outlook

Fitch

A-

Stable

Moody’s(1)

Baa2

Prime-2

Negative

S&P

A-

BBB

A-2

Stable

_________________________

(1) On March 12, 2021, Moody’s affirmed our ratings, but revised our outlook from stable to negative citing rising debt to help fund higher capital expenditures and no substantive revenue increase over the next two to three years.

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):


	Six Months Ended June 30,
	2021		2020
Operating Activities
Net income	$	100.3	$	72.2
Non-cash adjustments to net income	95.7		94.3
Changes in working capital	(59.0)		56.9
Other noncurrent assets and liabilities	(32.5)		(4.2)
Cash Provided by Operating Activities	104.5		219.2

Investing Activities
Property, plant and equipment additions	(182.2)		(176.5)


Investment in equity securities	(0.6)		—
Cash Used in Investing Activities	(182.8)		(176.5)

Financing Activities

Proceeds from issuance of common stock, net	56.3		—
Issuance of long-term debt, net	99.9		150.0
(Repayments) issuance of short-term borrowings	(100.0)		100.0
Line of credit borrowings (repayments), net	88.0		(225.0)
Dividends on common stock	(62.8)		(60.2)
Financing costs	(0.6)		(1.1)
Other	—		(2.1)
Cash Provided by (Used in) Financing Activities	80.8		(38.4)

Increase in Cash, Cash Equivalents, and Restricted Cash	2.5		4.3
Cash, Cash Equivalents, and Restricted Cash, beginning of period	17.1		12.1
Cash, Cash Equivalents, and Restricted Cash, end of period	$	19.6	$	16.4

Cash Provided by Operating Activities

As of June 30, 2021, cash, cash equivalents, and restricted cash were $19.6 million as compared with $17.1 million at December 31, 2020 and $16.4 million at June 30, 2020. Cash provided by operating activities totaled $104.5 million for the six months ended June 30, 2021 as compared with $219.2 million during the six months ended June 30, 2020. This decrease in operating cash flows is primarily due to an $82.8 million increase in market purchases of supply during the February cold weather event resulting in an undercollection of supply costs from customers in the current period, and a refund of approximately $20.5 million to our FERC regulated wholesale customers.

Cash Used in Investing Activities

Cash used in investing activities increased by approximately $6.3 million as compared with the first six months of 2020. Plant additions during the first six months of 2021 include maintenance additions of approximately $135.0 million and capacity related capital expenditures of $47.2 million. Plant additions during the first six months of 2020 included maintenance additions of approximately $114.4 million and capacity related capital expenditures of approximately $62.1 million.

Cash Provided by (Used in) Financing Activities

Cash provided by financing activities totaled $80.8 million during the six months ended June 30, 2021 as compared with cash used in financing activities of $38.4 million during the six months ended June 30, 2020. During the six months ended June 30, 2021, cash provided by financing activities reflects net proceeds from the issuance of debt of $99.9 million, net issuances under our revolving lines of credit of $88.0 million, and proceeds received from the issuance of common stock pursuant to our ATM program of $56.3 million, offset in part by repayments of our short-term borrowings of $100.0 million and payment of

dividends of $62.8 million. During the six months ended June 30, 2020, net cash used in financing activities reflects net repayments under our revolving lines of credit of $225.0 million and dividends of $60.2 million, offset in part by proceeds from the issuance of debt of $150.0 million and short term borrowings of $100.0 million.

Capital Requirements

Our capital expenditures program is subject to continuing review and modification. Actual utility construction expenditures may vary from estimates due to changes in electric and natural gas projected load growth, changing business operating conditions and other business factors. We anticipate funding capital expenditures through cash flows from operations, available credit sources, debt and equity issuances. Our estimated capital expenditures are discussed in our Annual Report on Form 10-K for the year ended December 31, 2020 within the Management’s Discussion and Analysis of Financial Condition and Results of Operations under the "Significant Infrastructure Investments and Initiatives" section. As of June 30, 2021, there have been no material changes in our estimated capital expenditures. If the MPSC approves our $250 million acquisition of the Laurel Generating Station, this project cost will be incremental to our current estimated capital expenditure program.

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 June 30, 2021. See our Annual Report on Form 10-K for the year ended December 31, 2020 for additional discussion.


	Total		2021		2022		2023		2024		2025		Thereafter
	(in thousands)
Long-term debt (1)	$	2,516,637	$	—	$	—	$	454,660	$	100,000	$	300,000	$	1,661,977
Finance leases	16,155		2,026		2,875		3,097		3,338		3,596		1,223

Estimated pension and other postretirement obligations (2)	58,327		7,534		12,905		12,905		12,492		12,491		NA
Qualifying facilities liability (3)	503,566		39,054		80,355		82,452		73,933		59,180		168,592
Supply and capacity contracts (4)	2,411,756		158,728		207,523		232,102		195,272		190,226		1,427,905
Contractual interest payments on debt (5)	1,534,448		43,552		87,104		85,177		79,760		78,358		1,160,497
Total Commitments (6)	$	7,040,889	$	250,894	$	390,762	$	870,393	$	464,795	$	643,851	$	4,420,194

_________________________

(1)Represents cash payments for long-term debt and excludes $13.3 million of debt discounts and debt issuance costs, net.

(2)We estimate cash obligations related to our pension and other postretirement benefit programs 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.

(3)Certain QFs require us to purchase minimum amounts of energy at prices ranging from $42 to $136 per MWH through 2029. Our estimated gross contractual obligation related to these QFs is approximately $503.6 million. A portion of the costs incurred to purchase this energy is recoverable through rates authorized by the MPSC, totaling approximately $418.5 million.

(4)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 26 years and exclude contract payments associated with the Beartooth Battery agreement, which is subject to approval by the MPSC.

(5)Contractual interest payments includes our revolving credit facilities, which have a variable interest rate. We have assumed an average interest rate of 1.36% on the outstanding balance through maturity of the facilities.

(6)The table above excludes potential tax payments related to uncertain tax positions as they are not practicable to estimate. Additionally, the table above excludes reserves for environmental remediation (See Note 10 - Commitments and Contingencies) and asset retirement obligations as the amount and timing of cash payments may be uncertain.

Other Obligations - As a co-owner of Colstrip, we provided surety bonds of approximately $19.9 million and $22.8 million

as of June 30, 2021 and December 31, 2020, respectively, on behalf of the operator to ensure the operation and maintenance of remedial and closure actions are carried out related to the Administrative Order on Consent Regarding Impacts Related to

Wastewater Facilities Comprising the Closed-Loop System at Colstrip Steam Electric Stations, Colstrip Montana (the AOC) as required by the MDEQ. As costs are incurred under the AOC, the surety bonds will be reduced.

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.

We continually evaluate the appropriateness of our estimates and assumptions. Actual results could differ from those estimates. We consider an estimate to be critical if it is material to the Financial Statements and it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate are reasonably likely to occur from period to period. This includes the accounting for the following: regulatory assets and liabilities, pension and postretirement benefit plans, income taxes and qualifying facilities liability. These policies were 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, 2020. As of June 30, 2021, there have been no material changes in these policies.

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 counterparty credit exposure. Management has established comprehensive risk management policies and procedures to manage these market risks. There have been no material changes in our market risks as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

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 reported 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 were 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 10, 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. Although the risks are organized by headings and each risk is described separately, many of the risks are interrelated.

COVID-19 Risks

The COVID-19 pandemic and resulting adverse economic conditions have had, and we expect are likely to continue to have, a negative impact on our business, financial condition and results of operations.

The COVID-19 pandemic has had widespread impacts on people, economies, businesses and financial markets. The continuing impact of the COVID-19 pandemic is highly uncertain and subject to change, and also depends on factors beyond our knowledge or control, including the ultimate duration and severity of this outbreak, third-party actions taken to contain its spread and mitigate its public health effects, and possible federal or state legislative actions related to utility operations, including disconnect moratoriums, or additional economic stimulus packages. In addition, we cannot predict the ongoing and ultimate impact that the COVID-19 pandemic will have on our customers, suppliers, vendors, and other business partners, and each of their financial conditions; however, any material effect on these parties could adversely impact us.

Economic - The COVID-19 pandemic continues to be an evolving situation with an extended disruption of economic activity. Our financial results in 2020 were impacted by lower sales volumes, an increase in reserves for uncollectible accounts and an increase in interest expense, partly offset by lower operating, general and administrative expenses. Decreases in per capita income and level of disposable income, increased unemployment or a decline in consumer confidence have had and could continue to have an adverse effect on our business. Certain of our customers have been, and may again in the future be, required to close down or operate at a lower capacity, which has adversely impacted our business in the short term and may in the future materially adversely affect our business, financial condition and results of operations. While the impact of the COVID-19 pandemic has eased during 2021 and we have experienced improvements in our financial results, there can be no assurance that any decrease in revenues resulting from the COVID-19 pandemic will return to previous levels in the future. In addition, we continue to monitor the capital markets. If conditions deteriorate and disrupt the capital markets and we need to access capital, there can be no assurance that we will be able to obtain such financing on commercially reasonable terms or at all.

Operational - While the COVID-19 pandemic has not caused material disruptions to our operations, it could in the future as a result of, among other things, quarantines, increased cyber risk due to employees working from home, worker absenteeism as a result of illness or other factors, social distancing measures and other travel, health-related, business or other restrictions. If a significant percentage of our workforce is unable to work, including because of illness, travel restrictions, or government mandates in connection with pandemics or disease outbreaks, our operations may be negatively affected. In addition, remote work arrangements introduce operational risk, including but not limited to cybersecurity risks.

For similar reasons, the COVID-19 pandemic may similarly adversely impact our suppliers and their manufacturers. Depending on the extent and duration of COVID-19 pandemic's effects on our business and operations and the business and operations of our suppliers, our costs could increase, including our costs to address the health and safety of personnel, and our ability to obtain certain supplies or services.

National, state and local governments have responded to the COVID-19 pandemic in a variety of ways, including, without limitation, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), and in certain cases, ordering businesses to close or limit operations or people to stay at home. While there has been a general easing of restrictions through 2021, there can be no guarantee that this trend will continue.

Although we provide critical infrastructure services and are permitted to continue to operate in each of our jurisdictions, there may be restrictions imposed on how we operate, such as disconnect moratoriums.

Any such workforce implications, significant supply chain disruptions, and / or limitations or closures may impact our ability to achieve our capital investment program and could have a material adverse impact on our ability to serve our customers and on our business, financial condition and results of operations.

The impacts of the COVID-19 pandemic may also have the effect of heightening risks discussed below, any of which could have a material effect on us.

Regulatory, Legislative and Legal Risks

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 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.

We provide service at rates established by several regulatory commissions. Rates are generally set through a process called a rate review (or rate case) in which the utility commission analyzes our costs incurred during a historical test year and decides whether they may be included in our rates. Rate reviews can be highly contested proceedings. There is no guarantee that the costs we seek to recover in future rates will be allowed. There is also typically a significant lag between the time we incur a cost and recover that cost in rates.

In addition to rate cases, our cost tracking mechanisms are a significant component of how we recover our costs. Trackers can also be highly contested dockets and, as with a rate case, there is no guarantee that the regulatory commission will approve our request to recover costs. We have recently received, and may in the future receive, unfavorable rulings from the MPSC. During the fourth quarter of 2020, the MPSC disallowed approximately $9.4 million of power costs for the July 1, 2018 to June 30, 2019 time period related to an intermittent outage at Colstrip Units 3 and 4 and application of a change in state laws addressing cost sharing of power costs. There can be no assurance that the MPSC will allow recovery of costs in the future, which could have a material adverse effect on our financial results.

Rate regulation is premised on providing an opportunity to earn a reasonable rate of return on invested capital. In a continued low interest rate environment there has been downward pressure on return on equity. There also 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, 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. For instance, our Montana electric utility is regulated by the MPSC and the FERC. Differing schedules and regulatory practices between the MPSC and FERC expose us to the risk that we may not recover our costs due to timing of filings and issues such as cost allocation methodologies. Thus, the rates we are allowed to charge may or may not match our costs at any given time. Adverse regulatory rulings could have an adverse impact on our results of operations and materially affect our ability to meet our financial obligations, including debt payments and the payment of dividends on our common stock.

We are 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 regulations under a wide variety of U.S. federal and state regulations and policies. Regulation affects almost every aspect of our business. Changes to federal and state laws and regulations are continuous and ongoing and the Biden Administration, the U.S. Congress, and state legislatures and state administrations may enact and implement new laws and regulations that could adversely and materially affect us. There can be no assurance that laws, regulations and policies will not be changed in ways that result in significant impacts to our business. We cannot predict future changes in laws and regulations, how they will be implemented and interpreted, or the ultimate effect that this changing environment will have on us. Any changes may have a material adverse effect on our financial condition, results of operations, and cash flows.

We are subject to extensive and changing energy, and environmental laws and regulations, including legislative and regulatory responses to climate change, with which compliance may be difficult and costly.

Our operations are subject to laws and regulations imposed by federal, state and local government authorities regarding energy policy, climate change, the environment, air and water quality, GHG emissions, 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, laws and regulations to which we must adhere change, and the Biden Administration’s agenda represents a significant shift in environmental and energy policy, focusing on reducing GHG emissions and climate change issues. This new direction is reflected in several Executive Orders that President Biden issued in January 2021. Together, these orders reflect climate change issues and GHG reductions as central areas of focus for domestic and international regulations, orders and policies. In addition, a parallel focus on reducing GHG emissions is reflected in legislation introduced in March 2021 in the U.S. House of Representatives, called the CLEAN Future Act. We expect other legislation to be introduced and considered by the U.S. House and the U.S. Senate focusing on environmental and energy policy.

These initiatives will likely lead to new and revised energy and environmental laws and regulations. Any such changes, as well as any enforcement actions or judicial decisions regarding those laws and regulations, 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 addition, although previous attempts by the EPA to regulate GHG emissions from coal-fired plants have not succeeded, it is widely expected that the Biden Administration and/or the U.S. Congress will develop an alternative plan for reducing GHG emissions from coal-fired plants and methane emissions from natural gas operations. As GHG and/or methane regulations are implemented, it could result in additional compliance costs that could affect our future results of operations and financial position if such costs are not recovered through regulated rates. Complying with the CO2 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.

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. Certain environmental laws and regulations also 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 damage 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.

Early closure of our owned and jointly owned electric generating facilities due to environmental risks, litigation or public policy changes could have a material adverse impact on our results of operations and liquidity.

While our Company-wide electric supply portfolio is over 65 percent carbon-free, it does include fossil-fuel resources. Environmental advocacy groups, certain investors and other third parties oppose the operation of fossil-fuel generation, expressing concerns about the environmental and climate-related impacts from fossil fuels. This opposition may increase in scope and frequency depending on a number of variables, including the course of Federal and State laws and environmental regulations and the financial resources devoted to opposition efforts. These risks include litigation against us due to GHG or other emissions or coal combustion residuals disposal and storage; activist shareholder proposals; and increased activism before our regulators. We cannot predict the effect that any such opposition may have on our ability to operate and recover the costs of our generating facilities. In addition, defense costs associated with litigation can be significant and an adverse outcome could require substantial capital expenditures and could possibly require payment of substantial penalties or damages. Such payments or expenditures could affect results of operations, financial condition or cash flows if such costs are not recovered through regulated rates.

Early closure of our generation facilities due to economic conditions, environmental regulations and / or litigation could result in regulatory impairments, increased cost of operations and inability to serve our customers in periods of peak demand. If recovery of our remaining investment in such facilities and the costs associated with early closure, including decommissioning, remediation, reclamation, and restoration are not recovered from customers, it could have a material adverse impact on our results of operations.

Colstrip - 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 those units no later than July 2022. In January 2020, the owners of Units 1 and 2 closed those two units. We do not have ownership in Units 1 and 2, and decisions regarding those units, including their shut down, were made by their respective owners. The six owners of Units 3 and 4 currently share the operating costs pursuant to the terms of the O&O Agreement. Costs of common facilities were historically shared among the owners of all four units. With the closure of Units 1 and 2, we are incurring additional operating costs with respect to our interest in Unit 4 and expect to experience a negative impact on our transmission revenue due to reduced amounts of energy transmitted across our transmission lines. We would expect to incorporate any reduction in revenue in our next general electric rate filing, resulting in lower revenue credits to certain customers.

While we believe closure requires each owner’s consent, there are differences among the owners as to this issue under the O&O Agreement. On March 12, 2021, we initiated The Arbitration under the O&O Agreement, which seeks to resolve the primary issue of whether closure of Units 3 and 4 can be accomplished without each joint owner's consent and to clarify the obligations of the joint owners to continue to fund operations until all joint owners agree on closure.

The Arbitration has given rise to three lawsuits, concerning the number of arbitrators, the venue and the applicable arbitration laws. The four joint owners from the Pacific Northwest assert the Arbitration must be conducted under the O&O Agreement, with one arbitrator, in Spokane County, Washington, and pursuant to the Washington Arbitration Act. The fifth joint owner asserts the Arbitration must be conducted per the terms of Montana Senate Bill 265, which requires the Arbitration must be conducted, with three arbitrators, in Montana and pursuant to the Montana Uniform Arbitration Act. The three initiated lawsuits do not make direct financial demands, and instead, are intended to address issues related to process for the Arbitration.

Since the Arbitration was initiated, and despite the litigation, we have worked and continue to work with the other joint owners to arrive at an agreed up process for the Arbitration.

In response to a letter from several non-governmental organizations, the Washington Utilities and Transportation Commission (WUTC) issued a Notice of Opportunity to Respond to Request to Initiate Investigation on April 13, 2021, in which it sought comment on whether it should “‘initiate a proceeding to investigate Colstrip’s ongoing expenses’ resulting in a ‘clear order or determination from the [WUTC] that continued funding to maintain and operate Colstrip is not consistent with prudent utility practice.’” While the WUTC denied to initiate the requested investigation, this reflects that efforts to close Colstrip Units 3 and 4 continue.

In addition, we have joint ownership in and operate the associated 500 kV transmission system. The closure of generation at Colstrip may impact the operation of this 500 kV system, and the joint owners may have differing needs with regard to ongoing operation of this system. The 500 kV transmission system is an integral, essential part of our overall transmission system in Montana in order to maintain reliability, regardless of the status of the generation facilities.

Increased risks of regulatory penalties could negatively impact our business.

We must comply with established reliability standards and requirements including Critical Infrastructure Protection Reliability Standards, which apply to North American Electric Reliability Corporation (NERC) functions. NERC reliability standards protect the nations’ bulk power system against potential disruptions from cyber and physical security breaches. The FERC, NERC, or a regional reliability organization may assess penalties against any responsible entity that violates their rules, regulations or standards. 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.

Additionally, the Pipeline and Hazardous Materials Safety Administration, Occupational Safety and Health Administration and other federal or state agencies have penalty authority. In the event of serious incidents, these agencies have become more

active in pursuing penalties. Some states have the authority to impose substantial penalties. If a serious reliability or safety incident did occur, it could have a material effect on our results of operations, financial condition or cash flows.

Federally mandated purchases of power from QFs, and integration of power generated from those projects in our system, may increase costs to our customers and decrease system reliability, limit our ability to make generation investments and adversely affect our business.

We are generally obligated under federal law to purchase power from certain QF projects, regardless of current load demand, availability of lower cost generation resources, transmission availability or market prices. These resources are primarily intermittent, non-dispatchable generation whose prices may be in excess of market prices during times of lower customer demand, and may not be able to generate electricity during peak times. These resources typically do not meet the requirements set forth in our supply plans for resource procurement. These requirements to purchase supply that is inconsistent with customer need may have several impacts, including increasing the likelihood and frequency that we will be required to reduce output from owned generation resources and that we will need to upgrade or build additional transmission facilities to serve QF projects. Either of these results would increase costs to customers. Further, balancing load and power generation on our system is challenging, and we expect that operational costs will increase as a result of integration of these intermittent, non-dispatchable generation projects. If we are unable to timely recover those costs through our PCCAM or otherwise, those increased costs may negatively affect our liquidity, results of operations and financial condition.

In addition, 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 that are inconsistent with resource plans developed based on a lowest cost and least risk basis while placing upward pressure on overall customer bills. This may impact our investment plans and financial condition. Finally, the requirement to procure power from these QF sources may impact our transmission system and require additional transmission facilities to be developed in order to integrate these resources, which also can impact overall customer bills.

Operational Risks

Our electric and natural gas operations involve numerous activities that may result in accidents, fires, system outages and other operating risks and costs that are unique to our industry.

Inherent in our electric transmission and distribution and natural gas transportation and distribution operations are a variety of hazards and operating risks, such as breakdown or failure of equipment or processes, interruptions in fuel supply, labor disputes, operator error, and catastrophic events such as fires, electric contacts, leaks, explosions, floods and intentional acts of destruction. These risks could cause a loss of human life, facility shutdown or significant damage to property, loss of customer load, environmental pollution, impairment of our operations, and substantial financial losses to us and others. For our natural gas lines located near populated areas, including residential areas, commercial business centers, industrial sites and other public gathering areas, the level of potential damages resulting from these risks could be significant.

Our electric distribution and transmission lines and facilities are exposed to many threats that may impact our infrastructure, as discussed above. These include severe weather, along with accidental and intentional acts that may cause our lines to fail. In addition, tree mortality rates have increased resulting in hazard trees located inside or outside our lines’ rights of way. Hazard trees are those trees that are structurally unsound and could fall into our lines if the trees failed. We are facing challenges to address these trees. The risk of fires is exacerbated in forested areas where there has been a significant increase in the quantity of standing dead and dying timber, primarily as a result of beetle infestation, increasing the risk that such trees may fall from either inside or outside our right-of-way into a power line igniting a fire. The fire risk in the Western states is heightened due to extreme drought and high temperatures. Fires alleged to have been caused by our system could expose us to significant penalties and / or damage claims on theories such as strict liability, negligence, gross negligence, trespass, inverse condemnation, and others.

For our electric generating facilities, operational risks include facility shutdowns due to breakdown or failure of equipment or processes, interruptions in fuel supply, 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 and potential litigation which may not be recovered from customers.

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.

We may have difficulty completing certain operations activities and construction projects if our third-party business partners are unable to deliver ordered supplies or complete contracted services timely.

We place significant reliance on our third-party business partners to supply materials, equipment and labor necessary for us to operate our utility and reliably serve current customers and future customers. As a result of current macroeconomic conditions, both nationally and globally, we have recently experienced issues with our supply chain for materials and components used in our operations and capital project construction activities. Issues include higher prices, scarcities/shortages, and longer fulfillment times for orders from our suppliers. Should these economic conditions and issues continue, we could have difficulty completing the operations activities necessary to serve our customers safely and reliably, and/or achieving our capital investment program, which could have a material adverse impact on our business, financial condition and results of operations.

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. Failure to maintain the security of personally identifiable information could adversely affect us.

Business Operations - We are subject to the potentially adverse operating and financial effects of terrorist acts and threats, as well as cyber attacks, physical security breaches and other disruptive activities of individuals or groups, and theft of our critical infrastructure information. Our generation, transmission and distribution facilities are deemed critical infrastructure and provide the framework for our service infrastructure. Cyber crime, which includes the use of malware, phishing attempts, computer viruses, and other means for disruption or unauthorized access has increased in frequency, scope, and potential impact in recent years. Our 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 those that impact third party facilities that are interconnected to us. 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.

Security threats continue to evolve and adapt and the risk of cyber-based attacks is heightened with many of our employees working and accessing our technology infrastructure remotely as a result of the COVID-19 pandemic. We and our third-party vendors have been subject to, and will likely continue to be subject to, attempts to gain unauthorized access to systems, to confidential data, or to disrupt operations. With the continuing rise in ransomware and other cyber-based threats we have been analyzing our technology platforms and monitoring for signs of potential intrusions. We have also been reaching out to our vendors, suppliers and contractors requesting that they take appropriate measures. None of these attempts has individually or in the aggregate resulted in a security incident with a material impact on our financial condition or results of operations. However, despite implementation of security and control measures, there can be no assurance that we will be able to prevent the unauthorized access of our systems and data, or the disruption of our operations, either of which could have a material impact.

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 electricity, 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.

Personally Identifiable Information - Our information systems and those of our third-party vendors contain confidential information, including information about customers and employees. Customers, shareholders, and employees expect that we will adequately protect their personal information. The regulatory environment surrounding information security and privacy is increasingly demanding. A data breach involving theft, improper disclosure, or other unauthorized access to or acquisition of confidential information could subject us to penalties for violation of applicable privacy laws, claims by third parties, and enforcement actions by government agencies. It could also reduce the value of proprietary information, and harm our reputation.

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 ability to manage our operational requirements to serve our customers, and ultimately 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. Unusually mild winters or cool summers could adversely affect our results of operations and financial position. 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, blizzards, thunderstorms, high winds, microbursts, fires, 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, which exist in the West and in our service territory, also increase the threat of fires, which could threaten our communities and electric distribution and transmission lines and facilities. In addition, fires that are 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 fires 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, especially those of prolonged duration, create high energy demand on our own and/or other systems and increase the risk we may be unable to reliably serve customers, causing brownouts and/or blackouts of our electric systems, and loss of gas supply. Risk of losing electricity or gas supply during extreme weather carries significant consequences as without our services our customers may be subjected to dire circumstances. Additionally, extreme weather conditions 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.

Our electric and natural gas portfolios rely significantly on market purchases. This exposure adversely affects our ability to manage our operational requirements to serve our customers, while exposing us to market volatility, which ultimately could adversely affect our results of operations and liquidity.

We are obligated to supply power to retail customers and certain wholesale customers and procure natural gas to supply fuel for our natural gas fired generation. Our need to acquire flexible energy supply and capacity in the market to meet our electric and natural gas load serving obligations exposes us to certain risks including the ability to reliably serve customers and significant uncertainty in the cost of supply, which may not be recoverable. We rely upon a combination of base-load supply from our owned generation and market purchases to serve customers. In Montana, we have significant projected generation capacity deficits and negative reserve margins. Based on recent estimates, we forecast that our portfolio will be 725 MW short by 2025, considering expiring contracts and a modest increase in customer demand. Approximately 46 percent of our peak electric requirements are served through market purchases. Montana has been a net exporter of electric generation and we have relied upon Montana's excess generation for grid reliability and to physically serve customers. A significant number of base-load generation facilities, which may also serve to meet peak requirements, in the state and region have been retired or are scheduled to be retired in the next five to ten years. This includes Colstrip Units 1 and 2, representing 614 MWs of generation on a capacity basis, which ceased operations in January 2020. A decrease in the state and region’s electric capacity may impair the reliability of the grid, particularly during peak demand periods. There can be no assurance that there will be available counterparties to contract with to serve our customers' needs, or that these counterparties will fulfill their obligations to us. There is also no assurance that the transmission capacity required to import market purchases will be available on transmission systems owned by us or by third parties. In addition, the suppliers under these agreements may experience financial or operational problems that inhibit their ability to fulfill their obligations to us. These conditions could result in an inability to physically deliver electricity to our customers. Losing electric service during extreme conditions carries significant consequences, as without our services our customers may be subjected to dire circumstances.

Commodity pricing is an inherent risk component of our business operations and our financial results. Even though rate regulation is premised on full recovery of prudently incurred costs and a reasonable rate of return on invested capital, there can be no assurance that our costs are recoverable as discussed above. The prevailing market prices for electricity may fluctuate substantially over relatively short periods of time, potentially adversely impacting our results of operations, financial condition and cash flows due to our need for market purchases and the sharing component of the Montana PCCAM.

In addition, our natural gas system serves both retail customers and the needs of natural gas fired electric generation. The natural gas system has capacity constraints that expose us to risks to be able to deliver natural gas during periods of peak demand.

Fluctuations in actual weather conditions, generation availability, transmission constraints, and generation reserve margins may all have an impact on market prices for energy and capacity and the electricity consumption of our customers on a given day. Extreme weather conditions may force us to purchase electricity in the short-term market on days when weather is unexpectedly severe, and the pricing for market energy may be significantly higher on such days than the cost of electricity in our existing generation and contracts. Unusually mild weather conditions could leave us with excess power which may be sold in the market at a loss if the market price is lower than the cost of electricity in our existing contracts.

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 may have the effect of inappropriately increasing rates generally and increasing rates for customers who do not own generation, unless retail rates are designed to collect distribution grid costs across all customers in a manner that reflects the 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.

Decreasing use per customer (driven, for example, by appliance and lighting efficiency) and the availability of cost-effective distributed generation, put downward pressure on load growth. Our most recent resource plans include an expected annual load growth assumption of 0.4 percent in Montana and 0.7 percent in South Dakota, which reflects low customer and usage increases, offset in part by these load reduction 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, the availability of generation, and the ongoing development of the Western Energy Imbalance Market, 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.

Liquidity and Financial Risks

Our plans for future expansion through the acquisition of assets, capital improvements to existing assets, generation investments, and transmission grid expansion involve substantial risks.

Acquisitions include a number of risks, including but not limited to, regulatory approval, regulatory conditions, 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.

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 and would increase our borrowing costs. Higher interest rates on borrowings with variable interest rates could also have an adverse effect on our results of operations.

Poor investment performance of plan assets of our defined benefit pension and postretirement 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 the 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. This obligation is reflected in the electric QF liability, which reflects the unrecoverable costs associated with these specific QF contracts per the stipulation. The annual minimum energy requirement is achievable under normal operations of these facilities, including normal periods of planned and forced outages. However, to the extent the supplied 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 shortfall is the wholesale market, which would subject us to commodity price risk if the cost of replacement power is higher than contracted rates.

In addition, we are subject to price escalation risk with one of the largest contracts included in the electric QF liability due to variable contract terms. In recording the electric QF liability, we 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 10.1 — Equity Distribution Agreement, da ted April 23, 2021 , between NorthWestern Corporation and J.P. Morgan Securities LLC, BofA Secu rities , Inc., C IBC World Markets Corp. and Credit Suisse Securities (USA) LLC , as sales agents and forward sellers ; and JP M organ Chase Bank, National Association, Bank of America N.A, Canadian Imperial Bank of Commer ce and Credit Suisse C apital LLC, as forward purchase rs. (incor pora ted by reference of Exhibit 1.1 of NorthWestern Corporation 's Current Report on Form 8-K, dat e d April 23, 2021, Co mmission File No. 1-10499).

Exhi bit 10.2 — Form of Master Forward Sale Confirmation (incorporated by refere nce to Exhibit 1.2 of Northwestern Corpor ation 's Current Report on From 8-K, dated April 23, 2021, Commission File No. 1-10499)

Ex hibit 10.3 — En gineering , Procurement, and Construction Contract , dated April 19, 2021 , between Northwestern Energy and Burns & McDonnell En gineering Company, Inc .

Exhibit 10.4 — Procurement Contract , dated April 19, 2021 , between Northwestern Energy and Ca terpillar Power Generation S ystem s, LLC.

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 101.INS—Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH—Inline XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL—Inline XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.DEF—Inline XBRL Taxonomy Extension Definition Linkbase Document

Exhibit 101.LAB—Inline XBRL Taxonomy Label Linkbase Document

Exhibit 101.PRE—Inline XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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:	July 28, 2021	By:	/s/ CRYSTAL D. LAIL
			Crystal D. Lail
			Vice President and Chief Financial Officer
			Duly Authorized Officer and Principal Financial Officer

ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT

NOMINAL 175 MW POWER PLANT

LAUREL, MONTANA

EFFECTIVE: APRIL 19, 2021

Table of Contents


1 Definitions			1
2 General			6
3 Representations by Contractor			6
4 Scope of Work			6
5 Contract Price and Payment			6
6 Schedule			7
7 Independent Contractor			8
8 Supervision and Labor			8
9 Subcontractors and Suppliers			8
10 Labor Relations			8
11 Environmental, Health and Safety, Emergencies			9
12 Hazardous Materials/Storm Water			10
13 Cleanup			11
14 Stop Work Orders			11
15 Permits and Licenses			12
16 Submittals			12
17 Issued for Construction Documents/As-Built Drawings			12
18 Ownership and Use of Contractor Deliverables			12
19 Substitutions			12
20 Discrepancies			13
21 Quality Assurance/Quality Control Program			13
22 Materials Management Procedure			13
23 Control of Owner-Furnished Equipment			14
24 Project Management Requirements			14
25 Construction Works			15
26 Expediting, Inspection, and Testing			15
27 Contractor's Shipments			16
28 Country of Origin			16
29 Spare Parts			16
30 Title & Risk of Loss			16
31 Protection of the Work			16
32 Possession Prior to Final Completion			16
33 Warranty of the Work			17
34 Warranty of Title			19
35 Warranty Against Infringement of Patents, Copyrights, Trademarks, and Trade Secrets			19
36 Intellectual Property			19
37 Changes			19
38 Mechanical and Substantial Completion, Punch List, Liquidated Damages, Performance Guarantees, Final Completion and Final Acceptance			21
39 Suspension of the Work			25
40 Termination for Convenience			25
41 Termination for Default			26
42 Insurance			27


43 Indemnity			27
44 Waiver of Consequential Damages			28
45 Limitation of Liability			28
46 Force Majeure			28
47 Avoidance of Liens			29
48 Proprietary Information			30
49 Gratuities			30
50 Assignment			31
51 Notices			31
52 Severability			31
53 Modifications and Amendments			31
54 Remedies			31
55 Publicity			31
56 Site Records and Audit			31
57 Interpretation			32
58 English Language			32
59 Non-Waiver			32
60 Survival			32
61 Laws and Regulations			33
62 Disputes, Forum and Applicable Law			33
63 Equal Opportunity and Affirmative Action			33
64 Contract Performance Security			34
65 Disclosure. .			34
66 Contract Documents			35

ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT

1 THIS ENGINEERING, PROCUREMENT AND CONSTRUCTION AGREEMENT (this “Contract”) is made, entered into, and effective as of April 19, 2021 (the “Effective Date”), by and between NorthWestern Energy (“NorthWestern”), a Delaware corporation, and Burns & McDonnell Engineering Company, Inc., a corporation organized under the laws of the State of Missouri (“Contractor”), hereinafter each a “Party” and collectively the “Parties.”Definitions

When used with initial capitals, the following definitions shall apply to this Contract:

Acceptance Tests means the tests performed by Contractor in accordance with Section 23 of the Specifications required for the Work to achieve Substantial Completion.

Actual Cost means Contractor’s indirect and direct costs excluding overhead and profit.

Affiliated Companies means entities that either control or are controlled by NorthWestern by means of a majority ownership interest.

As-Built Drawings has the meaning set forth in Section 17.3.

Authorized Representative means the person designated, in writing pursuant to this Contract, by either Party to send and receive any Notices and/or Directives that may be required and to bind the Party he or she represents with regard to all matters related to this Contract.

Change Order Request or COR shall have the meaning set forth in Section 37.

Change shall have the meaning set forth in Section 37.

Claim shall have the meaning set forth in Section 37.

Commission means the Montana Public Service Commission.

Competent Person means a person with the skill, knowledge, experience, training, and authority to carry out his assigned responsibilities safely and in accordance with industry practice.

Construction Works means all construction equipment including tools, consumables, utilities, supplies, temporary work, scaffolding, form lumber, templates, buildings, facilities, electronic gear, computers, software, and similar items which are used in the execution, performance, maintenance, completion, or management of the Work by Contractor, but which are not intended to become a permanent part of the Project. Unless specifically stated otherwise in this Contract, all Construction Works are to be provided by the Contractor.

Contract means this agreement and any attachments, schedules and exhibits attached hereto or specifically referenced herein, including, without limitation, any, FWOs, or Change Orders as such terms are defined in Section 37.

Contract Documents means the Contract and all attachments and exhibits set forth in Section 66.

Contract Price means the dollar amount specified in Section 5 and any Change Orders approved by NorthWestern in writing.

Contract Schedule means the schedule described in Section 6.

Contractor Means the Party identified as such in this Contract, and unless the context clearly requires otherwise the term includes all those employed by or in privity with Contractor at any tier including all Subcontractors and Suppliers.

Corrective Work means additional Work performed by Contractor to comply with the Warranty.

COVID-19 Condition. A COVID-19 Condition occurs if: (i) new government imposed restrictions on imports/exports or common carriers, including ocean shipping vessels, rail and motor carriers result in the inability or failure of Contractor’s Suppliers to deliver Goods, Materials and Equipment to allow Work to proceed in accordance with the Contract Schedule; (ii) new government imposed restrictions result in the inability of Contractor and its Subcontractors to perform Work at the Site; (iii) new government imposed travel restrictions

prohibit Contractor, its Subcontractors or Suppliers from performing Work; (iv) new government imposed restrictions result in a material adverse effect upon Contractor’s ability to perform Work at the Site; (v) new government imposed restrictions causes a material adverse effect upon Supplier’s ability to manufacture Goods, Materials and Equipment at Supplier’s facilities; or (vi) causes a material adverse effect upon Contractor’s ability to perform Work at the Site; provided, however, to the extent Contractor declares a COVID-19 Condition arising from relations with Subcontractors or Suppliers, Contractor must demonstrate that, despite the exercise of reasonable diligence, Contractor cannot reasonably source the parts, materials or services from alternative Subcontractors and Suppliers and the occurrence of the COVID-19 Condition, as applied to the Subcontractor or Supplier, has a material adverse effect on the ability of Contractor to fulfill its obligations under this Contract.

COVID-19 Pandemic means the pandemic declared by the World Health Organization, and the National Emergency declared by the U.S. Government on March 13, 2020, as a result of the spread of a coronavirus commonly referenced as COVID-19.

Craft Labor means trade workers, and by way of example includes laborers, carpenters, operators, pipe fitters, boilermakers, electricians, and sheet metal workers.

Days mean calendar days unless specifically stated otherwise.

Deliverables mean all of the documentation including cut sheets, reports, drawings, certificates, schedules, plans, invoices, and Submittals that Contractor is required to furnish pursuant to this Contract and as specifically set forth in Section 5 of the Specifications.

Detailed Schedule means the detailed critical path network schedule for the Work that is developed by Contractor based on the Contractor-developed Summary Project Schedule and which meets the requirements of Section 24.2 of this Contract and Section 4.3.3 of the Specifications.

Effective Date means the date set forth in the Contract as the date on which the Contract is effective.

FERC means the Federal Energy Regulatory Commission or any successor agency.

Field Non-Manual Labor (“FNM”) all workers other than Craft Labor.

Field Work Order shall have the meaning set forth in Section 37.

Final Acceptance means NorthWestern’s written acknowledgment that Contractor has achieved Final Completion as provided herein.

Final Completion means that all obligations of Contractor under this Contract have been completed, as more fully described in Section 38.5, except for obligations which NorthWestern has waived or excused in writing and except for obligations of Contractor that survive termination of this Contract such as warranty and indemnity.

Final Completion Date means the date upon which the Contractor has achieved Final Completion.

Force Majeure means a cause or event that hinders or prevents the affected Party from performing its obligations under this Contract if such act or event (i) is beyond the reasonable control of, and without the fault or negligence of a Party claiming force majeure, (ii) such condition, event, or circumstance, despite the exercise of reasonable diligence, could not be prevented, avoided or removed by Contractor, and (iii) such condition, event, or circumstance has a material adverse effect on the ability of Contractor to fulfill its obligations under this Agreement, and includes, without limitation, an emergency, floods, named storms, sinkholes, lighting strikes, earthquakes, hurricanes, tornadoes, pandemics (excluding the Covid-19 Pandemic), adverse weather conditions not reasonably anticipated or acts of God; sabotage; vandalism beyond that which could reasonably be prevented by a Party claiming force majeure; terrorism; war; riots; fire; explosion; blockades; insurrection; and action or failure to take action by any governmental authority after the date of execution of this Contract including the adoption or change in any rule or regulation or environmental constraints lawfully imposed by such governmental authority) that impact the Work, but only if such requirements, actions, or failures to act prevent or delay performance; and inability, despite due diligence, to obtain any licenses, permits, or approvals required by any governmental authority. Notwithstanding the foregoing, the following do not qualify as events of force majeure (i) late delivery of Goods, Materials and Equipment required for the Work (except to the extent caused by the

occurrence of an independent condition, event, or circumstance satisfying the requirements above); (ii) shortages of Labor, supervisors or personnel or strikes or other labor disturbances affecting Contractor or any Subcontractors, (except to the extent caused by the occurrence of an independent condition, event, or circumstance satisfying the requirements above); (iii) late performance as a consequence of any violation of applicable Law or decisions of a governmental authority related to the conduct of Contractor or a Subcontractor; (iv) breakdown, loss, or damage to or theft of equipment or materials (except when directly due to the occurrence of an independent condition, event, or circumstance satisfying the requirements above); (v) increased costs of the Work, changes in market conditions, economic hardship, and general economic or industry conditions (except to the extent caused by the occurrence of an independent condition, event, or circumstance satisfying the requirements above); (vi) Contractor’s failure or the failure of its Subcontractors or Suppliers to secure and maintain permits, licenses, or other governmental approvals necessary for prosecution of the Work or their respective portions of the Work; (vii) normal weather conditions, including adverse weather conditions as defined as less than a twenty five-year storm by the NOAA data from the nearest station; (viii) any negligent or intentional acts, errors, omissions or acts which are the fault of the affected Party; and (ix) the Covid-19 Pandemic. Contractor has included all of the known COVID-19 Pandemic impacts in establishing the Contract Price.

Functional Guarantees has the meaning set forth in Section 23 of the Specifications.

Goods, Materials and Equipment (whether used separately or collectively) mean all goods, materials, commodities, supplies, apparatus, equipment, and machinery that Contractor is obligated to provide and which will become a permanent part of the Project when it is completed. The provisions of the Uniform Commercial Code as adopted and set forth in the Montana Code Annotated, applies to Goods unless otherwise specified in writing agreed to by the Parties. Goods, Materials, and Equipment does not include Owner-Furnished Equipment.

Final Completion Date shall be the date that Contractor guarantees to achieve Final Completion but not later than 120 Days after the Substantial Completion Date.

Guaranteed Substantial Completion Date shall be the date that Contractor guarantees to achieve Substantial Completion but not later than January 3, 2024.

Hazardous Materials means any chemical substance, mixture or contaminant, pesticide, source material, regulated nuclear material, residual radioactive material, harmful physical agents, air pollutants, or hazardous waste or by-product material that is regulated or defined by Law.

Industry Practice means, with respect to each of engineering, design, construction, operation, and maintenance of the Work, the practices, methods, procedures, equipment, and tools which comply with all applicable Laws and are used by a significant portion of other similar businesses and industries in the United States.

Labor means all Field Non-Manual Labor and Craft Labor.

Laws mean all laws, statutes, regulations, ordinances, executive orders, codes, and similar pronouncements published by any governmental authority having jurisdiction over the Work.

Lender means the financial institution providing all or a portion of the Project financing and includes Lender’s subsidiaries, affiliates, agents, representatives, successors or assigns, officers, directors, agents, and employees.

Lien means any claim, lien, mortgage, encumbrance, pledge, charge, lease, easement, servitude, right of others, or security interest of any kind.

Limited Notice to Proceed (“LNTP”) means a Notice specifying the date Contractor is authorized by NorthWestern to start the Work to the limited extent specified in the LNTP.

Losses mean any claims, demands, suits, proceedings, fines, penalties, liabilities, judgments, awards, damages, interests, costs, or other such expenses including reasonable attorney fees and court costs, but do not include any indirect, special, incidental, consequential, or exemplary damages.

Mechanical Completion has the meaning set forth in Section 38.1.

Minimum Performance Requirement has the meaning set forth in Attachment A, Section 23.

Moody’s means Moody’s Investor Services, Inc., or its successor.

Notice means a written document prepared and delivered by one Party to another Party.

Notice to Proceed (“NTP”) means a Notice specifying the date Contractor is authorized by NorthWestern to start the Work.

NorthWestern means the entity identified as such in the Contract (and referenced as “Owner” in the Specifications) and includes the officers, directors, agents, employees, successors, and assigns of each and where appropriate Authorized Representative to act on behalf of the NorthWestern.

NorthWestern Directive or Directive means formal written instructions such as a formal letter from NorthWestern to Contractor directing Contractor to proceed in the manner described therein. E-mail will be used only as a courier to transmit formal correspondence containing a Directive that is included as an attachment to the E-mail.

NorthWestern’s Project Manager means NorthWestern’s senior representative on the Project Site.

Notify means to provide Notice.

Owner-Furnished Equipment means the equipment to be supplied by NorthWestern for inclusion into the Project as set forth in the Specifications.

Performance Guarantee(s) has the meaning set forth in Attachment A, Section 23.

Person means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, non-incorporated organization, or government or any agency or political subdivision thereof.

Professional Services mean the performance of engineering, design, consulting, testing, or other technical services performed by persons specially licensed, certified, or otherwise acknowledged to have specialized training, experience, and skills in the art. Professional Services require the exercise of skilled judgment and expertise in addressing and completing the Work.

Project means the total effort being undertaken by NorthWestern, of which the Work performed under this Contract may be the whole or may be a part, and which may include work by other Contractors to NorthWestern or by NorthWestern or by NorthWestern’s own forces including Persons under separate contracts with NorthWestern.

Project Safety Plans shall have the meaning set forth in Section 11.

Project Site or Site means the land and other places on, under, in, or through which the Work is to be installed, executed or carried out, and any other lands or places provided for the purposes of the Project, together with such other places as may be specifically designated in this Contract as forming part of the Project Site. Where the Work is but a part of the Project, Contractor may be granted access for ingress, egress to the particular part of the Project Site where the Work is to be performed, but not necessarily to the entire Project Site.

Punch List is a listing of each item of Work that: (i) NorthWestern and Contractor agree remains to be performed following Substantial Completion; (ii) does not affect the ability of NorthWestern to safely operate the Project in accordance with Industry Practice and in compliance with all Laws; (iii) does not in affect the operability (including capacity, efficiency, reliability, or cost effectiveness), safety or mechanical or electrical integrity or the safe, reliable or continuous commercial operation of the Project.

Punch List Holdback means an amount equal to 200% of NorthWestern’s reasonably estimated costs of completing the items on the Punch List.

Request for Change Order Proposal or RFCP shall have the meaning set forth in Section 37.2.

Revise and Resubmit, when applied by NorthWestern to Contractor's Deliverables, means that the Deliverables are unsatisfactory, as determined by NorthWestern in its reasonable discretion, because they do not interface properly with NorthWestern-furnished components of the Project, if any, or do not comply with the requirements of the Contract.

S&P means the Standard & Poor’s Rating Group (a division of McGraw-Hill, Inc.) or its successor.

Services mean those efforts expended by Contractor that do not produce a tangible input to the direct construction and installation of the plant facility.

Site Manager means Contractor’s senior representative on the Project Site.

Specifications mean the documents identified as such or referred to in Attachment A of this Contract and which sets forth the technical requirements for the Work and for the performance of related Services and Professional Services.

Stop Work Order means a NorthWestern Directive ordering Contractor to cease all Work to the extent described in the order.

Subcontractor means any person, at any tier, who has a contract with Contractor to perform a portion of the Work at the Project Site.

Submittals include the documents set forth in Section 5 of the Specifications.

Substantial Completion has the meaning set forth in Section 38.4.

Substantial Completion Date means the date upon which the Contractor has achieved Substantial Completion.

Supplier means any Person contracted with Contractor to provide any Construction Works or Goods, Materials and Equipment to Contractor or to its Subcontractors.

Warranty Period shall have the meaning set forth in Section 33.2.

Work means the design, procurement, installation, construction and testing of the Project and all necessary resources including Labor, Construction Works, Goods, Materials and Equipment, Services, Professional Services, supervision, and management required to complete the Project as set forth in the Scope of Work, the Specifications, and the Contract Documents, exclusive of the supply, scope of work, or warranties related to Owner-Furnished Equipment and other responsibilities of the Owner as set forth herein. Work also includes all duties, responsibilities, and other obligations undertaken by Contractor under this Contract, whether expressed or implied.

2 General

This Contract constitutes the complete integrated agreement between NorthWestern and Contractor regarding the Work, and it supersedes all prior agreements or undertakings. Any exceptions or additional terms, whether written or oral, including those terms in the Contractor’s bid or proposal not expressly incorporated herein, are rejected. No course of prior dealing or performance between NorthWestern and Contractor or industry usage shall be construed or interpreted to modify any term, condition, requirement, or instruction set forth in the Contract.

3 Representations by Contractor

3.1 Contractor represents that it has thoroughly examined the Contract; has studied all information provided or otherwise made available by NorthWestern; has familiarized itself with all Laws; and is experienced, qualified, and licensed (to the extent required by applicable Laws) to perform the Work.

3.2 Contractor also represents that it has visited the Project Site and that the Contract Price includes consideration of all the general, visible, disclosed, and local conditions that might materially impact the Work including climatic conditions, existing surface conditions, existing structures, availability of qualified Labor, availability of utilities, access to the Project Site, transportation facilities, disposal, storage, handling of Owner-Furnished Equipment and Goods, Materials and Equipment, and any necessary Construction Works.

3.3 Contractor agrees and acknowledges that any surface or subsurface reports, topographic maps, geotechnical reports, information regarding the physical condition or character of the Project Site, existing structures at the Project Site, or material equipment or materials at the Project Site, or other information made available to Contractor by NorthWestern are solely for Contractor’s convenience and not represented or warranted to be accurate. Contractor is responsible for performing any additional

geotechnical or other studies that Contractor believes are necessary to perform the Work. Contractor shall be allowed the benefits of Section 37 should the subsurface differ materially from any NorthWestern provided information. Any failure by Contractor to take the actions described in this Section 3 shall not relieve Contractor from its responsibility for properly estimating the difficulty and cost of successfully performing the Work.

4 Scope of Work

The Contractor’s detailed Scope of Work is set forth in the Specifications and the Parties shall perform their respective obligations set forth in Attachment K. Unless otherwise stated in the Contract, Contractor shall provide all resources necessary to perform the Work and to fulfill Contractor’s obligations under this Contract and the Specifications, including the receipt, installation, and testing of any Owner-Furnished Equipment.

5 Contract Price, Payment and Taxes

5.1 As consideration to Contractor for completing and furnishing the Work, NorthWestern agrees to pay Contractor, and Contractor agrees to accept as full and complete payment for all of the Work, including construction aids, start-up and testing, supervision, travel and per diem costs, other Contractor expenses related to the Work and the performance of any warranty obligations hereunder, the fixed lump sum agreement price of NINETY EIGHT MILLION FIVE HUNDRED SEVENTY EIGHT THOUSAND TWO HUNDRED TWENTY FIVE AND 00/100 DOLLARS ($98,578,225.00) (“Contract Price”), and described on the Payment Schedule set forth in Attachment B. Contractor acknowledges that this Contract and the Contract Price constitute a fixed price obligation to design and engineer, procure, construct, test, start-up and commission the Work.

5.2 Contractor shall obtain all necessary tax licenses for all jurisdictions where Work is performed. Contractor is responsible for the collection and remittance of all sales, consumer, use, Contractor’s excise and similar taxes for the Work performed. Contractor shall include all taxes as a separate line item on invoices. Contractor shall pay all payroll and other related employment compensation taxes for Contractor’s employees, and federal, state and other taxes that may be assessed on Contractor’s net income, net worth, license, privilege or gross receipts. Contractor is responsible for payment of, or for obtaining exemption from, all import and customs duties, licenses and taxes imposed on imported Goods, Materials and Equipment, as well as other cost associated with clearing such items for delivery to NorthWestern.

6 Schedule

6.1 The schedule for the performance of Contractor’s Work is set forth in Attachment C (the “Contract Schedule”). Contractor shall begin its Work upon receipt of an LNTP or an NTP. However, Contractor shall not begin any physical Work on the Project Site until it receives a fully executed Notice to Proceed from NorthWestern and, except as specifically authorized as LNTP Work, Contractor shall not commit to the procurement of Goods, Material and Equipment prior to issuance of NTP. If NTP is not issued on or before April 1, 2022, then, at the option of NorthWestern: (i) NorthWestern may, without further obligation to Contractor other than as provided in an LNTP, terminate this Contract by providing Notice to Contractor effective April 1, 2022; or (ii) if NorthWestern does not provide the Notice in Section 6.1(i) terminating this Contract, Contractor shall be entitled to an equitable adjustment to the Contract Price and the Guaranteed Substantial Completion Date as a result of not receiving NTP on or before April 1, 2022. If agreement on equitable adjustment to the Contract Price and Guaranteed Substantial Completion Date cannot be reached between NorthWestern and Contractor, Contractor may terminate this Contract without further obligation to NorthWestern. Contractor agrees and acknowledges that time is of the essence in regard to achievement of Substantial Completion of the Work in accordance with the Contract Schedule, subject to Section 41 (termination for default). Provided that NorthWestern is not in breach of this Contract, Contractor shall take whatever measures are reasonably necessary to complete its Work by the

Guaranteed Substantial Completion Date. Contractor has inspected the Project Site and acknowledges that the Project Site has sufficient areas available for lay down of materials, staging of materials, fabrication facilities, or pre-assembly operations. Contractor will reasonably coordinate its activities with the activities of NorthWestern and its other contractors installing utility services for the Project.

6.2 Contractor shall Notify NorthWestern of any potential delay to the Work within five (5) Days after the event giving rise to the potential delay becomes known to Contractor. The Notice shall describe the cause of the potential delay and the reasonable plan Contractor proposes to avoid, mitigate, or recover from the delay. Such recovery plan shall be subject to NorthWestern’s review and comment. If Contractor fails to provide a recovery plan, or fails to follow such plan to take to avoid or recover from a delay which impacts the Substantial Completion Date, NorthWestern may direct Contractor to accelerate its Work by providing additional resources to recover and maintain the Contract Schedule. Unless the delay is caused by NorthWestern, third parties other than those third parties under Contractor’s control and supervision, or Force Majeure, all costs incurred by Contractor to accelerate its Work shall be the responsibility of the Contractor. NorthWestern’s approval of Contractor’s proposed action to recover the delay or NorthWestern's Directive to accelerate the Work shall not constitute a waiver of any right or remedy available to NorthWestern under this Contract, at law, or equity. Any Directive to accelerate Work shall not constitute a waiver of any of the provisions of this Contract.

7 Independent Contractor

7.1 Contractor is and shall operate as an independent contractor in the performance of the Work and not as an agent or employee of NorthWestern. Nothing contained in this Contract is intended nor shall be construed as creating any contractual relationship between any Persons other than NorthWestern and Contractor. Contractor shall obtain any and all state and/or local licenses, certificates, or permits required to obtain and maintain independent contractor status that may be required by the State of Montana.

7.2 At all times, Contractor shall be solely responsible for the means, methods, sequences, and procedures for performing its Work.

7.3 Subject to the limits in Section 8, Contractor has sole authority, control and responsibility to employ, discharge, supervise and otherwise manage its employees.

8 Supervision and Labor

Contractor shall provide an adequate number of Competent Persons to perform the Work. Prior to the start of the Work, Contractor shall submit the resume of a Competent Person to act as Contractor’s supervisor. Once approved by NorthWestern, said supervisor shall be present on the Project Site whenever Contractor is performing Work. Contractor’s supervisor shall have complete authority to act on behalf of Contractor in all matters pertaining to execution of the Work. Contractor shall not remove or replace its supervisor or any other of its supervisory staff assigned to the Work without the prior written consent of NorthWestern, except in the instance of termination or retirement.

9 Subcontractors and Suppliers

Contractor shall not subcontract performance of any portion of the Work to any Subcontractor or Supplier that does not meet the prequalification criteria applicable to such Subcontractor or Supplier as set forth in Attachment D. Contractor supplied Goods, Materials and Equipment shall be procured from Suppliers listed in Appendix 12 of the Specifications, unless written approval is otherwise provided by NorthWestern. Contractor shall comply with all prevailing wage requirements of Laws. Upon request, Contractor shall furnish NorthWestern a copy of any subcontract or purchase order with the price and confidential information redacted for NorthWestern’s confirmation that the subcontract or purchase order complies with Laws. Contractor shall also furnish to NorthWestern and such information pertaining to the proposed Subcontractor or Supplier as NorthWestern may reasonably request including financial statements, safety data, and references. Failure of Contractor to comply

with this Section 9 may, at the sole discretion of NorthWestern, be deemed to be a material breach of this Contract. Notwithstanding anything to the contrary in this Section 9, Contractor shall remain liable to NorthWestern for any and all Losses incurred by NorthWestern caused by any act of any Subcontractor or Supplier while on the Project Site or while performing the Work.

10 Labor Relations

10.1 Contractor shall require strict compliance with the job rules and any procedures established by Contractor for employee conduct at the Project Site. NorthWestern reserves the right to revise any such rule, and Contractor shall fully comply with such rules as revised.

10.2 Contractor intends to utilize union and non-union Subcontractors for the performance of the Work, and assumes all labor related risk associated pertaining to a mixed labor force for the Project. Contractor’s union Subcontractors shall enter into either a Project-specific labor agreement or assent to the performance of Work pursuant to the National Maintenance Agreement in order to eliminate labor disputes, strikes, delays, and lockouts in connection with the Work. Contractor shall require union Subcontractors to promptly take any and all reasonable steps to resolve violations of collective bargaining agreements and jurisdictional disputes including the filing of appropriate processes with any court or administrative agency having jurisdiction to settle, enjoin, or award damages resulting from violations of collective bargaining agreements or jurisdictional disputes.

10.3 Contractor shall immediately Notify NorthWestern of any actual, anticipated, or threatened labor dispute that might affect the performance of the Work of Contractor or any of its Subcontractors or Suppliers.

10.4 Contractor acknowledges that Owner Furnished-Equipment to be furnished by NorthWestern, if any, may be provided by non-union shops, and Contractor expressly agrees that any labor disputes resulting from this circumstance shall not constitute an event for which Contractor may seek relief under Force Majeure or any other provision of this Contract.

11 Environmental, Health and Safety, Emergencies

11.1 Contractor acknowledges and agrees that its obligation under this Contract is to perform its Work in a safe manner. To that end, Contractor shall, at a minimum, perform its Work in accordance with all Laws. Further, Contractor hereby represents and warrants that it has a comprehensive safety, health, and environmental program and corresponding policies for human and environmental health and safety and, after mobilization, Contractor shall enforce and monitor such safety and health plan at the Site, until Substantial Completion.

11.2 After mobilization and until Substantial Completion, Contractor shall implement and maintain a written safety, health, and accident prevention program (the “Project Safety Plan”) specifically applicable to the Work. Contractor's Project Safety Plan shall meet the requirements of the codes and regulations of federal, state, local, and other authorities having jurisdiction over the Work and shall include disciplinary procedures and safety orientation training procedures applicable to Contractor and Subcontractor personnel. The Project Safety Plan must meet or exceed the safety standards set forth in NorthWestern’s safety program. Contractor shall submit the Project Safety Plan to NorthWestern’s Project Manager for review a minimum of sixty (60) Days prior to the start of Work at the Project Site. NorthWestern’s review does not relieve Contractor of responsibility for safety and health, nor shall such review be construed as limiting in any manner Contractor's obligation to undertake any action which may be necessary or required to establish and maintain safe working conditions at the Project Site. The Project Safety Plan will be available at the main construction office of the Project Site and available for review at all times Contractor employees are at Work on the Project Site. A copy of the Project Safety Plan will be attached to this Contract as Attachment F.

11.3 As part of the Project Safety Plan, Contractor will develop and implement an effective training and inspection program to ensure all Contractor employees understand and follow all Contractor required

safety rules and requirements. Details of the training and inspection program shall be included in the Project Safety Plan.

11.4 Prior to mobilizing at the Project Site, Contractor shall designate a Competent Person who shall implement the requirements of the Project Safety Plan. The Competent Person shall (a) be present on the Project Site whenever Contractor is performing Work of a manual nature on the Project Site, (b) be able to identify hazards associated with the Work, and (c) have complete authority to stop the Work if he/she deems it necessary. The designation of this Competent Person will be identified in the Project Safety Plan.

11.5 The Contractor shall not permit the introduction or use of intoxicants, such as liquor and illegal substances, upon the Project Site. No individual will perform any of the Work while under the influence of any illegal or controlled substance or alcohol. Contractor shall promptly perform drug and/or alcohol tests on personnel performing any of the field Work if: (i) the individual’s performance contributed to an accident or may (in the discretion of NorthWestern’s Project Manager) be a contributing factor to an accident which involves personal injury; or (ii) reasonable cause exists to believe such individual is using drugs or alcohol or may otherwise be unfit for duty. Individuals tested in accordance with this Section 11 will not be permitted to perform any Work until the test results are established. Contractor shall be solely responsible for administering and conducting drug and alcohol testing, as set forth herein. As applicable and in addition to any other requirements under this Contract, Contractor shall develop and strictly comply with any and all alcohol and drug testing requirements required by applicable Law.

11.6 The Contractor retains sole responsibility for the safe execution of the Work and the overall safety of both Contractor and any Subcontractor employees. All the requirements of this Section 11 shall apply equally to any Subcontractors hired by the Contractor.

11.7 Contractor is responsible for developing a response plan for use after mobilization but prior to Substantial Completion in connection with emergency situations that may occur on the Project Site. If an emergency situation occurs, Contractor shall employ its emergency response plan and take such other actions as are reasonably necessary to stabilize and resolve the situation. Immediately upon the occurrence of an emergency endangering public health or safety, including environmental harm or material damage to property, Contractor shall: (i) implement its emergency response plan; (ii) verbally notify NorthWestern’s Project Manager and on-Site employees; and (iii) cooperate by providing information, documentation, and reports to allow NorthWestern to fulfill reporting obligations required by applicable law.

11.8 If Contractor fails to exercise reasonable precaution for the safety of the public or the protection of the field construction Work or adjacent structures or property, and whenever, in the opinion of NorthWestern’s Project Manager an emergency has arisen and immediate action is considered necessary, NorthWestern may provide suitable protection by causing work to be done and material to be furnished and installed. The cost of such efforts will be borne by Contractor if NorthWestern’s response is required because of Contractor’s wrongful acts or omissions or breach of this Agreement. Such performance of emergency work, by Owner does not relieve Contractor of responsibility for any damage which may occur. The right to provide suitable protection does not give rise to any duty on the part of NorthWestern to exercise such right.

12 Hazardous Materials/Storm Water

12.1 Contractor shall be solely responsible for all Contractor-supplied Hazardous Materials on the Project Site including reporting, accounting, licensing, care, transportation, storage, use, treatment, and disposal by Contractor. This excludes pre-existing hazardous material. In carrying out its obligations under this Section 12, Contractor shall comply with the Site specific Project Safety Plan and all applicable Laws.

12.2 A Hazardous Material is any substance or material identified now or in the future as hazardous under any Law, or any other substance or material that may be considered hazardous or otherwise subject to statutory or regulatory requirement governing handling, disposal or clean-up.

12.3 If Contractor discovers any prior unknown environmental contamination, Contractor shall cease performance of affected Work, secure the contaminated area against intrusion, notify NorthWestern’s Project Manager and take appropriate steps for which Contractor is qualified and deems necessary to protect persons, property and the environment.

12.4 Contractor shall immediately notify NorthWestern’s Project Manager verbally and promptly thereafter in writing of the presence and location of any spill, leak or unintended release of any Hazardous Material occurring during the performance of the Work, and shall take appropriate steps necessary to protect persons, property and the environment.

12.5 Contractor is responsible for the removal and disposal of all Hazardous Materials, waste, waste material, or refuse supplied or produced (exclusive of pre-existing waste or material) by Contractor from the Project Site in compliance with applicable federal, state and local laws and regulations. Contractor shall pay all costs associated with removal and disposal unless otherwise agreed upon in writing by NorthWestern’s Project Manager. Contractor must obtain NorthWestern’s Project Manager approval prior to offsite disposal of existing soil.

12.6 Unless otherwise instructed by NorthWestern’s Project Manager, Contractor will not proceed with the on-site portion of the Work until a valid Storm Water Permit (“SWP”) has been obtained and a Project-specific Storm Water Pollution Prevention Plan (“SWPPP”) is developed. Contractor shall comply with the provisions in the SWP and the SWPPP. Contractor will repair at its own cost and to the satisfaction of NorthWestern any damage caused by Contractor to storm water control structures. Contractor will notify NorthWestern’s Project Manager immediately after any storm event that causes erosion at the Project Site or if controls are inadequate or ineffective in retaining sediment-laden runoff within the Project Site.

12.7 Contractor shall comply with all applicable federal, state and local regulations associated with the management, generation, disposal and discharge of storm, processed, treated, or wastewater associated with the Work. Contractor shall pay all costs associated with the removal and disposal of processed, treated, or wastewater unless otherwise agreed upon in writing by NorthWestern’s Project Manager.

13 Cleanup

Contractor acknowledges and agrees that cleanliness is an important factor in creating a safe Work environment. Contractor shall at all times keep Work areas in a neat, clean, and orderly condition and shall promptly and properly dispose of all debris and rubbish resulting from Contractor’s operations. If Contractor fails to maintain its Work areas in a manner satisfactory to NorthWestern or fails to immediately clean up after receipt of Notice from NorthWestern to do so, NorthWestern shall have the right, without further notice to Contractor, to clean up Contractor’s Work areas and back charge the cost to Contractor.

14 Stop Work Orders

Contractor is responsible for conducting the Work but Contractor shall at all times abide by the reasonable instructions of NorthWestern’s Project Manager and its Authorized Representative and any NorthWestern Directives whereby Contractor shall be entitled to a Change Order if such Directives are not caused by a Contractor-caused safety concern and if such reasonable instructions impact Contractor’s Contract Schedule and/or cost to perform the Work. If Contractor fails to comply with any such instructions, Directives, or the requirements of this Contract, NorthWestern or its Authorized Representative shall have the authority (a) to stop any portion of the Work affected by such failure until such failure is remedied or (b) to terminate this Contract for default in accordance with Section 41. In the event that NorthWestern is forced to issue a Stop Work Order due to a Contractor-caused issue, Contractor shall be liable for all resulting cost and Contract Schedule impacts. If NorthWestern without sufficient cause issues a Directive that stops or changes the Work, Contract may pursue its remedies under Section 62 hereof.

15 Permits and Licenses

Contractor shall promptly apply for and procure, without additional compensation, all certificates, licenses, permits, and similar permissions required by applicable Laws necessary to perform the Work except for such permits as may be specifically set forth as NorthWestern’s responsibility in Appendix 11 of the Specifications.

16 Submittals

16.1 Contractor shall submit to NorthWestern all Deliverables required by the Contract and Section 5 of the Specifications.

16.2 Review and comment by NorthWestern of Contractor’s submittals within the applicable period to review the submittals pursuant to Section 5 of the Specifications shall not relieve Contractor of its obligation to maintain the Contract Schedule and to complete the Work in accordance with this Contract, and any such review and comment by NorthWestern shall not constitute a waiver of NorthWestern’s rights under this Contract with respect to nonconforming Work.

17 Issued for Construction Documents/As-Built Drawings

17.1 Contractor shall perform the Work using only Drawings and Specifications marked by Contractor as "Issued for Construction" or equivalent designation.

17.2 Contractor shall maintain at the Project Site, a complete and current set of "Issued for Construction" Drawings and Specifications.

17.3 Contractor shall prepare and submit to NorthWestern the as-built Drawings (“As-Built Drawings”) in accordance with the Specifications.

18 Ownership and Use of Contractor Deliverables

18.1 All Deliverables prepared or developed by Contractor and submitted to NorthWestern in the performance of the Work shall be the property of NorthWestern, and such Deliverables may be used by NorthWestern without restriction in the design, construction, operation, maintenance, and use of the Project.

18.2 To the extent that the Deliverables contain any intellectual property belonging to Contractor, NorthWestern shall have a royalty-free perpetual license, at no additional charge, providing NorthWestern the right to use such property in the design, construction, operation, maintenance, expansion, and use of the Project or for any other generation facility owned by NorthWestern.

18.3 Any re-use of Deliverables other than for the Project without Contractor’s consent shall be at NorthWestern’s risk and without liability to Contractor.

19 Substitutions

Contractor may propose substitutions for the specified Goods, Materials and Equipment. Contractor’s proposal constitutes a warranty by Contractor that the proposed substitution is equal or superior to the item for which it is being substituted and is fit for its intended purpose. NorthWestern's decision on the use of any such substitution shall be final. If the substitution is accepted (such acceptance or rejection at the sole discretion of NorthWestern), then NorthWestern will issue a Change Order to that effect in accordance with Section 37. NorthWestern’s approval shall not excuse any of Contractor’s obligations including its warranty obligations. Contractor shall be solely liable for the cost and schedule impacts of using any substitution.

20 Discrepancies

Whenever, in Contractor's opinion, the NorthWestern provided Contract Documents or any portion of the Owner-Furnished Equipment, Goods, Materials and Equipment or Work is defective, deficient, or at variance with each other or with any Laws applicable to the Work, Contractor shall immediately discontinue performance on the portion of the Work affected thereby and Notify NorthWestern of such opinion. Thereafter, Contractor shall not proceed with the portion of the Work so affected until it has received a Directive specifying what action, if any, is

to be taken. If Contractor proceeds with any affected portion of the Work after said notification but prior to receiving such Northwestern Directive, such Work shall be at Contractor’s cost and risk. If Work that was completed before Contractor provided Notice is required to be revised due to the Northwestern Directive, Contractor shall be allowed the benefits of Section 37.

21 Quality Assurance/Quality Control Program

21.1 Prior to starting Work, Contractor shall submit to NorthWestern for review and approval a Project-specific Quality Assurance/Quality Control Program, which upon approval, shall be attached to this Contract as Attachment A-1. Contractor shall assign a Competent Person at the Project Site to implement and supervise the Quality Assurance/Quality Control Program. The Work shall be completed consistent with the approved Quality Assurance/Quality Control Program.

21.2 For Work that includes the installation, placement, storage, or preventative maintenance of Owner Furnished Equipment or Goods, Materials and Equipment, Contractor shall use Contractor’s appropriate procedures, systems, and forms to generate and track quality and inspection documentation, turnover punch lists, and preventive maintenance.

21.3 Contractor shall, without additional compensation, make or cause to be made all inspections and tests required by the Specifications. If the results or methods of performance of such inspections or tests fail to conform to the requirements of the Contract, NorthWestern may, at its reasonable discretion, require Contractor to perform additional inspections and tests, all costs of which shall be to the account of Contractor, unless such deficiencies or defects result from the Owner-Furnished Equipment. Contractor shall furnish NorthWestern with satisfactory documentation of the results of all inspections and tests. NorthWestern shall be given not less than seven (7) Days’ Notice of any inspections or tests to be made by Contractor or by its Subcontractors or Suppliers so that NorthWestern may, at its option and expense for its personnel, witness any such inspections or tests.

21.4 Unless specifically permitted by the Specifications, Contractor shall employ a qualified and approved independent testing agency, acceptable to NorthWestern, to perform all required testing to verify performance guarantees.

22 Materials Management Procedure

22.1 If required by the Specifications, Contractor shall, prior to the start of the Work, prepare and submit for approval a Project-Specific Materials Management Procedure (“MMP”). Contractor shall assign a Competent Person at the Project Site to implement and supervise Contractor’s Materials Management Procedure.

22.2 The MMP shall be a comprehensive system capable of providing progress updates on Goods, Materials and Equipment from requisition through order placement, and delivery to the Project Site or other storage areas, and incorporation into the Work.

22.3 In addition, the MMP shall be used to coordinate with Owner-Furnished Equipment supplier to monitor all Owner-Furnished Equipment provided to Contractor by NorthWestern or third parties. Owner-Furnished Equipment shall be monitored either from monthly progress reports and schedules furnished by NorthWestern or other third parties or from the actual receipt and turn-over of such Owner-Furnished Equipment to Contractor.

23 Control of Owner-Furnished Equipment

23.1 Owner-Furnished Equipment for Contractor’s installation, erection, or incorporation into the Work shall be offloaded and received by Contractor in the presence of NorthWestern’s Project Manager or his/her representatives. Quantities of such Owner-Furnished Equipment shall be checked jointly by Contractor and NorthWestern. Contractor’s receiving and acceptance of such Owner-Furnished Equipment shall be recorded in writing and evidenced by Contractor’s signing of forms satisfactory to NorthWestern.

23.2 If the nature of the shipping packaging allows, Contractor shall visually inspect and carefully note any visible shortage of or damage to the packaging of the Owner-Furnished Equipment furnished by NorthWestern prior to the unloading of same from the carrier. Where such inspection and inventory is not possible prior to unloading, Contractor shall visually inspect and inventory such Owner-Furnished Equipment as soon after unloading as practicable. Crates or cartons inside of sea crates will not be opened for inspection or inventory until 10 Days before installation of the material is planned. Crates and cartons will be opened, inspected, and inventoried in the presence of NorthWestern’s Project Manager or his/her representatives, in order to ascertain the existence of any visible damage or of shortages in the quantities indicated in the shipping documents. Contractor shall Notify NorthWestern promptly of any shortages or damage revealed by its inspection.

23.3 Any shortage of or damage to such Owner-Furnished Equipment that is found after the time required for inspection under Section 23.2, and that would have been revealed in a reasonable inspection pursuant to Section 23.2, shall be deemed to have been caused by Contractor, and Contractor shall assume full responsibility for any shortages in, loss of, or damage to such Owner-Furnished Equipment and for any delay in completion of the Work caused thereby. Any shortage of or damage to such Owner-Furnished Equipment that would not be revealed by a visual inspection shall remain the full responsibility of NorthWestern.

23.4 Contractor shall Notify NorthWestern of any additional requirements for Owner-Furnished Equipment being supplied by NorthWestern. Such Notice shall be made as soon as the need for the additional requirement is discovered, but, in any event, in sufficient time for NorthWestern to address the requirement. In the event of a misfit of the Owner-Furnished Equipment furnished by NorthWestern, Contractor shall immediately Notify NorthWestern of such misfit. Contractor shall take all reasonable steps to avoid standby time due to lack of such Owner-Furnished Equipment or misfits and shall continue to perform other portions of the Work pending resolution of such situations by NorthWestern.

23.5 Contractor shall Notify NorthWestern of any Owner-Furnished Equipment supplied to Contractor that is surplus and shall cooperate with NorthWestern in the disposition of such surplus as directed by NorthWestern.

24 Project Management Requirements

24.1 General Requirements. Contractor shall provide a management organization and implement a management process that complies with Section 4 of the Specifications to control and complete the Work.

24.2 Detailed Project Management and Project Schedule Requirements. Contractor shall submit, for NorthWestern’s review and approval, a Detailed Schedule for the Work that meets the requirements of Section 4 of the Specifications and which meets the Contract Schedule, including the Guaranteed Substantial Completion Date and the Final Completion Date. Contractor shall set the Project activity codes dictionary structure, calendars, activity ID and Project ID numbering system in consultation with NorthWestern. This Detailed Schedule shall include ample allowance for normal delays and difficulties that may be encountered in the Work of this nature including weather, holidays, coordination, and normal job site congestion. Contractor shall control and own the schedule margin in its Schedule and Detailed Schedule. At a minimum, the Detailed Schedule must support the dates given in the Contract Schedule and show a logical and orderly array of resource loaded activities (materials, equipment, and man hours) required to achieve completion of the Work.

25 Construction Works

Construction Works shall be in good operating condition, safe, and fit for the purposes for which they are used. Such Construction Works shall be subject to inspection from time to time by NorthWestern or by third parties as required by applicable Laws. Any Construction Works that do not conform to the requirements of the Contract or

applicable Laws shall be promptly removed by Contractor and replaced without additional cost to NorthWestern and without delaying the Contract Schedule.

26 Expediting, Inspection, and Testing

26.1 NorthWestern shall have the right, but not the obligation, to inspect and test Contractor’s Work as provided in the Specifications. Any such inspection or lack of such inspection shall not excuse Contractor’s obligation to perform in accordance with the requirements of the Contract.

26.2 If Contractor covers any portion of the Work prior to (i) an inspection or test required by this Contract, (ii) an inspection or test specified in the schedule of inspect and test activities, or (iii) an inspection or test previously requested by NorthWestern, the cost of uncovering and restoring the Work to allow for such inspection or test shall be responsibility of Contractor.

26.3 If Industry Practices would require re-examination, then re-examination of any Work may be ordered by NorthWestern. If, as a result of such re-examination, any part of the Work is determined by NorthWestern to be defective or to otherwise fail to conform to this Contract, Contractor shall not be reimbursed for uncovering the Work or for the repair or for the corrective work required to be performed or for any restoration costs. If, as a result of such re-examination, the Work is found to conform to the Contract requirements, NorthWestern shall reimburse Contractor for the allowable direct documented cost incurred by Contractor to uncover and restore the re-examined portion of the Work and the Contractor shall be entitled to an equitable adjustment to the Contract for any delay.

26.4 Rejection by NorthWestern of any non-conforming Work shall be final and binding. Rejected Work shall be promptly repaired or replaced by Contractor so as to conform to this Contract and all costs thereof shall be to Contractor’s account. If Contractor fails to promptly commence and diligently continue the repair or replacement of such rejected Work within five (5) Days of receipt of written Notice from NorthWestern to do so, NorthWestern may, at its option, cause the rejected Work to be repaired or replaced by others and all costs thereof shall be to Contractor’s account. The refusal or failure to commence correction of the rejected Work upon Directive within five (5) Days shall constitute a basis for Termination for Default of Contractor under Section 41 at the sole discretion of NorthWestern. If Contractor commences correction as required under this Section 26, Contractor reserves its right to dispute the required correction within (thirty) 30 Days following the completion of the corrective action.

27 Contractor's Shipments

27.1 Contractor shall be responsible for shipping all Contractor-supplied Goods, Materials and Equipment and Construction Works to the Project Site in accordance with Section 6 of the Specifications. Contractor shall consign such shipments to itself at the shipping address for the Project, freight fully prepaid. Contractor shall be responsible for making demurrage agreements and for settling any claims by carriers for such shipments.

27.2 Contractor shall advise NorthWestern in writing, in advance of major shipments of Goods, Materials and Equipment or the delivery of major items of Construction Works and Contractor shall be responsible for all aspects regarding the arrival, unloading, inspection, and release of the carriers' equipment. Contractor shall coordinate as necessary with NorthWestern. Contractor shall promptly unload its shipments and release the carriers' equipment from the Project Site.

28 Country of Origin

Goods, Materials and Equipment shall have their origin in the country or countries as required by the Contract and Section 6 of the Specifications. Unless otherwise indicated in the Contract, the country of origin shall be considered the country in which the Goods, Materials and Equipment become a commercially recognizable product that is substantially different in basic characteristics, purpose, or utility from its components and that results from fabricating, manufacturing, processing, or a substantial and major assembling of components.

29 Spare Parts

Contractor shall comply with the requirements for Spare Parts set forth in Section 6.3 of the Specifications.

30 Title & Risk of Loss

Title to all Goods, Materials and Equipment supplied by Contractor in the performance of its Work shall pass to NorthWestern on the earlier of (i) delivery to the Project Site or (ii) Contractor’s receipt of payment from NorthWestern for such Goods, Materials and Equipment. Regardless of which Party has title, risk of loss shall remain with Contractor until Substantial Completion Date. If NorthWestern issues Contractor a notice pursuant to Section 32, risk of loss shall, pass to NorthWestern for the completed or partially completed portion of the Work that is specified in the notice. For the purpose of clarification, Contractor assumes risk of loss and care, custody, and control of the engine-generator sets of the Owner-Furnished Equipment when placed on the foundations and of the balance of the Owner-Furnished Equipment when it is delivered to the Project Site.

31 Protection of the Work

Regardless of who may hold title, Contractor shall be responsible for protection of the Work, including any Goods, Materials and Equipment and Owner-Furnished Equipment provided to Contractor by NorthWestern or others, until NorthWestern assumes care, custody, and control per Section 20. Until that time, Contractor shall take reasonable precautions to protect the Work from damage by the elements or by other construction activities.

32 Possession Prior to Substantial Completion

NorthWestern shall have the right to take possession of or use any completed or partially completed portion of the Work as NorthWestern may deem necessary for operations. If NorthWestern exercises the foregoing right, NorthWestern will provide written Notice to Contractor and Risk of Loss shall transfer pursuant to Section 30 and the Warranty shall commence on the applicable portion of the Work. Such possession or use shall not constitute acceptance of Contractor's Work, but Contractor shall not be liable for damage or loss to the accepted portion of the Work caused by NorthWestern, Force Majeure Events, or third parties acting under the control of NorthWestern.

33 Warranty of the Work

33.1 Contractor warrants (the “Warranty”) that (i) the Goods, Materials and Equipment furnished under the Contract will be of good quality and new unless otherwise required or permitted by the Contract, (ii) the Work will be free from defects, (iii) the Work will be done in a professional and workmanlike manner in accordance with Industry Practice, and (iv) the Work will conform to the requirements of the Contract. Contractor’s professional services shall be performed in accordance with Industry Practice.

33.2 The Warranty Period for Contractor to correct its Work that fails to comply with the Warranty shall be twelve (12) months from Substantial Completion (the “Warranty Period”). Any Corrective Work done during the Warranty Period shall be warranted for an additional twelve (12) month period, but in no event shall the Warranty Period extend beyond twenty-four (24) months from Substantial Completion. Contractor shall have the right and agrees to enforce the warranties of all Subcontractors and Suppliers during the Warranty Period. In addition, Contractor shall secure the manufactures standard warranty against defects from the Supplier of the generator step-up transformer, extending for a duration expiring (i) five (5) years after energization of the transformer, or (ii) six (6) years from delivery of the transformer, whichever is earlier. Contractor shall provide the warranty terms for the generator step-up transformer to NorthWestern for review and comment prior to issuance of any purchase order for such equipment. Any Subcontractor and Supplier warranties that are still in existence at the end of such Warranty Period shall be assigned on such date to NorthWestern, and Contractor’s subcontracts with its Subcontractors and Suppliers shall authorize such assignment to NorthWestern. The Warranty Period for correction of Work relates only to the specific obligation of the Contractor to correct defects in the Work, and has no relationship to the time within which NorthWestern may seek to enforce Contractor’s third

party indemnifications obligations, Contractor’s confidentiality obligations, NorthWestern’s audit rights, and Contractor’s other obligations under this Contract unrelated to defects in the Work.

33.3 At any time prior to the end of the Warranty Period, Contractor shall replace, repeat, repair, retest, re-inspect, or otherwise correct any portion of the Work that fails to conform to the Warranty. Contractor shall perform any such Corrective Work at its sole expense. Contractor shall bear the costs of removal, transportation and reinstallation of defective Goods, Materials and Equipment required for the performance of warranty Work. In addition, Contractor shall be liable for the cost of correcting any Work of NorthWestern, or other contractors or Contractors that is destroyed or damaged by Contractor's Corrective Work or by removal of Contractor’s defective Work, subject to its liability limitations in this Contract.

33.4 In addition to the Warranty, and to the extent that Contractor is obligated to supply any Goods under this Contract, Contractor warrants that the Goods are new and fit for their specified purpose. If any Goods are found to be defective or otherwise not in conformance with the Contract prior to the expiration of the Warranty Period, NorthWestern shall have the right, upon giving notice and the basis for rejection, to either (a) reject any or all defective or nonconforming Goods or (b) accept and correct the Goods. Contractor shall pay all costs and expenses arising from such rejection or correction.

33.5 Contractor shall perform any required Corrective Work as soon as reasonably possible, but in any event, within five (5) Days after Contractor receives Notice from NorthWestern that the Work is nonconforming. If, despite Contractor’s reasonable efforts, the Corrective Work cannot be performed within said five (5) Day period, Contractor shall commence such Corrective Work promptly upon receipt of Notice from NorthWestern and shall diligently and, without interruption, perform such Corrective Work until it is completed. If Contractor contends that the Corrective Work directed by NorthWestern is not covered by the Warranty or is outside the Warranty Period, or that Contractor is not obligated to perform the Corrective Work for other reasons, Contractor shall nevertheless promptly proceed with the Corrective Work in accordance with NorthWestern’s Directive, submit a Notice of claim within seven (7) Days, and pursue its remedies under Section 62 hereof.

33.6 If, during the Warranty Period, the performance of Corrective Work would disrupt the work of others or the commercial operation of the Project or any portion thereof, such Corrective Work shall be coordinated with NorthWestern’s operating personnel in order to minimize such disruption. In the event of such disruption, NorthWestern may require that Corrective Work be performed on an expedited basis, including weekends and holidays if possible. All costs incidental to such Corrective Work incurred by Contractor, including, but not limited to, overtime premiums and shift differentials, shall be borne by Contractor.

33.7 In the event: (i) Contractor fails to commence Corrective Work promptly within the five (5) Day period prescribed above; or (ii) Contractor commences Corrective Work within the five (5) Day period but, in NorthWestern’s reasonable opinion, under Industry Practices fails to diligently, and without interruption, prosecute the Corrective Work; or (iii) NorthWestern reasonably determines that a case of emergency exists, where delay in commencing Corrective Work could result in serious loss or damage to persons or property; or (iv) NorthWestern, in its sole reasonable discretion, determines that the requirements of its Contract Schedule will be adversely affected if the Corrective Work is not performed prior to the expiration of the five (5) Day period; or (v) NorthWestern reasonably determines that the Corrective Work must be performed prior to the expiration of the five (5) Day period in order to return the Work or the Project to commercial use, then the Corrective Work may be performed by NorthWestern and all costs thereof shall be to Contractor's account, provided that NorthWestern has given reasonable Notice thereof to Contractor and afforded Contractor the opportunity to perform Corrective Work within the time determined by NorthWestern to be required. Further, the refusal or failure of Contractor to commence Corrective Work within five (5) Days of Notice from NorthWestern shall constitute a basis for

Termination for Default under Section 41, at the sole discretion of NorthWestern, regardless of the degree of completion of the Work by the Contractor.

33.8 NorthWestern shall have the right to assign Contractor’s warranties to other third parties.

33.9 NorthWestern shall operate and maintain the equipment in a manner consistent with all applicable manufacturer written requirements and recommendations. Contractor shall not be obligated to perform Corrective Work to the extent caused by NorthWestern’s failure to operate and maintain the Goods, Materials, and Equipment consistent with applicable written manufacturer specifications, nor is Contractor warranting consumables. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, CONTRACTOR’S OBLIGATION TO CORRECT DEFECTS IN THE WORK EXPIRES AT THE END OF THE WARRANTY PERIOD. EXCEPT AS SET FORTH IN THIS AGREEMENT, CONTRACTOR MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

34 Warranty of Title

Provided NorthWestern pays Contractor when due, Contractor warrants that title to the completed Work, including the Goods, Materials and Equipment, shall be clear, marketable, and free of any defects, Liens, charges, or encumbrances whatsoever.

35 Warranty against Infringement of Patents, Copyrights, Trademarks, and Trade Secrets

Contractor represents and warrants that no portion of the Work infringes any patent, copyright, trademark, or trade secret. If the Work or any portion thereof is held to constitute an infringement of any patent, copyright or trademark or an unauthorized disclosure of any trade secret, Contractor shall, at its own expense, and, at NorthWestern’s option (i) procure for NorthWestern the perpetual right to use such component of the Work (ii) replace the component of the Work with a substitute that does not infringing or do not disclose any trade secret, or (iii) modify the Work so that it becomes non-infringing or does not disclose any trade secret. Any such replacement of or modification to the Work shall meet the requirements of and shall be subject to the terms of this Contract.

36 Intellectual Property

Whenever Contractor uses any design, device, material, or process covered by letters, patent, trademark, or copyright, Contractor shall indemnify and save harmless NorthWestern from any and all claims for infringement by reason of the use of such protected design, device, material or process in connection with the Contract and shall indemnify NorthWestern for any costs, expenses and damages which it may be obliged to pay by reason of such infringement at any time during the prosecution or after the completion of the Work; provided, however, that Contractor has no such liability for equipment, design, material or processes furnished by NorthWestern or for later modifications or combinations made by NorthWestern.

37 Changes

37.1 General. NorthWestern shall have the right to direct Contractor to make changes in the Work that are within the general scope of the Work including additions, deletions, and revisions in the Goods, the Materials and Equipment, the Construction Works, or the Contract Schedule. To the extent that any such change impacts Contractor’s costs or the Schedule, the Total Contract Cost and Contract Schedule shall be equitably adjusted to compensate for such impact. Changes shall be accomplished using Request for Change Proposals, Field Work Orders, Change Order Requests, Change Orders, or a combination thereof.

37.2 Request for Change Proposal. Request for Change Proposal (“RFCP”) is a NorthWestern Directive that advises Contractor about a potential change in the Work. Unless otherwise stated in the RFCP or in some

subsequent NorthWestern Directive, Contractor shall not implement the change until it receives a fully executed Change Order.

37.3 Field Work Orders. A Field Work Order (“FWO”) is a NorthWestern Directive that instructs Contractor to take some immediate action in connection with the Work. FWOs are issued when the circumstances are such that there is not time to issue a RFCP or a Change Order. Upon receipt of a FWO, Contractor shall immediately proceed in accordance with the terms of the FWO. Any impact of an FWO on the Contract Price or Schedule shall be adjusted by a formal Change Order.

37.4 Change Order Requests. Pursuant to Section 6, within fourteen (14) Days after the occurrence of any event that Contractor believes entitles Contractor to a Change Order, including for a COVID-19 Condition, changes in Law, and for a delay to the Work attributable to the Owner-Furnished Equipment, Contractor shall determine whether it will have any cost or Contract Schedule impact on Contractor’s Work. If Contractor believes that it will have any such impact, Contractor shall prepare and submit a Change Order Request (“COR”) to NorthWestern in the form of Attachment J. When submitting a COR, Contractor shall include:

37.4.1 a detailed narrative describing the factual basis of the request including references to the applicable Contract provisions;

37.4.2 a detailed build-up of the price of the proposed change to the Contract Price, if any, including labor (hours and rates), Goods, Materials and Equipment, Subcontractors, Suppliers, Construction Works, Services, Professional Services (exclusive of markups for profit), together with supporting documentation such as time sheets and vendor invoices;

37.4.3 a statement regarding the party responsible for the cause of the requested Change Order whether that be the Contractor, the supplier of the Owner-Furnished Equipment, NorthWestern, or a third party; and

37.4.4 a detailed analysis showing the impact, if any, on the Contract Schedule.

37.5 Change Orders. A Change Order (“CO”) is a formal written instrument stating (i) the change in the Work, (ii) the adjustment, if any, in the Contract Price, and (iii) the adjustment, if any, in the Contract Schedule. Upon receipt of a properly documented COR, the Parties shall negotiate in good faith to determine whether Contractor is entitled to a Change Order and, if so, the appropriate equitable adjustment, if any. In determining the price of Changes to scope of the Work, the allowance for overhead and profit shall not exceed ten percent (10%) (however Subcontractors are entitled to reasonable separate profit and overhead). Contractor shall not be entitled to any damages, including loss of anticipated profits, based on a decrease in the Work (excluding cancellation costs). If the Parties are unable to agree on the disposition of a COR, including those necessitated by a FWO, NorthWestern will either (i) issue a Notice denying Contractor’s request or (ii) issue a unilateral Change Order setting forth NorthWestern’s final determination regarding the adjustments. If Contractor disagrees with NorthWestern’s determination, it may pursue the matter under Section 62 (“Disputes”). Pending resolution of the dispute, Contractor shall continue to perform its Work, including the disputed Work when less than $50,000 in accordance with the Contract and the NorthWestern’s Directives. If the disputed amount in the Project aggregate is in excess of $50,000 and NorthWestern reimburses Contractor provisionally for its Costs, then NorthWestern may issue to Contractor and Contractor shall implement a written notice to proceed with a change in the scope of Work, subject to resolution in arrears. Such written notice to proceed will briefly describe the change in scope of Work and the nature of the price or schedule disagreement relating to such change between the Parties. Neither the issuance of such notice nor the Contractor’s performance of changed Work pursuant to such notice will be construed as a waiver or admission by either Party as to the validity of the other Party’s disputed position with respect to the change. The Parties will exercise good faith efforts to resolve disputes subject to written notices to proceed in a timely basis, including a meeting of senior level management, but without causing delays to the Project schedule.

37.6 Claims. A Claim is a written demand by Contractor seeking an adjustment in the Contract Price or Contract Schedule or some other relief under the terms of the Contract Documents for events other than a RFCP or FWO. Contractor shall provide Notice to NorthWestern of any potential Claim within fourteen (14) Days after the event giving rise to the potential Claim becomes known to Contractor. Within fifteen (15) Days thereafter, Contractor shall submit a COR for any claimed cost or Contract Schedule impacts. The Claim will be processed in the same manner as set forth in Section 37.4.

37.7 Waiver. Contractor hereby expressly waives any right to an equitable adjustment in the Contract Price or the Contract Schedule: (i) for any event that Contractor fails to pursue in accordance with this Section 37, (ii) for Work done by Contractor without a NorthWestern Directive or Change Order, unless executed due to emergency situation, or (iii) for claims asserted after Contractor submits its final invoice.

38 Mechanical and Substantial Completion, Punch List, Liquidated Damages, Performance Guarantees, Final Completion and Final Acceptance

38.1 Mechanical Completion. When Contractor believes that it has achieved Mechanical Completion, it shall so Notify NorthWestern. If NorthWestern agrees the Work has achieved Mechanical Completion, NorthWestern shall execute the Mechanical Completion Certificate. If NorthWestern does not agree, it shall Notify Contractor of its reasons for refusing to execute the Mechanical Completion Certificate. Thereafter, Contractor shall work diligently to correct the deficiencies and resubmit its Notice. This process may be repeated as many times as necessary to obtain NorthWestern’s acceptance. Contractor has achieved “Mechanical Completion” of the Work upon satisfying the following conditions:

38.1.1 the Goods, Materials and Equipment and related operating systems, including the Owner-Furnished Equipment, have been installed, individually cleaned, leak checked and lubricated;

38.1.2 the Goods, Materials and Equipment, Owner-Furnished Equipment and related operating systems are mechanically, electrically, and structurally constructed in accordance with the requirements of the Contract Documents and Industry Practice;

38.1.3 all initial fills are complete;

38.1.4 all relays have been set and ground checks made;

38.1.5 all piping has been hydro tested and flushed/cleaned as appropriate;

38.1.6 all motor rotational checks are complete;

38.1.7 all instrumentation calibrations are complete;

38.1.8 all electrical circuits have been point-to-point checked to verify correct installation and response to simulated test signals;

38.1.9 individual and/or integrated balance of plant systems and associated equipment have been tested successfully and verified to comply with support service needs of the Equipment;

38.1.10 the Goods, Materials and Equipment are functionally complete, along with the Owner-Furnished Equipment, is ready for initiation of start-up and commissioning activities including first fire, initial operations, adjustment, and testing except for non-critical deficiencies; and

38.1.11 NorthWestern has approved of and signed the Mechanical Completion Certificate.

38.2 Punch List. No later than thirty (30) Days prior to Substantial Completion, Contractor shall prepare and submit to NorthWestern for review and comment the Punch List of Work items required to be completed prior to Final Completion. The Parties shall work cooperatively and provide all comments in a manner such that the Punch List will be finalized no later than fifteen (15) Days prior to Substantial Completion. Contractor shall complete the items identified on the Punch List promptly after achievement of Substantial Completion. The Punch List Holdback will be retained by NorthWestern until the items on the Punch List are complete.

38.3 Performance Tests, Performance Guarantees, and Performance Liquidated Damages. Contractor shall perform the Acceptance Tests to demonstrate that the Owner-Furnished Equipment satisfies the Performance, Emissions, and Functional Guarantees set forth in Attachment A, Section 23 and Attachment A, Appendix 14, Exhibit I. Contractor shall also satisfy the Performance Guarantees and Functional Guarantees set forth in Section 23 of the Specifications. All guarantees shall be demonstrated by completion of the Acceptance Tests. Performance Guarantees and Functional Guarantees shall be demonstrated on both natural gas fuel and fuel oil, if applicable, as specified in Section 23 of the Specifications.

38.4 Substantial Completion. When Contractor believes that it has achieved Substantial Completion, it shall so Notify NorthWestern. If NorthWestern agrees the Work has achieved Substantial Completion, NorthWestern shall execute the Substantial Completion Certificate. If NorthWestern does not agree, it shall Notify Contractor of its reasons for refusing to endorse the Substantial Completion Certificate. Northwestern shall notify Contractor of acceptance or refusal within forty-eight (48) hours of Contractor’s Notification. Thereafter, Contractor shall work diligently to correct the deficiencies and resubmit its Notice. This process may be repeated as many times as necessary to obtain NorthWestern’s endorsement. Contractor has achieved “Substantial Completion” of the Work upon satisfying the following conditions:

38.4.1 Acceptance Tests have been successfully completed while in compliance with the Specifications and such Acceptance Test results have been provided to NorthWestern;

38.4.2 Performance Guarantees applicable to the Work and the Owner-Furnished Equipment for Substantial Completion have been achieved or the Minimum Performance Requirements have been achieved and associated performance liquidated damages paid (or credited against the Contract Price);

38.4.3 all Air Emissions Limits set forth in the Specifications have been met and the applicable requirements of the Owner Permits have been satisfied as demonstrated by the raw data developed by the third party emissions testing company.

38.4.4 the Functional Tests and Owner-Furnished Equipment Functional Tests satisfy the applicable requirements (the Reliability Test and Owner-Furnished Equipment Lube Oil Consumption Test do not need to be completed by Substantial Completion);

38.4.5 Contractor has paid all delay liquidated damages due under this Agreement (or credited against the Contract Price);

38.4.6 the Work has achieved Mechanical Completion and remains safe to operate; all Services, Goods, Materials and Equipment, required under the Work have been completed and certified as such in accordance with the requirements of this Contract (other than Punch List items);

38.4.7 the continuous emissions monitoring system (CEMS) has successfully completed field certification testing and the results have been submitted to the appropriate governmental authorities;

38.4.8 the balance of plant equipment and systems are capable of supporting full output simultaneously while achieving applicable Minimum Performance Requirements;

38.4.9 operations personnel have received training as specified and a functional operations manual has been delivered to NorthWestern;

38.4.10 the Punch List has been provided to, and agreed by, NorthWestern; and

38.4.11 NorthWestern has approved of and signed the Substantial Completion Certificate; provided that the Contractor is not liable for liquidated damages during the time period between Contractor’s notification to NorthWestern of Substantial Completion and NorthWestern’s later acceptance.

38.5 Final Completion. When Contractor believes that it has achieved Final Completion, it shall so Notify NorthWestern. If NorthWestern agrees the Work has achieved Final Completion, NorthWestern shall execute the Final Acceptance Certificate. If NorthWestern does not agree, it shall Notify Contractor promptly of its reasons for refusing to execute the Final Acceptance Certificate. Thereafter, Contractor shall work diligently to correct the deficiencies and resubmit its Notice. This process may be repeated as many times as necessary to obtain NorthWestern’s acceptance. Contractor has achieved “Final Completion” of the Work upon satisfying the following conditions:

38.5.1 Substantial Completion of the Work and Owner-Furnished Equipment has been achieved (including that the Functional Tests satisfy the applicable requirements) and either (a) all of the Performance Guarantees applicable to the Work and the Owner-Furnished Equipment have been achieved or (b) all of the Minimum Performance Requirements applicable to the Work have been achieved and Contractor has paid all performance liquidated damages as required;

38.5.2 the Functional Tests and Performance Tests for the Work and the Owner-Furnished Equipment satisfy the applicable requirements required for Final Acceptance;

38.5.3 mechanical calibrations, electrical continuity and ground fault tests have been successfully completed and any defects found in the Work have been corrected;

38.5.4 the Work has been constructed in accordance with the Contract Documents;

38.5.5 the As-Built Drawings accurately reflect the Work as constructed;

38.5.6 the Work is capable of being operated in a safe and proper manner in accordance with applicable Law and permits at all operating conditions and modes specified in the Specifications;

38.5.7 Contractor shall have delivered to NorthWestern all operation and maintenance manuals, As-Built Drawings, Spare Parts lists, and other information in accordance with the Contract Documents and Specifications and as required for NorthWestern to operate and maintain the Project;

38.5.8 either (a) all items on the Punch List have been completed or (b) the Parties have reached an agreement and Contractor has paid all amounts due to NorthWestern pursuant thereto;

38.5.9 all of Contractor’s cleanup and related obligations have been completed in accordance with the Contract Documents, Specifications, and Applicable Laws;

38.5.10 any and all Liens in respect to the Work the Project Site or any fixtures, personal property or Goods, Materials and Equipment included in the Work created by, through or under, or as a result of any act or omission of, Contractor or any Subcontractor or other Person providing labor or materials in connection with the Project shall have been released or bonded in a form satisfactory to NorthWestern (provided that Contractor’s and Subcontractors’ final waiver of Liens shall be given concurrently with Final Acceptance and payment of amounts due by NorthWestern in connection therewith);

38.5.11 Contractor has assigned to NorthWestern, or provided to NorthWestern, all warranties or guarantees that Contractor received from Subcontractors to the extent required by the Contract Documents;

38.5.12 Contractor shall have paid all schedule liquidated damages due under the Contract, if any;

38.5.13 NorthWestern has approved and signed the Final Acceptance Certificate. NorthWestern endorsement of the Final Acceptance Certificate constitutes NorthWestern’s Final Acceptance of the Work. Such Final Acceptance shall not relieve Contractor of its continuing obligations under this Contract, including its warranty and indemnity obligations;

38.5.14 All Air Emissions Limits set forth in the Specifications have been met and the applicable requirements of the Owner Permits have been satisfied; and

38.5.15 The continuous emissions monitoring system (CEMS) has successfully completed field certification testing and the results have been submitted to the appropriate governmental authorities.

38.6 Liquidated Damages for Delay.

38.6.1 The Parties agree that in the event of a Contractor delay, actual damages will be difficult to quantify and the Parties agree that the liquidated damages provided for in this Contract are a reasonable estimate of the NorthWestern’s Losses and are not a penalty. If Contractor fails to achieve the milestones set forth below by the specified date, Contractor shall pay to NorthWestern the applicable daily amount specified below as liquidated damages for each Day by which the actual date of completion of said milestone exceeds the respective date, up to a maximum for all schedule related liquidated damages in an amount not to exceed Fifteen Percent (15%) of the Contract Price. Such liquidated damages shall be the NorthWestern’s sole and exclusive remedy for a Contractor delay. Contractor acknowledges the reasonableness of such liquidated damages for delay and agrees to pay any delay liquidated damages properly assessable against Contractor.

38.6.2 Liquidated damages for delay shall be determined as follows:


MILESTONE	DESCRIPTION	DEADLINE
Milestone A	Guaranteed Substantial Completion Date	January 3, 2024

38.6.3 The daily amount of delay liquidated damages for each Milestone shall be calculated as follows:


			Days			Daily Liquidated Damages Amount
			1-10			$8,500
			11-20			$ 8,500
			21-30			$13,000
			31 or more			$80,000

38.6.4 Contractor agrees that all sums payable by Contractor to NorthWestern as liquidated damages pursuant to this clause may be deducted by NorthWestern from any amounts due Contractor. If amounts due Contractor are insufficient to pay the liquidated damages due hereunder, Contractor shall pay all such undisputed amounts to NorthWestern within ten (10) Days following receipt of NorthWestern’s invoice. It is further agreed that this clause shall not constitute a waiver of any right of NorthWestern to damages or of any other remedies of NorthWestern under this Contract for other non-delay breaches.

39 Suspension of the Work

39.1 NorthWestern shall have the unilateral right to suspend performance of the Work, in whole or in part, by giving Notice to Contractor specifying the extent to which the Work is suspended and the effective date of such suspension. Contractor shall suspend performance of the Work to the extent that the Notice so specifies, but shall continue to perform any portion of the Work not suspended. To the extent that any such suspension affects Contractor’s cost of or time for performance, the Contract Price and Contract

Schedule shall be equitably adjusted to compensate for such impact. Contractor may suspend its performance after fourteen (14) Days’ notice if NorthWestern fails to pay Contractor any undisputed amount due under the Contract.

39.2 All requests for adjustment in the time or cost for performance under this Section 39 shall be submitted to NorthWestern in accordance with the provisions of Section 37.

40 Termination for Convenience

40.1 NorthWestern shall have the unilateral right to terminate this Contract, in whole or in part, for its convenience, by giving Notice to Contractor specifying the extent to which the Contract is terminated and the effective date of such termination. Contractor shall discontinue performance of the Work to the extent that the Notice so specifies, but shall continue to perform any portion of the Work not terminated. To the extent that any such termination affects Contractor’s cost of or time for performance, the Contract Price and Contract Schedule shall be equitably adjusted to reflect any such impact, including reasonable and necessary amounts paid to Subcontractors, and Suppliers to cancel subcontracts.

40.2 Contractor, if and to the extent requested to do so by NorthWestern, shall promptly assign to NorthWestern, in form and content satisfactory to NorthWestern, Contractor’s rights, title and interest to the Goods, Materials and Equipment and Construction Works purchased for or committed to the terminated Work (whether completed or in progress), and Work in progress and completed Work (whether at Project Site or at other locations), or shall otherwise dispose of same in accordance with NorthWestern's Directives.

40.3 Subject to Contractor’s compliance with the provisions of this Section 40 and other applicable sections of the Contract, Contractor shall recover from NorthWestern, as complete, full, and final settlement for such terminated Work, a sum equal to its actual direct cost for the terminated Work satisfactorily performed as of the effective date of termination, plus an allowance for reasonable overhead and profit on such direct cost of the Work performed, provided, however, that such a sum does not exceed a pro rata portion of the Contract Price, commensurate with the ratio that the terminated Work performed by Contractor and accepted by NorthWestern as of the effective date of the termination bears to the entire Work specified under this Contract prior to termination. Any payment to Contractor hereunder shall be less any amounts previously paid to Contractor. In addition, Contractor shall recover from NorthWestern its reasonable and direct costs incurred to terminate its subcontracts, including lease and rental agreements, supply agreements, and other commitments. In no event, however, shall the total payment to Contractor under this Section 40 exceed the Contract Price prior to termination. Contractor shall not be entitled to recover indirect, special, incidental, consequential, or exemplary damages, including loss of profits or revenue on Work not performed except for reasonable and necessary amounts paid to Subcontractors, and Suppliers to cancel subcontracts.

40.4 All requests for compensation under this Section 40 shall be submitted to NorthWestern in accordance with the provisions of Section 37.

41 Termination for Default

41.1 If Contractor (i) fails to supply adequate Competent Persons to perform the Work, (ii) fails to perform the Work in a safe professional and workmanlike manner; (iii) fails to abide by all applicable Laws, (iv) fails to make prompt undisputed payments to its Subcontractors and Suppliers, (v) fails to abide by NorthWestern reasonable Directives, (vi) or is otherwise in material breach of its obligations under this Contract and Contractor fails to commence to correct any such condition within seven (7) Days after receipt of Notice from NorthWestern, NorthWestern may, without any further Notice or prejudice to any other right or remedy, terminate the Contract for default.

41.2 In the event of termination by NorthWestern under this Section 41, Contractor, if and to the extent requested to do so by NorthWestern, shall promptly assign to NorthWestern, in form and content

satisfactory to NorthWestern, Contractor’s rights, title and interest to Goods, Materials and Equipment purchased for or committed to the terminated Work (whether completed or in progress) and Work in progress and completed Work (whether at the Project Site or at other locations) and to those subcontracts, lease and rental agreements, supply agreements, and other commitments so designated by NorthWestern. NorthWestern, at its option and without waiving any other available remedy under this Contract or at Law or in equity, may take possession of the Work at the Project Site and of any or all of the Goods, Materials and Equipment (whether delivered to the Project Site or on order by Contractor) and finish the terminated Work by whatever method NorthWestern deems necessary; including, obtaining Goods, Materials and Equipment similar to those to be provided under this Contract, on terms and conditions that NorthWestern deems appropriate.

41.3 In the event NorthWestern elects to terminate this Contract pursuant to this Section 41, NorthWestern shall have the right to use any of Contractor’s Intellectual Property and proprietary information that NorthWestern deems necessary to complete the Work.

41.4 In the event of a termination for default, Contractor shall be liable to NorthWestern for all Losses incurred by NorthWestern arising from the default including all cover costs to complete the terminated Work, subject to Contractor’s limitations of liability herein. Upon termination under this Section, NorthWestern may withhold any further payments to Contractor unless and until all of the Work, including the terminated Work, has been completed and accepted by NorthWestern. NorthWestern shall thereafter determine the Losses incurred by NorthWestern as a result of the termination. If the Losses are less than the unpaid balance of the Contract Price, NorthWestern shall pay the difference to Contractor. If the Losses exceed the unpaid balance of the Contract Price, Contractor shall promptly, after receipt of NorthWestern’s invoice, pay to NorthWestern the amount of such excess. Contractor shall continue to be fully liable to NorthWestern for all other damages to NorthWestern. If the Contract is terminated under this Section and it is later determined or adjudged that there was no default, such termination shall be considered to be a termination for convenience and not a breach of contract, and the provisions of Section 40 (Termination for Convenience) shall apply.

42 Insurance

Contractor shall maintain the insurance coverage described in Attachment H (Insurance Requirements). Before mobilization to the Site, Contractor is required to secure and maintain the Builder’s All-Risk Insurance coverage in accordance with Attachment H.

43 Indemnity

43.1 TO THE FULLEST EXTENT PERMITTED BY LAW, CONTRACTOR SHALL INDEMNIFY, DEFEND, AND HOLD HARMLESS NORTHWESTERN AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND REPRESENTATIVES FROM AND AGAINST ANY AND ALL LOSSES, TO THE EXTENT SUCH LOSSES ARISE FROM OR ARE IN CONNECTION WITH: (I) CLAIMS OF THIRD PARTIES TO THE EXTENT CAUSED BY PERFORMANCE OF WORK BY CONTRACTOR, ITS SUBCONTRACTORS AND RESPECTIVE AGENTS AND REPRESENTATIVES; (II) CLAIMS BY ANY GOVERNMENTAL AUTHORITY TO THE EXTENT CAUSED BY VIOLATIONS OR ALLEGED VIOLATIONS OF APPLICABLE LAW DURING THE PERFORMANCE OF WORK BY CONTRACTOR, SUBCONTRACTORS AND RESPECTIVE AGENTS AND REPRESENTATIVES; (III) CLAIMS THAT THE WORK OR ANY PORTION THEREOF INFRINGE UPON ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER INTELLECTUAL PROPERTY RIGHT, OR CONSTITUTES AN UNAUTHORIZED DISCLOSURE OF ANY TRADE SECRET (EXCLUSIVE OF ANY OWNER-FURNISHED EQUIPMENT); OR (IV) CLAIMS BY ANY GOVERNMENTAL AUTHORITY FOR TAXES THAT ARE THE RESPONSIBILITY OF CONTRACTOR, ITS SUBCONTRACTORS AND RESPECTIVE AGENTS UNDER THIS AGREEMENT. CONTRACTOR’S INDEMNITY OBLIGATION DOES NOT APPLY TO THE EXTENT LOSSES

ARISE OR RESULT FROM THE NEGLIGENT OR INTENTIONALLY WRONGFUL ACTS OR OMISSIONS OF NORTHWESTERN. IN THE EVENT OF CONCURRENT NEGLIGENCE, LOSSES WILL BE BORNE BY EACH PARTY IN PROPORTION TO ITS SHARE OF THE NEGLIGENCE.

43.2 CONTRACTOR’S OBLIGATION TO DEFEND NORTHWESTERN IS INDEPENDENT OF AND IN ADDITION TO CONTRACTOR’S DUTY TO INDEMNIFY AND HOLD NORTHWESTERN HARMLESS. IF ANY PERSON OR ENTITY ASSERTS A CLAIM FOR WHICH NORTHWESTERN COULD BE HELD LIABLE, THEN CONTRACTOR SHALL ALSO HAVE A DUTY TO DEFEND NORTHWESTERN. IF ANY CLAIMS ARISE FOR WHICH NORTHWESTERN IS ENTITLED TO INDEMNITY, NORTHWESTERN SHALL PROMPTLY GIVE WRITTEN NOTICE TO CONTRACTOR AND PROVIDE A COPY OF ANY CORRESPONDENCE, PLEADING AND LEGAL PROCESS, ALONG WITH A DETAILED DESCRIPTION OF THE CLAIM. CONTRACTOR SHALL ENGAGE LEGAL COUNSEL REASONABLY ACCEPTABLE TO NORTHWESTERN TO ASSUME THE DEFENSE AND SHALL CONTEST, PAY, SETTLE OR COMPROMISE ANY SUCH CLAIM ON SUCH TERMS AND CONDITIONS AS CONTRACTOR MAY DETERMINE; PROVIDED CONTRACTOR SHALL NOT ENTER INTO ANY SETTLEMENT OR CONSENT TO ENTRY OF ANY JUDGMENT WITHOUT THE WRITTEN CONSENT OF NORTHWESTERN THAT DOES NOT INCLUDE AN UNCONDITIONAL RELEASE FROM ALL CLAIMS AND LIABILITIES, INCLUDES A STATEMENT AS TO AN ADMISSION OF FAULT, CULPABILITY OR FAILURE TO ACT BY OR ON BEHALF OF NORTHWESTERN, OR IMPOSES ANY CONDITIONS, FUTURE OBLIGATIONS OR LIMITATIONS ON NORTHWESTERN.

43.3 THE PROVISIONS OF THIS SECTION 43 SHALL SURVIVE FINAL ACCEPTANCE AND THE TERMINATION OF THIS CONTRACT.

44 Waiver of Consequential Damages

Except for (i) specified liquidated damages, if any, or, (ii) those consequential damages resulting from the willful misconduct of NorthWestern or Contractor, neither Party shall be liable to the other, whether such liability arises out of contract, warranty, tort (including negligence), strict liability, or any other cause or form of action whatsoever, for consequential, special, indirect, punitive, exemplary, or incidental loss or damage, including loss of anticipated profits, loss of power, costs of replacement power, and loss of reputation.

45 Limitation of Liability

Contractor’s liability to NorthWestern shall not exceed the Contract Price (the “Maximum Liability Cap”). The foregoing limitation upon Contractor’s liability shall apply under any theory of recovery regardless of Loss, including contract, warranty, tort (including negligence whether actual, imputed, or presumed by operation of law), strict liability. However, such limitation shall not apply to Contractor’s bodily injury or third party property damage indemnity in Section 43 or to any claims arising directly or indirectly from Contractor’s willful misconduct or gross negligence.

Contractor’s liability for late completion liquidated damages and performance liquidated damages shall be further limited as follows:

(i) Ten Percent (10%) on the performance guarantee liquidated damages; and

(ii) Twenty Percent (20%) on the aggregate total of both late completion and performance guarantees.

46 Force Majeure

46.1 Neither Party shall be responsible for or liable for or be deemed in breach of this Contract because of any delay, interference, disruption, or hindrance in the performance of their respective obligations hereunder, if and to the extent that any such impact in performance is caused by a Force Majeure event.

46.2 If Contractor experiences a delay, interference, disruption, or hindrance or other inability to perform that is caused by a Force Majeure event described herein, the Contract Schedule shall be adjusted and the scheduled completion date shall be extended by a period of time equal to the amount of time reasonably determined by the Parties to be necessary for Contractor to recover from such impact in performance and Contractor shall submit a Change Request for Contract Price pursuant to Section 37, to account for any cost impacts. For the avoidance of doubt, any Northwestern delay, including Owner supplied equipment, due to Force Majeure event shall be treated as a Northwestern caused delay and Contractor shall follow the Change Order procedure pursuant to Section 37.

46.3 The Party claiming a delay under this Section shall use all reasonable efforts to remedy any inability to perform due to the occurrence of a Force Majeure event. As and when such affected Party is able to resume performance of its obligations under this Contract, such affected Party shall give the other Party Notice to that effect.

46.4 If Contractor experiences a delay, interference, disruption, or hindrance or other inability to perform that is due to a Force Majeure event described herein, Contractor shall take all reasonable steps to reduce, mitigate, remove, or overcome the delay, interference, disruption or hindrance or its direct or indirect effects or impacts. If Contractor fails to take such action as NorthWestern may, in its reasonable discretion and after seven (7) Days written Notice to Contractor, and at Contractor’s expense, initiate reasonable measures to remove or relieve such delay, interference, disruption, or hindrance or its direct or indirect effects or impacts and thereafter require Contractor to resume full or partial performance of the Work, or may declare Contractor in default under this Contract.

46.5 Failure of the affected Party to provide the Notice or to take the prescribed actions hereunder shall be deemed a waiver by the affected Party of its right to seek an extension of time for its performance.

46.6 As of the Effective Date, the Parties are experiencing a declared national emergency due to the COVID-19 Pandemic. The situation remains fluid and the COVID-19 Pandemic may interrupt or otherwise impact the completion of the Project. Federal, state and local governments have issued and are anticipated to be issuing further directions and instructions that may impact Contractor’s performance of the Work, including in ways that are not yet known and cannot be fairly anticipated. It is also unknown how the COVID-19 Pandemic will impact availability of labor, supplies, services, equipment, transportation, or access to Site. Contractor shall make reasonable efforts that are commercially practicable to mitigate additional time and cost arising from the COVID-19 Pandemic, while it reserves the right to seek additional time and Actual COVID-19 Cost upon the occurrence of a COVID-19 Condition.

Upon the occurrence of a COVID-19 Condition, Contractor shall provide prompt written notice of the claim to the NorthWestern Project Manager. Each notice of a COVID-19 Condition must contain sufficient justification and substantiation or will be rejected without further consideration.

If additional compensation is requested, the notice of the COVID-19 Condition must identify the amount claimed and a breakdown of the Actual COVID-19 Cost for review by the Project Manager. If the Actual COVID-19 Cost amount is unknown, Contractor shall provide a reasonable estimate of the anticipated increase in the Contract Price. If an adjustment to the Contract Schedule is requested, Contractor shall provide a reasonable estimate of the specific number of Days for which the additional time for performance of the Work is sought.

The NorthWestern Project Manager will promptly review COVID-19 Condition claim and within ten (10) Days take one or more of the following actions: (1) request additional supporting data; (2) reject the

COVID-19 Condition claim in whole or in part; or (3) approve the COVID-19 Condition Claim in whole or in part and issue the FWO as set forth below; or (4) approve the COVID-19 Condition Claim and suspend Work, in whole or in part, if NorthWestern does not want to incur the Actual COVID-19 Cost. Pending resolution of a COVID-19 Condition claim, Contractor shall proceed diligently with performance of Work not affected by the COVID-19 Condition unless otherwise directed by NorthWestern. If the Project Manager accepts the COVID-19 Condition, the Project Manager will issue a Field Work Order in accordance with Section 37.3 and the Parties will process a Change Order in accordance with Section 37.4 and Attachment B, Section 9. If the Project Manager has not responded within ten (10) Days as set forth herein or if Contractor disagrees with the NorthWestern Project Manager COVID-19 Condition determination, Contractor may pursue the matter under Section 62 (“Disputes”). Pending resolution of the dispute, Contractor shall proceed diligently with performance of Work not affected by the COVID-19 Condition.

47 Avoidance of Liens

47.1 Third party Liens. Provided NorthWestern pays Contractor any undisputed amount when due, Contractor shall promptly pay for all undisputed things including Services, Labor, Construction Works, Goods, Materials and Equipment, and Goods used or furnished by Contractor in the performance of the Work and shall, at its sole expense, keep the Project free and clear of any Liens. If Contractor fails to release and discharge or bond over any such Lien against the Project within seven (7) Days after receipt of Notice from NorthWestern to remove such Lien, NorthWestern may, at its option, pay, discharge, or release the Lien or otherwise deal with the Lien claimant. In the event that NorthWestern elects to pay any such Lien claim, the amount of such payment shall be considered reasonable. Contractor shall be liable to NorthWestern, as applicable, for any Losses incurred by NorthWestern in resolving Lien claims including reasonable attorney fees and court costs. NorthWestern shall be entitled to deduct such costs from payments otherwise due to Contractor. Contractor shall obtain notarized signatures on all Final Lien Releases. Contractor shall not be required to obtain notorized signatures on any Partial Lien Release, but in the event that the signature on any Partial Lien Release is not authentic, Contractor assumes all risk associated with not obtaining a notarized signature and Contractor shall indemnify NorthWestern from all Losses incurred by NorthWestern as a result of not obtaining a notarized signature.

47.2 Liens by Contractor. Unless otherwise required by statute, the Parties agree that NorthWestern may discharge any Lien filed by Contractor by posting a surety bond with a penal sum equal to 150% of the Lien claim amount.

48 Proprietary Information

48.1 Unless required by applicable Laws, neither Party shall disclose to third parties, information obtained from the other Party in the performance of this Contract which has been designated by that Party as confidential or proprietary information (“Confidential or Proprietary Information”).

48.2 This obligation shall not apply to any information (a) in the public domain, (b) already in the Party’s possession free of any confidentiality agreement and not obtained from the other Party, (c) provided to a Party from a third party free of any confidentiality obligation and not obtained from the other Party, or (d) independently developed. Nothing in this Section shall limit or preclude either Party from use of Confidential or Proprietary Information in its possession prior to the execution of this Contract in accordance with the terms of any agreements governing such use.

48.3 Either Party shall have the right, without the other Party’s approval, to disclose Confidential or Proprietary Information to the limited extent required to comply with any request or order of a governmental agency or court. Other than as provided in Section 65, if a Party intends to disclose Confidential or Proprietary Information to any governmental agency or court, that Party shall, to the extent it does not violate or fail to comply with any such request or order, advise the other Party prior to

disclosure. Each Party is responsible for taking any action it deems necessary, such as seeking a protective order from the appropriate authority, to protect its confidential and proprietary information.

48.4 The Contract, and any other information issued to or made available to Contractor by or through NorthWestern in connection with the Work are Proprietary Information whether or not so marked by NorthWestern. All such Proprietary Information furnished by NorthWestern to Contractor shall remain NorthWestern’s property. Upon completion of the Work, Contractor shall, as requested by NorthWestern, either destroy or return such documents including any copies thereof except that Contractor may retain one copy for its records.

49 Gratuities

49.1 Contractor, its employees, agents, and representatives, shall not give or offer to give to an officer, official, or employee of NorthWestern, gifts, entertainment, payments, loans, or other gratuities to influence the award of this Contract or any other contract or to obtain favorable treatment under this Contract or any other contract or purchase order.

49.2 Violation of this Section 49 is a material breach of this Contract and any other contract between Contractor and NorthWestern, and may subject all contracts with Contractor to termination for default under the provisions of Section 41 (Termination for Default) of this Contract, as well as any other remedies at law or in equity available to NorthWestern.

50 Assignment

Contractor shall not sell, assign, or transfer any of its rights or obligations under this Contract, in whole or in part, by operation of Law, or otherwise, without the prior written consent of NorthWestern. Any assignment of this Contract in violation of the foregoing shall be voidable at the option of NorthWestern. However, NorthWestern shall have the right to assign this Contract to Lenders, or Affiliated Companies including their respective successors or assigns each of whom shall have the right to make subsequent assignments. Contractor shall include in any subcontracts, lease agreements, and purchase orders a provision giving to Contractor the right to assign any such subcontracts and purchase orders to NorthWestern, its successors, and assigns and giving each the right to make subsequent assignments.

51 Notices

Any Notice required by this Contract shall be in writing, signed by an Authorized Representative of the Party issuing the Notice, and delivered to the Authorized Representative of the other Party at the address given on the signature page of the Contract. A Notice shall be effective upon receipt or on the Notice's effective date, whichever is later. Notice shall not be made by telephone, telegraph, facsimile, or electronic mail.

52 Severability

Any invalid or unenforceable provision of this Contract shall be deemed severed from the Contract, and the balance of the Contract shall be reformed in such a manner as to effect, to the maximum extent possible, the original intent of the Parties.

53 Modifications and Amendments

No modification, amendment, rescission, waiver, or other change of or to this Contract shall be of any force or effect unless such modification, amendment, rescission, waiver, or other change is set forth in a fully executed Change Order.

54 Remedies

Unless otherwise designated as “sole and exclusive,” all remedies allowed by the Contract may be exercised cumulatively and concurrently with each other provided there is no double recovery for the same damages.

Where remedies are not specified in this Contract, then the Parties shall be entitled to their remedies at law or in equity for such occurrence, subject, nevertheless, to the Contractor’s Limitation of Liability in Section 45.

55 Publicity

Contractor shall not issue news releases or publicize or issue advertising pertaining to the Work or to this Contract without first obtaining the written approval of NorthWestern.

56 Site Records and Audit

56.1 Contractor shall maintain, at the Project Site, one (1) record copy of this Contract, including all drawings, Specifications, addenda, Change Orders, Field Work Orders, and other modifications in good order and currently marked to record changes and selections made during construction. In addition, Contractor shall maintain, at the Project Site, one (1) record copy of approved shop drawings, product data, samples, and other Deliverables required of Contractor. These record copies shall be available to NorthWestern at all times and shall be delivered to NorthWestern upon completion of the Work. Delivery of the record copies shall be a condition precedent to Final Acceptance.

56.2 NorthWestern reserves the right to perform an audit of all Contractor’s and associated Subcontractor’s and Vendors documentation to substantiate compliance with the Specifications and Laws. NorthWestern shall be allowed to perform total of (3) audits, including one (1) audit that can be performed after Final Completion. Audit locations and/or additional follow-up audits shall be determined based on audit conditions/findings

57 Interpretation

57.1 Any reference to an article, section, paragraph, exhibit, appendix, or attachment refers to an article, section, paragraph, exhibit, appendix, or attachment of or to this Contract unless otherwise specified. The table of contents and the headings and subheadings are inserted for convenience only and shall not be deemed a part of this Contract nor taken into consideration in the interpretation or construction of this Contract.

57.2 As used in this Contract, the singular includes the plural, and the masculine includes the feminine. The terms "hereof," "herein," "hereunder," and comparable terms refer to the entire Contract with respect to which such terms are used and not to any particular article, section, or subdivision thereof. The terms “includes” and “including” shall mean “including, but not limited to.”

57.3 In the case of any conflict between or among the documents or provisions that make up the drawings and Specifications, the Specifications shall take precedence over the drawings and Specifications and the Drawings shall take precedence over the Specifications and, within drawings text shall take precedence over graphics, and the specific shall take precedence over the general.

57.4 If any provision of this Contract contemplates that NorthWestern and Contractor will negotiate any matter after the Effective Date, such provision shall be construed to include an obligation on the part of the Parties to negotiate in good faith in accordance with the intent of this Contract.

58 English Language

Contractor hereby represents that it has sufficient knowledge of the English language to fully understand this Contract. All Deliverables provided by Contractor shall be in the English language. Contractor shall bear all costs of translation and assumes all risk of such translation.

59 Non-Waiver

Any Party’s waiver of any breach or failure to enforce any of the terms, covenants, conditions, or provisions of this Contract at any time shall in no way affect, limit, modify, waive, or be deemed to affect, limit, modify, or

waive that Party’s right thereafter to enforce or compel strict compliance with each term, covenant, condition, or provision of this Contract, any course of dealing or custom of the trade notwithstanding.

60 Survival

In order that the Parties may fully exercise their rights and perform their obligations hereunder arising from the performance of the Work, any provisions of this Contract that are required to ensure exercise of such rights or performance shall survive the expiration or termination of this Contract regardless of the cause for such termination and regardless of whether or not such termination applies to all or only part of this Contract.

61 Laws and Regulations

Contractor shall comply strictly with all Laws applicable to Contractor's Work. Contractor shall not, under any circumstances, apply for any exception or variance from applicable Laws without NorthWestern's prior written approval. This Contract shall be interpreted and applied in accordance with the laws of the State of Montana without regard to Montana’s choice or conflict of law rules or statutes.

62 Disputes, Forum and Applicable Law

62.1 This Contract shall be governed in all respects by the laws of the State of Montana.

62.2 When a Dispute has arisen and negotiations between the parties have reached an impasse, either party may give the other party written notice of the Dispute. In the event such notice is given, the parties shall attempt to resolve the Dispute promptly by negotiations between representatives who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for the matter. Within ten (10) Days after delivery of the notice, the receiving party shall submit to the other a written response. Thereafter, the representatives shall confer in person or by telephone promptly to attempt to resolve the dispute. All reasonable requests for information made by one party to the other will be honored. If the dispute has not been resolved by negotiation between the representatives within thirty (30) Days of the notice, or if the parties have failed to confer within twenty (20) Days after delivery of the notice, the parties shall endeavor to settle the dispute by non-binding mediation. The mediation shall consist of both parties agreeing to one neutral mediator, providing the mediator with simultaneous, non-shared written position statements, and daylong mediation at the chosen mediator’s desired location. Should the mediation not lead to settlement of the dispute, then either party may proceed to a court of competent jurisdiction. All negotiations and proceedings pursuant to this process are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence and any additional confidentiality protections provided by applicable law.

62.3 Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Contract may be brought against either of the parties in the courts of the State of Montana, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Montana and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on either party anywhere in the world.

63 Equal Opportunity; Affirmative Action; and Bulk-Power System executive order

63.1 Contractor acknowledges that NorthWestern is subject to various federal laws, executive orders, and regulations regarding equal employment opportunity and affirmative action. These laws may also be applicable to Contractor. The parties hereby incorporate 41 C.F.R 60-1.4(a)(7); 29 C.F.R. Part 471, Appendix A to Subpart A; 41 C.F.R. 60-300.5(a)ii; and 41 C.F.R.60-741.5(a) if applicable. Contractor and subcontractors shall abide by the requirements of 41 C.F.R. 60-300.5(a) and 41 C.F.R. 741.5(a). These regulations prohibit discrimination against qualified protected veterans, and qualified individuals on the basis of disability, respectively, and require affirmative action by covered prime contractors and

subcontractors to employ and advance in employment qualified protected veterans and qualified individuals with disabilities, respectively.

63.2 In its performance of this Contract, Contractor shall abide by the requirements of Executive Order 13920, issued May 1, 2020, entitled “Securing the United States Bulk-Power System,” and any and all regulations, rules, guidelines, requirements, or directives promulgated thereunder and/or issued in connection therewith as of the Effective Date (collectively, the “Bulk-Power System Executive Order”). Contractor acknowledges that the Bulk-Power System Executive Order prohibits “any acquisition, importation, transfer, or installation of any bulk-power system electric equipment” if such action meets certain elements, including whether “the transaction involves bulk-power system electric equipment designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary[.]” In a Notice dated July 8, 2020, the U.S. Department of Energy stated that “[t]he current list of ‘foreign adversaries’ consists of the governments of the following countries: The People's Republic of China (China), the Republic of Cuba (Cuba), the Islamic Republic of Iran (Iran), the Democratic People's Republic of Korea (North Korea), the Russian Federation (Russia), and the Bolivarian Republic of Venezuela (Venezuela).” 85 Federal Register at 41024. Seller shall, upon the written request of NorthWestern made from time to time and as a condition to final payment, certify its compliance with the Bulk-Power System Executive Order and provide supporting documentation of compliance.

64 Contract Performance Security

64.1 Within fifteen (15) Days after the NTP, Contractor shall furnish an irrevocable Letter of Credit (“LOC”) in the amount of ten percent (10%) of the Contract Price in the form of Attachment I as a guaranty on behalf of Contractor that the terms of this Contract shall be complied with in every particular. The LOC shall (a) name NorthWestern or its designee as the beneficiary, (b) be issued by a bank with a major presence in the United States with a credit rating of at least A- from S&P or A3 from Moody’s, and (c) be substantially in the form of Attachment I. NorthWestern is not obligated to make any payments to Contractor for any purpose until the LOC is furnished to NorthWestern. If the amount of any pre-payment or advance made by NorthWestern to Contractor exceeds ten percent (10%) of the Contract Price, Contractor and NorthWestern shall agree upon an adjustment to the amount of the LOC to provide adequate security to NorthWestern.

64.2 The LOC shall remain in full force and effect until the end of the Warranty Period, as defined in Section 33.2; provided, however, that upon Substantial Completion, NorthWestern will accept a substitute LOC for Five Million and No/100 dollars ($5,000,000.00) plus the amount of any potential or unpaid liquidated damages as determined by NorthWestern. The LOC must require Contractor to provide a minimum of forty-five (45) Days advance written notice prior to any expiration, non-renewal or early termination, with a right for NorthWestern to immediately draw the full value of the LOC if Contractor fails to provide a substitute form performance security meeting the requirements of this Agreement within fifteen (15) Days of the written notice required herein and may retain the funds until satisfaction of Contractor’s security obligations hereunder.

64.3 Upon discovery of an event that could result in a draw on LOC, NorthWestern will provide informal communication to the Contractor identifying the event in question to allow Contractor an opportunity for remedy. If Contractor and NorthWestern fail to mutually resolve the event to NorthWestern satisfaction, NorthWestern shall have the right to draw on the LOC.

64.4 NorthWestern is required to give Contractor five (5) Days written Notice of its intent to draw upon and exercise its rights under the LOC.

65 Disclosure. Contractor acknowledges that NorthWestern, as a public utility and a public company, is subject to regulation by the Commission and the Securities and Exchange Commission (“SEC”). NorthWestern is required to submit information, data and documents regarding this Contract, Contractor, and the Project to the Commission and the SEC. Contractor acknowledges that, notwithstanding anything

herein to the contrary, NorthWestern may submit a copy of this Contract and any other information related herewith to the Commission and the SEC as part of a pre-approval application, complying with any portion of Laws, a request, order, or other regulatory proceeding regardless of whether Seller has requested a protective order, until such time as a protective order is issued that relieves NorthWestern of its legal obligations to provide information requested. To the extent Contractor wishes to seek a protective order for this Contract or any other information to be submitted to the Commission, Contractor shall be solely responsible for preparing and otherwise requesting any such protective order.

66 Contract Documents. The contract documents that reflect the agreement of the Parties concerning the Work (collectively, the “Contract Documents”) consist of this Contract, the Attachments referenced below and incorporated herein by reference, and any Change Orders or other documents specifically incorporated into this Contract. The Attachments to this Contract are as follows:

66.1 Attachment A, Specifications;

66.2 Attachment A-1, QA/QC Manual (Table of Contents Only);

66.3 Attachment B, Price and Payment;

66.4 Attachment B-1, All-Inclusive Labor Rates;

66.5 Attachment B-2, (Not Used);

66.6 Attachment B-3, Application for Payment;

66.7 Attachment B-4, (Not Used);

66.8 Attachment B-5, Partial Lien Release;

66.9 Attachment B-6, Final Lien Release;

66.10 Attachment C, Contract Schedule;

66.11 Attachment D, Prequalification for Subcontractors;

66.12 Attachment E, (Not Used);

66.13 Attachment F, Project Safety Plan (Table of Contents Only);

66.14 Attachment G, Reserved;

66.15 Attachment H, Insurance;

66.16 Attachment I, Letter of Credit;

66.17 Attachment J, Change Order Request Form; and

Attachment K, Division of Responsibility.

IN WITNESS HEREOF, the Parties have caused this Contract to be executed by their duly authorized representatives as of the Effective Date.

[SIGNATURE PAGES FOLLOWS]


For Contractor:
BURNS & MCDONNELL ENGINEERING COMPANY, INC.
By:			/s/ Rick Halil
Title:			President, Energy
Date:			4/19/2021


For NorthWestern:
NORTHWESTERN ENERGY
By:			/s/ Brian B. Bird
Title:			President and Chief Operating Officer
Date:			4/19/2021

Contractor Initials _____

Company Rep Initials _____

PROCUREMENT CONTRACT

NOMINAL 175 MW POWER PLANT

LAUREL, MONTANA

EFFECTIVE: APRIL 19, 2021

CAT KTR 222044

NW MAT 0001030

Laurel, Montana – NW/Caterpillar Procurement Contract

THIS PROCUREMENT CONTRACT (the “Contract”) is made as of the 19th day of April, 2021 (the “Effective Date”) by and between NorthWestern Corporation doing business as NorthWestern Energy, a Delaware corporation (“NorthWestern”) and Caterpillar Power Generation Systems, LLC, a Delaware limited liability company (“Seller”) (each a “Party” and collectively the “Parties”).

RECITALS

A. NorthWestern desires to purchase, have installed and operate a nominal 175 MW, simple cycle, reciprocating internal combustion engine system located in Laurel, Montana (the “Site”) as generally outlined in Exhibit A, Specifications;

B. Seller desires to sell and provide to NorthWestern certain Equipment and Services as further specified in this Contract for the Equipment;

NOW, THEREFORE, in consideration of the mutual covenants and obligations contained and for other good and valuable consideration, NorthWestern and Seller agree as follows.

CONTRACT

Article 1 – contract scope

1.01 Equipment to be Supplied. Pursuant to this Contract, Seller shall sell to NorthWestern the equipment (the “Equipment”) specified in the Scope of Work set forth in Exhibit A-1 and in accordance with the Specifications set forth in Exhibit A-2 and the drawings and information set forth in Exhibit A-3.

1.02 Services to be Provided. Pursuant to this Contract, Seller shall provide to NorthWestern the technical field assistance during installation/commissioning and training services (the “Services”) specified in Exhibit A-1 and Exhibit A-2. Seller shall perform on-Site Services in accordance with the requirements set forth in Exhibit H.

1.03 Extent of Contract. This Contract consists of the following documents, and all exhibits, schedules, appendices and attachments hereto and thereto (collectively, the “Contract Documents”):

A. This Contract, including all exhibits set forth below:

B. All written modifications and amendments to the Contract Documents agreed to by both parties and Change Orders to this Contract.

List of Exhibits:

Exhibit A-1 Scope of Work

Exhibit A-2 Specifications

Exhibit A-3 Engineering Deliverables List

Exhibit A-4 Delay and Performance Liquidated Damages

Exhibit B-1 Breakdown of Contract Price

Exhibit B-2 Disbursement Request Form

Exhibit B-3 Milestone Payment Schedule

Laurel, Montana – NW/Caterpillar Procurement Contract

Exhibit C Cancellation Schedule

Exhibit D Form of Lien Release

Exhibit E Form of Letter of Credit

Exhibit F Form of Release

Exhibit G Insurance Requirements

Exhibit H On-Site Work Requirements

Exhibit I Performance Requirements

1.04 Purpose of Contract Documents. The Contract Documents are intended to permit the Parties to complete the Work and all obligations required by the Contract Documents in accordance with the terms herein for the Contract Price. No oral representations or other agreements have been made by the Parties except as specifically stated in the Contract Documents.

1.05 Installation. The installation of the Equipment after Seller offloads and sets the Equipment on the foundation is specifically excluded from the scope of this Contract, and such work will be performed by a third party contractor (the “Installation Contractor”) pursuant to a separate installation and construction agreement between NorthWestern and Installation Contractor (the “Installation Agreement”).

Article 2 – SCHEDULES AND DEADLINES

2.01 Schedules. Seller shall deliver Submittals to NorthWestern for review, comment and approval in accordance with the deadlines established by Section 01 3301 – Submittal List of Exhibit A-3 (the “Submittal Schedule”). Seller shall deliver the Equipment and complete the Services so as to meet Seller’s commitments in Section 2.03, 2.04 and 2.05 (collectively, the “Delivery Schedule”). Adjustments in the Delivery Schedule may only be made by a Change Order.

2.02 Limited Notice to Proceed; Full Notice to Proceed; Commencement.

A. Execution of this Contract shall be deemed a limited notice to proceed (“Limited Notice to Proceed” or “LNTP”). Pursuant to such LNTP, Seller shall commence the LNTP Work. As of the Effective Date of this Contract, “LNTP Work” means the Work required for Seller’s delivery of the applicable drawings, specifications and designs in accordance with the schedule specified in Exhibit A-3. At any time prior to the date of issuance of the Full Notice to Proceed, NorthWestern may direct Seller’s performance of additional LNTP Work authorizing Seller to commence performance of other specified portions of the Work. Any subsequent LNTP shall specify the maximum total cost of such specified LNTP Work, Seller shall be paid for such specified Work pursuant to the payment terms set forth in the LNTP and this Contract and if necessary the parties will reasonably adjust the Milestone Payment Schedule by Change Order. For the avoidance of doubt, any amounts paid by NorthWestern in connection with the LNTP Work shall be credited against the Contract Price.

B. All Work shall commence within ten (10) Days of Seller’s receipt of the following (i) NorthWestern’s written full notice to proceed, and (ii) FNTP Payment (collectively, “Full Notice to Proceed” or “FNTP”), unless the Parties mutually agree otherwise in writing. NorthWestern shall use reasonable efforts to provide Seller with thirty (30) Days’ notice

Laurel, Montana – NW/Caterpillar Procurement Contract

of the date that NorthWestern intends to issue a FNTP. Seller’s acceptance of FNTP Payment shall also be deemed acceptance of the Full Notice to Proceed.

C. NorthWestern does not anticipate issuing a FNTP until the Project is approved by the Montana Public Services Commission, and agrees to provide Seller with periodic updates on the status of the regulatory proceedings. If the FNTP is not delivered on or before a date that is four-hundred, sixty-five (465) Days from the Effective Date, then the Parties shall promptly meet and confer for the purpose of considering a potential extension of the allowable time period for NorthWestern to issue the Full Notice to Proceed. If the Parties are unable to mutually agree to an extension of the period within 30 Days of the meeting, then either Party may terminate this Contract upon written notice to the other Party, and upon such termination, this Contract shall become null and void without liability or further obligation on the part of either Party, and Seller may retain the Initial Payment as its sole remedy for the termination. If NorthWestern issues any LNTP prior to the expiration of the allowable time period for NorthWestern to issue Full Notice to Proceed, and the Parties are current in their LNTP Work obligations upon expiration of the 465 Day period, the Parties will continue performance and this Contract will remain in effect; provided, however, that if NorthWestern has not issued Full Notice to Proceed upon completion of all LNTP Work outstanding and the Parties are unable to mutually agree to an extension within 30 Days after conferring to discuss the same, Seller may terminate this Contract in accordance with this Section 2.02 C.

2.03 Deadline for Delivery of Equipment to the Site. All Equipment shall be delivered to the Site no sooner than ten (10) months and no later than twelve (12) months after receipt of the Full Notice to Proceed (such period is herein referred to as the “Scheduled Delivery Period” and the date which is twelve (12) months after receipt of the Full Notice to Proceed is herein referred to as the “Scheduled Delivery Date”) in accordance with the delivery requirements set forth in Section 10. The Scheduled Delivery Period and Scheduled Delivery Date may be adjusted in accordance with the terms and conditions of this Contract. NorthWestern will accept delivery of the Equipment anytime within the Scheduled Delivery Period.

2.04 Guaranteed Substantial Completion Date. Seller shall achieve Substantial Completion within 158 Days after the Mechanical Completion Date (the “Guaranteed Substantial Completion Date”). The consequences of failing to meet the Guaranteed Substantial Completion Date are set forth in Section 3.04 C and Section 3.06 D.

2.05 Guaranteed Final Completion Date. Seller shall achieve Final Completion within 120 Days after the Substantial Completion Date. After Final Completion has been achieved, NorthWestern shall issue to Seller a certificate of final completion in a form mutually agreed by the Parties (“Certificate of Final Completion”).

2.06 Post Completion Support. For the duration of the Warranty Period, Seller will provide off-Site technical and operating procedure support by telephone and other electronic data transmission and communication, and on-Site technical and operating procedure support. If the Parties enter into an operations and maintenance agreement for the Equipment and the Site, this Section 2.06 will be of no further effect.

Laurel, Montana – NW/Caterpillar Procurement Contract

Article 3 – design, inspection, testing, guarantees, liquidated damages and acceptance

3.01 Submittals. Seller shall make its engineers who are responsible for the Submittals and design of the Equipment to be available, whether in person, by telephone or video conferencing, to NorthWestern for consultation. NorthWestern shall review and provide comment to the Submittals within twenty (20) business Days after receipt. If NorthWestern cannot complete the review within the period described above, Seller shall grant a reasonable extension of time; provided that Seller may reasonably adjust the Delivery Schedule if NorthWestern requires an extension of time to complete the review of the Submittals. Seller shall not release the final design for manufacturing prior to receipt of NorthWestern’s approval in writing, which approval shall not be unreasonably conditioned, delayed or withheld.

3.02 Reporting. Seller shall deliver monthly reports to NorthWestern detailing Seller’s progress toward completion of the major Work activities from the Effective Date to completion of the Work. During the manufacturing of the Equipment, and upon reasonable advance request from NorthWestern, Seller shall grant NorthWestern and its designated representative reasonable access to the applicable facilities of Seller and suppliers to allow NorthWestern to review progress and to verify that the Equipment is being manufactured according to the requirements of Exhibit A-2.

3.03 Factory Testing. Prior to shipment of the Equipment to the Site, Seller shall conduct testing in accordance with prudent utility practice and the Factory Testing requirements set forth in Exhibit A-2 and Exhibit I. Seller shall notify NorthWestern at least four (4) weeks prior to the date scheduled for Factory Testing. NorthWestern’s designated representative may inspect the Equipment and observe Factory Testing. Seller shall provide NorthWestern a copy of testing results and acceptance certifications upon completion of the Factory Testing. Seller shall correct all defects in materials and workmanship identified as a result of Factory Testing prior to shipment of the Equipment.

3.04 Failure to Meet Scheduled Delivery Date and Liquidated Damages.

A. On a per Submittal basis, Seller will pay delay liquidated damages for late Submittals according to the Submittal Schedule (“Delay Liquidated Damages – Submittals”) set forth in Exhibit A-3.

B. The Seller will pay delivery delay liquidated damages (“Delay Liquidated Damages – Delivery”) in the amount set forth in Exhibit A-4 for late delivery of the Equipment.

C. Upon the expiration of twenty (20) months from the receipt of the Full Notice to Proceed (the “Sunset Date”), if Seller has not delivered the Equipment to the Site and such failure to deliver is not excused by a Force Majeure Event, NorthWestern Delay or a COVID-19 Condition, NorthWestern shall have the right to declare a breach of contract as provided in Section 13.04 B. If a Force Majeure Event or NorthWestern Delay occurs, Seller will generate a Change Order and submit same to NorthWestern for agreement.

D. The Seller will pay delay liquidated damages (“Delay Liquidated Damages – Substantial Completion”) in the amount set forth in Exhibit A-4.

Laurel, Montana – NW/Caterpillar Procurement Contract

E. The Delay and Performance Liquidated Damages provided herein shall be in lieu of all liability for any and all extra costs, losses, loss of profits, expenses, claims, penalties and any other Damages, whether special or consequential, and of whatsoever nature incurred by NorthWestern which arise solely due to a delay in delivering the Equipment by the Scheduled Delivery Date and the failure of Seller to timely achieve Substantial Completion by the Guaranteed Substantial Completion Date; provided that if NorthWestern terminates this Contract as a result of Seller’s failure to deliver the Equipment to the Site by the Sunset Date or timely achieve Substantial Completion by the Guaranteed Substantial Completion Date, such liquidated damages shall not in any way detract from or limit NorthWestern’s remedies or Sellers’s liabilities in connection with such default or any additional default by Seller under any other provision of this Contract.

3.05 Acceptance Testing.

A. Acceptance Tests. Following the criteria and methods set forth in Exhibit I, the Seller shall direct and supervise the Acceptance Tests and, if necessary, the retests of the Equipment using Seller’s supervisory personnel to demonstrate, at a minimum, compliance with the Performance Requirements.

B. Role of NorthWestern’s Personnel in Conducting Tests. To the extent that NorthWestern’s employees, or third parties that are not subcontractors, are involved in conducting the Acceptance Tests pursuant to the direction of the Seller, and fails to properly follow the directions of the Seller, Seller shall be relieved of its obligation to meet the Performance Requirements until such time as the matter is resolved. After resolution of the matter, Seller shall diligently continue the Work and meet the Performance Guarantees; provided Seller is entitled to a Change Order to compensate Seller for any additional costs or time arising out of such failure to follow directions.

3.06 Acceptance Tests, Performance Guarantees and Performance Liquidated Damages.

A. Performance Guarantees. Upon written notification of the Installation Contractor’s achievement of Mechanical Completion, Seller shall complete the Thermal Performance Tests. Seller shall achieve the Minimum Performance Requirements for each Unit, and further guarantees that each Unit will satisfy the Performance Guarantees.

If, after the initial Thermal Performance Test, a Unit fails to achieve the Minimum Performance Requirements (excluding however if such failure is attributable to (i) NorthWestern Delay or NorthWestern’s failure to install and properly complete the balance of plant or (ii) any other reason attributable to NorthWestern Delay or NorthWestern breach) then, subject to the Maximum Liability Cap, Seller shall repair, redesign, modify, or replace the applicable Unit until such Unit satisfies the applicable Minimum Performance Requirement; it being acknowledged and agreed that Seller shall have at least sixty (60) Days but not more than one hundred and twenty (120) Days from the date of the initial Thermal Performance Test to make such changes or adjustments and perform additional Thermal Performance Tests.

If Seller achieves the Minimum Performance Requirements and achieves Substantial Completion, but any Unit still exhibits a shortfall in performance, Seller shall have an

Laurel, Montana – NW/Caterpillar Procurement Contract

additional one hundred twenty (120) Days from the Substantial Completion Date to make such changes or adjustments and perform additional Thermal Performance Tests in an effort to achieve the Performance Guarantees. If, at the completion of the 120 Day period, any Unit still exhibits a shortfall in performance, Seller shall pay Performance Liquidated Damages in accordance with the performance requirements in Exhibit I and the amounts listed in Exhibit I.

B. Emissions Guarantees. Upon notification of the Installation Contractor’s achievement of Mechanical Completion, Seller shall complete the Emissions Tests. Seller guarantees that each individual Unit shall meet the Emissions Guarantees. If Seller fails to meet the Emissions Guarantees, Seller shall perform additional Services to repair, redesign or modify the applicable Unit until such Unit satisfies the Emissions Guarantees.

C. Functional Guarantees. Upon notification of the Installation Contractor’s achievement of Mechanical Completion, Seller shall complete all Functional Tests except for the Reliability Test. The Reliability Test will take place after Substantial Completion and before Final Completion. Seller guarantees that each Unit will satisfy the Functional Guarantees. If Seller fails to achieve the Functional Guarantees, Seller shall perform additional Services to repair, redesign or modify the applicable Unit until such Unit satisfies the minimum standards.

D. Interference with Installation Contractor. In the event that Seller fails to achieve “Substantial Completion” by two hundred and ten (210) Days following the Mechanical Completion Date due solely to Seller’s failure to satisfy the requirements to achieve Substantial Completion and such failure is not excused by a Force Majeure Event or NorthWestern Delay, and the same prevents commercial operation of the Equipment on a consistent basis at full capacity (in compliance with the Contract Documents), then NorthWestern may declare a breach of this Contract.

3.07 Caps on Delay and Performance Liquidated Damages. Seller’s aggregate liability for Delay Liquidated Damages and Performance Liquidated Damages are set forth in Exhibit A-4.

3.08 Right to Set-Off. The obligation of Seller to pay liquidated damages hereunder shall be subject to set-off against any undisputed amount that is due and owing by NorthWestern to Seller. Any liquidated damages due and owing from Seller that are not subject to such set-off shall be invoiced by NorthWestern and shall be paid by Seller within thirty (30) Days of the date of such invoice. Unless otherwise provided herein, the liquidated damages provided herein shall be in lieu of all liability for any and all extra costs, losses, loss of profits, expenses, claims, penalties and any other Damages incurred by NorthWestern which arise solely due to the failure to achieve the Performance Guarantees; provided further that such liquidated damages shall not in any way detract from or limit NorthWestern’s remedies or Sellers’s liabilities in connection with any default by Seller under any other provision of this Contract.

Article 4 – contract price and payment procedures

4.01 The Contract Price.

Laurel, Montana – NW/Caterpillar Procurement Contract

A. Contract Price. As full consideration to Seller for full and complete performance of the Work and all costs incurred in connection therewith, NorthWestern shall pay Seller in accordance with the terms of Section 4.04, the sum of EIGHTY SIX MILLION FIVE HUNDRED EIGHTY SEVEN THOUSAND THREE HUNDRED SEVENTY SIX DOLLARS AND N0/100 $86,587,376.00 (“Contract Price”), as such Contract Price may be adjusted by Change Order. The individual components of the Contract Price are reflected in Exhibit C.

B. FNTP Contract Price Adjustment. The Contract Price shall be paid in United States Dollars based on the Euro to United States Dollars exchange rate of €1.00 to $1.114 United States Dollars (the “EUR/USD Base Rate”). The adjustment, if any, on the unpaid portion of the Contract Price outstanding as of Full Notice to Proceed based on changes in the Euro/United States Dollar exchange rate from the EUR/USD Base Rate shall be calculated as follows: If the Euro/United States Dollar exchange rate in effect on the date of Full Notice To Proceed deviates, then the Contract Price will be increased or decreased accordingly, and the unpaid portion of the Contract Price will be adjusted using the average Euro/Dollar exchange rate in effect on the date of Full Notice to Proceed as published on: https://www.commerzbank.de/de/hauptnavigation/kunden/kursinfo/devisenk/devisenkurse.html.

C. Price Escalation. Any payments made after September 30, 2022 will be subject to a price escalation on the outstanding balance equal to 0.25% per month of the outstanding balance until the last Unit is delivered (or required to be delivered), in addition to any price adjustment per Section 4.01 B.

4.02 Taxes. Seller shall obtain all necessary tax licenses for all jurisdictions where Services are performed, and Equipment is delivered. Seller shall not include any state, local, city, municipal sales, use or contractor’s excise taxes in pricing for Equipment and Services furnished pursuant to this Contract. Seller is entitled to an adjustment of the Contract Price, documented by a Change Order, for the inclusion or any tax rate changes or for any change in any applicable state and/or local taxes, including applicable state sales tax, city, municipal or excise tax during the term of the Contract. Any taxes due to the State of Montana or local taxing authorities shall be remitted by Seller upon payment by NorthWestern. Should NorthWestern be tax exempt from State or local taxes, NorthWestern shall provide to Seller documentation evidencing same. All import and export fees and duties shall be paid by Seller and included in the Contract Price. Seller shall pay all payroll and other related employment compensation taxes for Seller’s employees, and federal, state and other taxes that may be assessed on Seller’s net income, net worth, license, privilege or gross receipts.

4.03 Shipping; Permits and Letter of Credit. All shipping and any shipping related import and customs duties, shipping-related taxes, licenses and permits, shall be paid for by the Seller. The cost of the Letter of Credit shall be included in the Contract Price.

4.04 Progress Payments.

A. Initial Payment and LNTP Payment. An initial payment in an amount equal to 0.50% of the Contract Price (the “Initial Payment”) will be paid to Seller within ten (10) days of the Effective Date. In the event that NorthWestern issues a LNTP, at the time the LNTP is

Laurel, Montana – NW/Caterpillar Procurement Contract

issued, the Parties will agree upon a payment amount and schedule for the Work covered by the LNTP.

B. Progress Payments. Payment will be made in installments (each a “Milestone Payment”) upon completion of the milestones for the performance of the Work as set forth in Exhibit B-3 (the “Milestone Payment Schedule”). After any Initial Payment, Seller will submit a Disbursement Request to NorthWestern requesting payment upon the satisfaction of each milestone set forth in the Milestone Payment Schedule. NorthWestern will pay each Disbursement Request within thirty (30) Days of confirmation of satisfaction by Seller of the applicable milestone. In the event of a dispute regarding an invoice, NorthWestern shall pay the undisputed amount to Seller pursuant to the terms of this Contract and NorthWestern shall further notify Seller of the amount(s) in dispute and the basis for the dispute. When the billing dispute has been resolved, NorthWestern shall pay the amount owed within ten (10) Days of the date of such resolution.

C. Final Payment. Upon the earlier of (i) Final Completion, or (ii) a date that is twenty-three (23) months from the date the Equipment is delivered to the Site if Final Completion has been delayed on account of any NorthWestern Delay or a NorthWestern Force Majeure Event, Seller shall submit to NorthWestern the final Disbursement Request (minus any invoiced and unpaid liquidated damages or other sums due to NorthWestern from Seller provided for under this Contract) (the “Final Payment”). At the time of submission of its final Disbursement Request, Seller shall provide the following information:

1. a final lien release affidavit that there are no claims, obligations or liens outstanding or unsatisfied for labor, services, material, equipment, taxes or other items performed, furnished or incurred for or in connection with the Work which will in any way affect NorthWestern’s interests, substantially in the form of Exhibit D; and

2. a general release executed by Seller waiving, upon receipt of final payment by Seller, all claims for payment, additional compensation, or Damages for delay, except those previously made to NorthWestern in writing and remaining unsettled at the time of Final Payment provided such general release shall not waive defenses to claims that may be asserted by NorthWestern after payment or claims arising after payment, substantially in the form of Exhibit F.

Article 5 – CONTRACT DOCUMENTS: INTENT AND AMENDING

5.01 Intent.

A. The Contract Documents are complementary; what is called for by one is as binding as if called for by all.

B. Any labor, services, materials, or equipment that may reasonably be inferred from the Contract Documents as being required to produce or furnish the indicated Equipment and Services will be provided, whether or not specifically called for, at no additional cost to NorthWestern, except to the extent otherwise expressly set forth in this Contract.

5.02 Standards, Specifications, Codes, Laws and Regulations.

Laurel, Montana – NW/Caterpillar Procurement Contract

A. Reference to standards, specifications, manuals, or codes of any technical society, organization, or association, or to Laws and Regulations, whether such reference be specific or by implication, shall mean the standard, specification, manual, code, or Laws and Regulations in effect on the Effective Date of the Contract, except as may be otherwise specifically stated in the Contract Documents.

B. No provision of any such standard, specification, manual or code, or any instruction of a supplier shall be effective to change the duties or responsibilities of NorthWestern from those set forth in the Contract Documents, nor shall any such provision or instruction be effective to assign to NorthWestern any duty or authority to supervise or direct the performance of Seller’s obligations or any duty or authority to undertake responsibility inconsistent with the provisions of the Contract Documents.

5.03 Reporting and Resolving Discrepancies.

A. Reporting Discrepancies:

1. Seller’s Review of Contract Documents Before the Performance of the Contract: Before performance of the Contract, Seller shall carefully study and compare the Contract Documents and check and verify pertinent figures therein and all applicable field measurements. Seller shall promptly report in writing to NorthWestern’s Project Manager any conflict, error, ambiguity, or discrepancy which Seller discovers or has actual knowledge of and shall obtain a written interpretation or clarification from NorthWestern’s Project Manager before proceeding with the furnishing of any Equipment and Services affected thereby.

2. Seller’s Review of Contract Documents During the Performance of the Contract: If, during the performance of the Contract, Seller discovers any conflict, error, ambiguity, or discrepancy within the Contract Documents or between the Contract Documents and any provision of any Law or Regulation applicable to the performance of the Contract, any standard, specification, manual or code, or of any instruction of any Seller, Seller shall promptly report it to NorthWestern’s Project Manager in writing. Seller shall not proceed with the furnishing of the Equipment and Services affected thereby until an amendment to or clarification of the Contract Documents has been issued.

3. Seller shall not be liable to NorthWestern for failure to report any conflict, error, ambiguity, or discrepancy in the Contract Documents unless Seller had actual knowledge thereof.

B. Resolving Discrepancies: Except as may be otherwise specifically stated in the Contract Documents, the provisions of the Contract Documents shall take precedence in resolving any conflict, error, ambiguity, or discrepancy between the provisions of the Contract Documents and:

1. the provisions of any standard, specification, manual, code, or instruction (whether or not specifically incorporated by reference in the Contract Documents); or

Laurel, Montana – NW/Caterpillar Procurement Contract

2. the provisions of any Laws or Regulations applicable to the furnishing of the Equipment and Services (unless such an interpretation of the provisions of the Contract Documents would result in violation of such Law or Regulation).

Article 6 – Insurance AND LEtter of Credit

6.01 Letter of Credit.

A. Within fifteen (15) Days after Full Notice to Proceed, Seller shall furnish an irrevocable letter of credit (the “Letter of Credit”) in the amount of fifteen percent (15%) of the Contract Price in the form of Exhibit E as a guaranty on behalf of Seller that the material terms of this Contract shall be complied with. The Letter of Credit shall (i) name NorthWestern as the beneficiary, (ii) be issued by the New York branch of Commerzbank AG Hamburg, Germany, and (iii) be substantially in the form of Exhibit E. NorthWestern is not obligated to make any payments (with the exception of the Initial Payment) to Seller for any purpose until the Letter of Credit is furnished to NorthWestern.

B. The Letter of Credit shall remain in full force and effect until the end of the Warranty Period provided, however, that upon Substantial Completion of the last Unit, NorthWestern will accept a substitute Letter of Credit in the amount of five percent (5%) of the Contract Price.

C. Upon discovery of an event that could result in a draw on the Letter of Credit, NorthWestern will provide communication to Seller identifying the event in question to allow Seller an opportunity for remedy. If Seller and NorthWestern fail to mutually resolve the event to NorthWestern satisfaction within a fifteen (15) Day period, NorthWestern shall have the right to draw on the Letter of Credit.

D. NorthWestern is required to give Seller five (5) Days written notice of its intent to draw upon and exercise its rights under the Letter of Credit, and the written notice timeline in this Section 6.01 D is included within the fifteen (15) Day period established in 6.01 C.

6.02 Insurance.

A. Seller shall maintain liability and other insurance as provided in Exhibit G.

B. Failure of NorthWestern to demand certificates of insurance or other evidence of Seller's full compliance with these insurance requirements or failure of NorthWestern to identify a deficiency in compliance from the evidence provided shall not be construed as a waiver of Seller’s obligation to maintain such insurance.

C. NorthWestern does not represent that insurance coverage and limits established in this Contract necessarily will be adequate to protect Seller.

D. The insurance and insurance limits required herein shall not be deemed as a limitation on Seller’s liability under the indemnities granted to NorthWestern in the Contract Documents.

6.03 Insurers. All insurance required by the Contract Documents to be purchased and maintained by NorthWestern or Seller shall conform to the requirements set forth in Exhibit G.

Laurel, Montana – NW/Caterpillar Procurement Contract

Article 7 – SELLER’S RESPONSIBILITIES

7.01 Supervision and Superintendence. Seller shall supervise, inspect, and direct the furnishing of the Equipment and Services competently and efficiently, devoting such attention thereto and applying such skills and expertise as may be necessary to perform its obligations in accordance with the Contract Documents. Seller shall be solely responsible for the means, methods, techniques, sequences, and procedures necessary to perform its obligations in accordance with the Contract Documents. Seller shall not be responsible for the negligence of NorthWestern in the design or specification of a specific means, method, technique, sequence, or procedure that is shown or indicated in and expressly required by the Contract Documents.

7.02 Labor, Materials and Equipment.

A. Seller shall provide competent, qualified and trained personnel in all aspects of its performance of the Contract.

B. All Equipment and material incorporated into the Equipment, shall be as specified, and unless specified otherwise in the Contract Documents, shall be:

1. new, and of good quality; and

2. protected, assembled, connected, cleaned, and conditioned in accordance with the Seller’s or the original manufacturer’s instructions.

7.03 Laws and Regulations.

A. Seller shall give all notices required by and shall comply with all Laws and Regulations applicable to the performance of its obligations in accordance with the Contract Documents, including the Bulk-Power System Executive Order. Except where otherwise expressly required by such Laws and Regulations, NorthWestern shall be not responsible for monitoring Seller’s compliance with any Laws or Regulations.

B. If Seller furnishes Equipment and Services knowing or having reason to know that such furnishing is contrary to Laws or Regulations, Seller shall bear all claims, costs, losses, and Damages (including but not limited to all fees and charges of engineers, architects, attorneys, and other professionals and all court or arbitration or other dispute resolution costs) arising out of or relating to such performance. It shall not be Seller’s responsibility to make certain that the Specifications set forth in Exhibit A-2 are in accordance with Laws and Regulations, but this provision shall not relieve Seller of Seller’s obligations under Section 5.03.

C. Changes in Laws or Regulations subsequent to the Effective Date having an effect on the cost or time of performance shall be the subject of an adjustment in Contract Price or the Delivery Schedule.

7.04 Or Equals.

A. Whenever the Equipment (or an item of material to be incorporated into the Equipment), are specified or described in the Contract Documents by using the name of a proprietary item or the name of a particular supplier or manufacturer, such proprietary item or

Laurel, Montana – NW/Caterpillar Procurement Contract

particular supplier or manufacturer is required. Unless the Specification or description contains or is followed by words “like”, “equivalent”, or “orequal”, other items of material or equipment or material or equipment of other suppliers or manufacturers are not permitted. However, such other items or equipment may be used if approved by NorthWestern’s Project Manager as an “or-equal” item per the below.

1. If in NorthWestern Project Manager’s reasonable judgment, such an item of material or equipment proposed by Seller is functionally equal to that named and sufficiently similar so that no change in related work will be required, it will be considered by NorthWestern’s Project Manager as an “orequal” item.

2. For the purposes of this paragraph, a proposed item of material or equipment may be considered functionally equal to an item so named only if:

(1) in the exercise of reasonable judgment, NorthWestern’s Project Manager determines that: 1) it is at least equal in quality, durability, appearance, strength, and design characteristics; 2) it will reliably perform at least equally well the function imposed by the design concept of the Equipment as a functioning whole; 3) it has an acceptable record of performance and availability of responsive service; and

(2) Seller certifies that: 1) there will be no increase in any cost, including capital, installation or operating costs, to NorthWestern; and 2) the proposed item will conform substantially to the detailed requirements of the item named in the Contract Documents.

B. NorthWestern’s Evaluation: NorthWestern’s Project Manager will be allowed a reasonable time within which to review each proposal or submittal made pursuant to Section 7.04 A. No “orequal” will be ordered, manufactured or utilized until the review of NorthWestern’s Project Manager is complete, which will be evidenced by an approved drawing. NorthWestern will advise Seller in writing of any negative determination. Notwithstanding approval of an “or-equal” item, Seller shall remain obligated to comply with the requirements of the Contract Documents.

C. Data: Seller shall provide all reasonable data in support of any such proposed “orequal” at Seller’s expense.

7.05 Continuing Performance. Seller shall carry on furnishing of the Equipment and Services and adhere to the Delivery Schedule during all disputes or disagreements with NorthWestern. No furnishing of Equipment and Services shall be delayed or postponed pending resolution of any disputes or disagreements, except as NorthWestern and Seller may otherwise agree in writing.

7.06 Equal Opportunity and Affirmative Action. The Parties hereby incorporate 41 C.F.R. 60-1.4(a)(7); 29 C.F.R. Part 471, Appendix A to Subpart A; 41 C.F.R. 60-300.5(a)ii; and 41 C.F.R. 60-741.5(a), if required under Federal law. Seller shall abide by the requirements of 41 C.F.R. 60-300.5(a) and 41 C.F.R. 741.5(a) during the performance of this Contract if required under Federal law. These regulations prohibit discrimination against qualified protected veterans, and qualified individuals on the basis of disability, respectively, and require affirmative action by

Laurel, Montana – NW/Caterpillar Procurement Contract

covered prime contractors and subcontractors to employ and advance in employment qualified protected veterans and qualified individuals with disabilities, respectively.

7.07 Confidentiality. Each Party desires to maintain the confidentiality of proprietary information furnished pursuant to this Contract. Confidential Information must be used by the non-disclosing Party strictly for the performance of this Contract. The non-disclosing Party shall not, without the prior written permission of the disclosing Party, disclose Confidential Information to third parties; provided that nothing herein prohibits disclosure to a Party’s directors, officers and employees, agents and subcontractors who reasonably need to have access to such Confidential Information in connection with the performance of the Contract or, in the case of NorthWestern, the operation and maintenance of the Equipment. The term “Confidential Information” includes designs, drawings, plans, pricing, payment schedule, cancellation schedule, information concerning liquidated damages, business information or like information and any other written information, data, correspondence or other tangible materials disclosed electronically or in any form as well as data, findings, results, or recommendations developed in connection with the performance of the Contract. Confidential Information includes all information as described herein, whether or not marked “Confidential” or “Proprietary”.

All Confidential Information remains the property of the disclosing Party and, upon request, will be returned at termination of the Contract. The non-disclosing Party’s confidentiality obligation hereunder does not extend to information which: (i) is already public or becomes available to the public through no fault of the non-disclosing Party; (ii) was in the possession of the non-disclosing Party prior to receipt from the disclosing Party; or (iii) the non-disclosing Party can demonstrate that such information was independently developed without reference to the Confidential Information. If compelled by a governmental authority, Laws or Regulations or discovery to disclose any Confidential Information, the non-disclosing Party shall make reasonable efforts to resist disclosure and shall notify the disclosing Party in writing prior to making any disclosure in order to provide the disclosing Party a reasonable opportunity to either waive any objection to such disclosure or request a remedy from the appropriate authority. If the disclosing Party waives its objections or is unsuccessful in its request for a remedy or fails to make such a request, the non-disclosing Party will only furnish that portion of the Confidential Information that is legally required.

The Parties acknowledge that a violation of this Section would cause irreparable harm for which no adequate remedy at law exists. The Parties therefore agree that, in addition to any other remedies available, the disclosing Party is entitled to seek injunctive relief to enforce the terms of this Section, including to prevent a breach or contemplated breach hereof, without proof of actual damages or the posting of any bond or security, which posting is hereby waived to the fullest extent permitted by applicable Laws or Regulations.

All public relations matters arising out of or in connection with the performance of this Contract are the sole responsibility of NorthWestern. Seller shall obtain NorthWestern’s prior written approval of the text of any announcements, publications, photographs, or other type of communication concerning the Contract which Seller or its subcontractors wish to release for publication. Permission may be withheld in NorthWestern’s sole discretion.

Laurel, Montana – NW/Caterpillar Procurement Contract

Notwithstanding anything herein to the contrary, Seller acknowledges that NorthWestern, as a public utility and a public company, is subject to regulation by the Montana Public Service Commission and the Securities and Exchange Commission (“SEC”), and that NorthWestern is required to submit information, data and documents regarding this Contract, Seller, or the Project to the Commission and the SEC. Seller acknowledges that, notwithstanding anything herein to the contrary, NorthWestern may submit a copy of this Contract and any other information related herewith to the Commission and the SEC as part of a pre-approval application, complying with any portion of Laws or Regulations, a request, an order, or other regulatory proceeding, regardless of whether Seller has requested a protective order, until such time as a protective order is issued that relieves NorthWestern of its legal obligations to provide information requested. To the extent Seller wishes to seek a protective order for this Contract or any other information to be submitted to the Commission or the SEC, Seller shall be solely responsible for preparing and otherwise requesting any such protective order.

7.08 Bulk-Power System Executive Order. Seller shall abide by the requirements of Executive Order 13920, issued May 1, 2020, entitled “Securing the United States Bulk-Power System,” and any and all regulations, rules, guidelines, requirements, or directives promulgated thereunder and/or issued in connection therewith as of the Effective Date (collectively, the “Bulk-Power System Executive Order”), in its performance of this Agreement. Seller acknowledges the following:

(i) The Bulk-Power System Executive Order’s definition of “bulk-power system electric equipment” encompasses substantially all of the Equipment.

(ii) Among other provisions, the Bulk-Power System Executive Order prohibits “any acquisition, importation, transfer, or installation of any bulk-power system electric equipment” if such action meets certain elements, including whether “the transaction involves bulk-power system electric equipment designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary[.]”

(iii) In a Notice dated July 8, 2020, the U.S. Department of Energy stated that “[t]he current list of ‘foreign adversaries’ consists of the governments of the following countries: The People's Republic of China (China), the Republic of Cuba (Cuba), the Islamic Republic of Iran (Iran), the Democratic People's Republic of Korea (North Korea), the Russian Federation (Russia), and the Bolivarian Republic of Venezuela (Venezuela).” 85 Federal Register at 41024.

(iv) Seller shall, upon the written request of NorthWestern made from time to time and as a condition to final payment, confirm its compliance with the Bulk-Power System Executive Order, including providing NorthWestern documentation specifying the country of origin of each applicable part and/or component provided by Seller as specified in Exhibit A-1, and taking such other steps or providing such other documents or information as reasonably requested from time to time to evidence Seller’s compliance with the Bulk-Power System Executive Order.

Article 8 – SELLER’S WARRANTIES AND GUARANTEES

Laurel, Montana – NW/Caterpillar Procurement Contract

8.01 Guarantee of Title to Equipment. Seller warrants and guarantees to NorthWestern that the title to the Equipment conveyed shall be proper, its transfer rightful, and free from any security interest, lien, or other encumbrance not caused by NorthWestern. Seller shall defend, indemnify, and hold NorthWestern harmless against any liens, claims, or demands contesting or affecting title of the Equipment conveyed that are not caused by NorthWestern.

8.02 Warranty for Equipment. Seller warrants the Equipment shall be new when delivered to NorthWestern. Seller further warrants with respect to each item of Equipment that for the earlier expiry of: (a) twenty-four (24) months after delivery of the Equipment to the Site or (b) eighteen (18) months after Final Completion (the “Warranty Period”) the Equipment shall, if used in accordance with the Specifications set forth in Exhibit A-2 (i) be capable of operation in accordance with Laws and Regulations, (ii) be free from defects of materials, workmanship or design; (iii) be free from breakage; and (iv) perform the function for which it was designed or installed as described more particularly in the Specifications and Seller's functional design standards set forth in Appendix 02 of Exhibit A-2.

8.03 Warranty for Design. Seller warrants that the Equipment will be free from defects of design, if used in accordance with the Specifications set forth in Exhibit A-2.

8.04 Manufacturer’s Warranties. Nothing in Section 8.02 is intended to limit any warranty provided by any sub-supplier with respect to any components that comprise the Equipment which is an end user warranty that provides NorthWestern with greater warranty rights than set forth in Section 8.02 (any such warranty is herein referred to as a “Manufacturer’s End User Warranty”). Seller will, upon delivery of such Equipment, deliver to NorthWestern a written copy of any applicable Manufacturer’s End User Warranty.

8.05 Remedy. Subject to the terms of this Article 8, NorthWestern’s sole and exclusive remedy and Seller’s sole and exclusive obligation upon any breach of the warranty during the Warranty Period shall be limited to the repair or replacement, free of charge, of any Equipment or part or parts of any Equipment that fails to comply with the warranty. Such repair or replacement shall be completed by Seller at the Site, whenever commercially reasonable. If off-Site repairs are required, Seller shall arrange for and cover the cost of disassembly, reassembly, loading of defective Unit or any part thereof onto a common carrier, transportation and freight, and the off-loading of defective Unit or any part thereof. Excluded from coverage is the cost associated with gaining access to the Units. All replacement parts and repaired parts are warranted through, but not beyond, the original Warranty Period applicable to the part or parts so replaced or repaired, as the case may be. It is understood and agreed that the exclusive remedy of NorthWestern pursuant to this Article 8 for breach of the warranty shall not limit the remedies afforded to NorthWestern under other Articles of this Contract, and the Warranty Period is not intended to constitute a period of limitations for any other rights or remedies NorthWestern may have regarding Seller’s other obligations under this Contract.

8.06 Notice of Warranty Claims. NorthWestern will notify Seller within a reasonable period of time after the detection of any breach of the warranty and shall allow Seller access to all electronic data and any manually recorded log books for the Site necessary to evaluate and remedy the claim in question.

Laurel, Montana – NW/Caterpillar Procurement Contract

A. Upon receipt of any warranty claim Seller will promptly determine whether it agrees with NorthWestern’s determination that the warranty has been breached. If Seller disagrees, the matter will constitute a dispute subject to the dispute resolution provisions of this Contract. If Seller agrees, Seller will immediately take meaningful steps to diligently perform the remedy set forth in Section 8.05, including the correction, removal or replacement of any Equipment damaged by such defective Equipment or part or parts of Equipment. If the defect creates an emergency situation requiring an immediate response, Seller shall promptly commence to perform the remedy set forth in Section 8.05.

B. If, after notification of a breach of the warranty, Seller unreasonably delays in diligently commencing, continuing or completing the remedy required by Section 8.05, then NorthWestern may, upon fifteen (15) Days prior written notice to Seller, draw upon the Letter of Credit in the amount necessary to complete the necessary remedial action, and Seller shall be liable for all reasonable and necessary costs, charges and expenses incurred by NorthWestern in excess of the Letter of Credit in connection with such remedial action, and shall pay such costs, charges and expenses within thirty (30) Days after receipt of verifiable invoices certified by NorthWestern.

8.07 Warranty Exclusions. The warranty hereunder excludes failures or damage caused by someone other than Seller, its subcontractors or agents that results from any misuse, neglect, improper operation, or incorrect installation which is contrary to Seller's written instructions provided to NorthWestern. Such warranty exclusions shall also include:

A. failures resulting from attachments, fixtures, housings, accessory items and parts not satisfying Seller’s written standards and not sold, provided or installed under the direction of Seller;

B. failures resulting from, or the effects of, natural wear and tear, corrosion or erosion (not resulting from a defect in the Equipment), or operation or condition of service outside of the requirements set forth in the Specifications or Seller’s operation and maintenance manuals; and

C. failures resulting from NorthWestern's failure to notify Seller of the warranty claim within thirty (30) days of learning of the defect or otherwise causing a delay in making the warranted item available after detection of a potential defect under the Equipment Warranty, or failures occurring from a product problem more than sixty (60) days after Seller has notified NorthWestern of such potential product problem by issuance of a standard bulletin.

8.08 No Implied Acceptance of Equipment or Services. None of the following will constitute a waiver of a warranty claim:

A. observations by NorthWestern;

B. payment by NorthWestern of any progress or final payment;

C. use of the Equipment by NorthWestern;

D. the acceptance of delivery of any Equipment by NorthWestern pursuant to Section 10.03;

Laurel, Montana – NW/Caterpillar Procurement Contract

E. any inspection, test or approval by others; or

F. any correction of non-conforming Equipment and Services by NorthWestern if made with the prior approval of Seller.

8.09 NorthWestern’s Obligations. NorthWestern shall:

A. Give timely notice of any claim under the warranty and promptly make the warranted Equipment available for repair;

B. provide Seller with reasonable access to the Equipment and allow Seller reasonable use of existing Site infrastructure (including the use of tools, tackle, lifting equipment, etc.) to perform its obligations in connection with the warranty;

C. perform all required maintenance (including the use of the correct grades of fuel, oil, lubricants, and coolant) in accordance with Seller’s reasonable written recommendations and replace necessary items due to normal wear and tear; and

D. Upon request, send parts replaced under the warranty to Seller at the cost of Seller; provided NorthWestern is not obligated to return parts until the completion of root cause analysis and necessary inspections.

8.10 WARRANTY LIMITATIONS. THE WARRANTY IN THIS CONTRACT IS THE ONLY WARRANTY MADE BY SELLER AND IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE. REMEDIES UNDER THE WARRANTY ARE LIMITED TO THE PROVISION OF MATERIAL AND SERVICES SPECIFIED IN THIS ARTICLE 8 AND ITS RELATED EXHIBIT(S). IF OTHERWISE APPLICABLE, THE VIENNA CONVENTION (CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS) IS EXCLUDED IN ITS ENTIRETY.

8.11 Warranty for Services. Seller warrants and guarantees that the Services shall (i) comply with the requirements of the Contract Documents, (ii) be performed in a good and workmanlike manner, (iii) be free from material errors or omissions, and (iv) comply with Laws and Regulations (the “Service Warranty”).

8.12 Notice of Service Warranty Claims. Seller shall, within seven (7) Days of receipt of written notice from NorthWestern that any Services are not in conformance with the Contract Documents, either (1) contest NorthWestern’s determination, in which case the matter shall be a Claim, or (2) take meaningful steps to diligently commence correction of such nonconformance, including the correction, or repeat performance of the nonconforming Services. If, after notification of a breach of the Service Warranty, Seller shall unreasonably delay in diligently commencing, continuing or completing the remedy required by Section 8.05, then NorthWestern may, upon fifteen (15) Days prior written notice to Seller, which includes and is not in addition to the seven (7) Day timeline after receipt of written notice in this Section 8.12, draw upon the Letter of Credit in the amount necessary to complete the necessary remedial action, and Seller shall be liable for all reasonable and necessary costs, charges and expenses incurred by

Laurel, Montana – NW/Caterpillar Procurement Contract

NorthWestern in excess of the Letter of Credit in connection with such remedial action, and shall pay such costs, charges and expenses within thirty (30) Days after receipt of verifiable invoices certified by NorthWestern.

Article 9 – Indemnification and limitation of liablity

9.01 Seller Indemnification. To the fullest extent permitted by law, Seller shall indemnify, defend, and hold harmless NorthWestern Indemnified Parties from and against any and all claims, causes of action, proceedings, demands or suits (collectively “NorthWestern Indemnified Claim(s)”) and any and all Damages, to the extent such Indemnified Claims and Damages arise from or in connection with: (i) NorthWestern Indemnified Claims of third parties relating to the performance of Work by Seller, its subcontractors and respective agents and representatives; (ii) NorthWestern Indemnified Claims by any governmental authority arising from violations or alleged violations of applicable Laws or Regulations during the performance of Work by Seller, its subcontractors and respective agents and representatives; (iii) NorthWestern Indemnified Claims that the Work or any portion thereof infringe upon any patent, copyright, trademark, or other intellectual property right, or constitutes an unauthorized disclosure of any trade secret; or (iv) NorthWestern Indemnified Claims by any governmental authority for taxes that are the responsibility of Seller, its subcontractors and respective agents under this Contract. Seller’s indemnity obligation does not apply to the extent NorthWestern Indemnified Claims or Damages arise or result from the negligent or intentionally wrongful acts or omissions of NorthWestern. In the event of concurrent negligence, Damages will be borne by each party in proportion to its share of the negligence.

9.02 NorthWestern Indemnification. To the fullest extent permitted by law, NorthWestern shall indemnify, defend, and hold harmless Seller Indemnified Parties from and against any and all claims, causes of action, proceedings, demands or suits (collectively “Seller Indemnified Claim(s)”) and any and all Damages, to the extent such Indemnified Claims and Damages arise from or in connection with: (i) Seller Indemnified Claims of third parties relating the negligent or intentionally wrongful acts or omissions of NorthWestern; and (ii) Seller Indemnified Claims by any governmental authority for taxes that are the responsibility of NorthWestern under this Contract. NorthWestern’s indemnity obligation does not apply to the extent Seller Indemnified Claims or Damages arise or result from the negligent or intentionally wrongful acts or omissions of Seller. In the event of concurrent negligence, Damages will be borne by each party in proportion to its share of the negligence.

9.03 The obligation to defend is independent of and in addition to the duty to indemnify and hold harmless. If any person or entity asserts a NorthWestern Indemnified Claim or a Seller Indemnified Claim for which the indemnified party could be held liable, then the indemnifying party shall also have a duty to defend. If any NorthWestern Indemnified Claim or Seller Indemnified Claim arises for which a party is entitled to indemnity, the indemnifying party shall promptly give written notice to the indemnified party and provide a copy of any correspondence, pleading and legal process, along with a detailed description of the matter. The indemnifying party shall not enter into any settlement or consent to entry of any judgment that does not include an unconditional release from all NorthWestern Indemnified Claims, Seller Indemnified Claims

Laurel, Montana – NW/Caterpillar Procurement Contract

and Damages, includes a statement as to an admission of fault, culpability or failure to act by or on behalf of the indemnified party, or imposes any conditions, future obligations or limitations on the indemnified party.

9.04 Statutory Limits Do Not Apply to Indemnification. In any and all claims against Seller or any Seller Indemnified Party or NorthWestern or any NorthWestern Indemnified Party, by any employee (or the survivor or personal representative of such employee) of Seller, any subcontractor, any supplier, or any individual or entity directly or indirectly employed by any of them to furnish any of the Equipment and Services, or anyone for whose acts any of them may be liable, the indemnification obligation under Section 9.01 or 9.02 shall not be limited in any way by any limitation on the amount or type of Damages, compensation, or benefits payable by NorthWestern or for Seller or any such subcontractor, supplier, or other individual or entity under workers’ compensation acts, disability benefit acts, or other employee benefit acts.

9.05 Indemnity Exclusions. The indemnification obligations of Seller under Section 9.01 shall not extend to the liability of NorthWestern arising out of:

A. the preparation or approval of, or the failure to prepare or approve, maps, drawings, opinions, reports, surveys, Change Orders, designs, or Specifications; or

B. giving directions or instructions, or failing to give them, to the extent that is a cause of the injury or damage.

9.06 Contract Liability Cap. Seller’s maximum liability for all obligations under this Contract shall be the Maximum Liability Cap; regardless of the theory on which liability may be premised, whether the claim is brought in contract, warranty, tort, equity, under statute or otherwise, provided however, that the limitation set forth above in this paragraph shall not apply to (i) claims for fraud, gross negligence, or intentional misconduct, or (ii) Seller’s indemnification obligations under Section 9.01 or Section 14.02. Except in the event of fraud, gross negligence or intentional misconduct, in no event shall NorthWestern or Seller be liable for any incidental, indirect, exemplary, special, or consequential damages or any loss of profit; howsoever caused, and whether based on warranty, contract, tort (excluding fraud, gross negligence, or intentional misconduct), strict liability or otherwise.

Article 10 – SHIPPING AND DELIVERY

10.01 Packaging and Shipping. Seller shall deliver the Equipment DDP Site pursuant to Incoterms 2020. Seller shall select the carrier and bear all costs of packaging, transportation, insurance, special handling and any other costs associated with shipment and delivery, including any applicable import or export duties. The Equipment shall be shipped in appropriate packing containers corresponding to the nature of each particular type of Equipment and in accordance with any instructions set forth in the Specifications. Seller shall ensure that such packing protects the Equipment from damage and corrosion during its transportation by sea, air, and land, taking into account Seller’s mode of shipment. Prior to packing by Seller, Seller shall ensure that the Equipment undergoes such preservation measures as are necessary to protect the Equipment during shipment. NorthWestern agrees that it shall take such measures as are required by Seller’s standard instructions provided to NorthWestern to ensure the continued preservation of the

Laurel, Montana – NW/Caterpillar Procurement Contract

Equipment upon arrival at the Site. Seller shall mark each sea container, box, crate, or separately shipped item in accordance with Seller’s standard practice. If Seller utilizes returnable containers to ship the Equipment, Seller shall be responsible for all costs associated with the return shipment of such returnable containers. If Seller utilizes non-returnable containers to ship the Equipment, then, at the NorthWestern’s option, NorthWestern may (i) retain such non-returnable containers without any further payment to Seller or (ii) require Seller, at Seller’s cost, to remove and dispose of such non-returnable containers. Prior to shipment, Seller shall verify that all of the Equipment listed on the bill of lading is actually in the applicable sea container, box, or crate.

10.02 Delivery.

A. Seller shall deliver the Equipment to the Site and pay all delivery and shipping costs to Deliver the Equipment to the Site in accordance with the Delivery Schedule, or other date agreed to in writing by NorthWestern and Seller. Seller shall be responsible for off-loading and setting the Engine and associated generators on the foundations in accordance with the Specifications, and is also responsible for the coordination of the off-loading of the remainder of the Equipment at the Site.

B. Seller shall notify NorthWestern in writing when it believes that a shipment of Equipment is ready to be delivered to the Site, either in full or partial delivery. Seller shall provide written notice to NorthWestern at least forty-five (45) Days before shipment of the manner of shipment and the anticipated delivery date. The notice shall also include any instructions concerning special equipment or services required at the Site to unload, preserve, and care for the Equipment. Seller shall also require the carrier to give NorthWestern at least twenty-four (24) hours’ notice by telephone to the NorthWestern Project Manager prior to the anticipated time of delivery. Partial shipments are permitted; provided however, that Units shall be shipped in blocks that contain three (3) to nine (9) Units (including the associated components necessary to allow the Units to be installed), with each of the Units in the block arriving shall be shipped so that all Units arrive at the Site within a reasonable time period in coordination with the Installation Contractor.

C. NorthWestern will assure that adequate facilities are available to receive delivery of the Equipment. Seller shall cause the Equipment to be delivered to the Site only on Monday through Friday between the hours of 8:00 a.m. and 5:00 p.m. Mountain Prevailing Time.

10.03 Delivery Acceptance. If the nature of the packaging allows, NorthWestern (or the Installation Contactor) shall perform an inspection of Equipment within seven (7) Days of each delivery of Equipment and shall carefully note any visible shortage of or damage to the packaging of the Equipment prior to the unloading of same from the carrier. Where such inspection and inventory is not possible prior to unloading, NorthWestern (or the Installation Contractor) shall visually inspect and inventory such Equipment as soon after unloading as practicable. Crates or cartons inside of sea crates will not be opened for inspection or inventory until ten (10) days before installation of the Equipment is planned. NorthWestern shall notify Seller promptly of any shortages or damages revealed by its inspections. Each delivery of Equipment shall be accepted by NorthWestern if NorthWestern reasonably determines that:

Laurel, Montana – NW/Caterpillar Procurement Contract

A. Equipment specified under this Contract have been delivered to the Site, the Engine and associated generators have been set on the foundations, and the Equipment appears from an external visual inspection to be undamaged;

B. if applicable to the delivered installment of Equipment, all operating and maintenance manuals for the Equipment required under this Contract at time of delivery have been provided to the NorthWestern; and

C. all required drawings have been finalized, represent the as-built condition of the Equipment and have been provided to NorthWestern.

NorthWestern’s acceptance of delivery of each installment of Equipment will be evidenced by NorthWestern delivery of a written notice of acceptance to Seller. If NorthWestern rejects any Equipment, NorthWestern shall provide Seller with a written explanation of the reason for such rejection.

10.04 Risk of Loss and Title.

A. Title, Risk of loss and care, custody and control over each item of Equipment will transfer from Seller to NorthWestern upon Seller’s delivery of the Equipment to NorthWestern in compliance with the requirements of Section 10.03.

B. Notwithstanding the provisions of Section 10.04 A, if NorthWestern rejects the Equipment as non-conforming, the risk of loss and title on such Equipment shall shift to Seller at the time of rejection until Seller corrects the non-conformity or NorthWestern accepts the Equipment. For Equipment to be non-conforming as of Delivery a Unit would need to be visibly damaged or otherwise clearly out of compliance with the Specifications (such as wrong size or model). If rejected Equipment remains at the Site pending modification and acceptance, then Seller shall be responsible for arranging adequate protection and maintenance of the Equipment at Seller's expense.

Article 11 – CHANGES: SCHEDULE AND DELAY

11.01 NorthWestern may at any time, make an addition, deletion, or other revision to the Contract Documents with respect to the Equipment and Services if such change does not change the Contract Price or the Delivery Schedule, by issuing a Work Change Directive. Upon receipt of any such document, Seller shall promptly proceed with performance pursuant to the Work Change Directive, subject to Section 11.02.

11.02 If Seller reasonably concludes that a Work Change Directive issued by NorthWestern affects the Contract Price or the Delivery Schedule or any other obligation of Seller under this Contract, including the warranty or any Performance Guarantee, then Seller shall notify NorthWestern within fifteen (15) Days after Seller has received the Work Change Directive, and shall submit written supporting data to NorthWestern within forty-five (45) Days after such receipt with details relating to the cost to perform such additional Work which shall, at a minimum, include reasonable costs, overhead and expenses. If the cost of such additional Work as reasonably determined by Seller does not exceed $100,000, then, unless Seller reasonably believes that Seller’s performance of such Change is commercially impracticable or will adversely impact the

Laurel, Montana – NW/Caterpillar Procurement Contract

Delivery Schedule, the warranty, or a Performance Guarantee (herein, an “Adverse Effect”), Seller shall, upon subsequent written direction by NorthWestern, perform such additional Work and the amount that the Contract Price should be adjusted shall either be documented in a written Change Order or, if the Parties do not agree to a Change Order, regarded as a Claim as provided in Article 12. If the cost of such additional Work as reasonably determined by Seller exceeds $100,000 or Seller reasonably believes that its performance of such additional Work would result in an Adverse Effect, Seller shall be under no obligation to perform such additional Work unless the Parties agree in writing in a Change Order upon the price, scope, and consequences of the additional Work.

11.03 Seller shall not suspend performance of the Work (other than the requested additional Work) while NorthWestern and Seller are in the process of making such changes and any related adjustments to Contract Price or the Delivery Schedule.

11.04 NorthWestern Delay. Seller shall not be liable for any delay in performance, any nonperformance, or any other deviation in performance of Seller’s obligations when occasioned directly or indirectly by (i) any delay in the supply of information by NorthWestern, Installation Contractor any other third party under contract with NorthWestern (each a “NorthWestern Subcontractor”) which information is reasonably necessary for Seller to perform the Work; (ii) by failure by NorthWestern or any NorthWestern Subcontractor to perform any of its or their obligations under this Contract or any agreement between NorthWestern and NorthWestern Subcontractor in a timely manner (including, but not limited to, timely completion of the balance of the design, procurement, installation and testing of the Equipment) or by any breach of this Contract by NorthWestern; and (iii) by NorthWestern’s delay in readiness or willful refusal to accept any delivery, or any other aspect of the Work for which NorthWestern’s acceptance is required under this Contract, consistent with the time scheduled for such activities in the Delivery Schedule (a “NorthWestern Delay”). Upon the occurrence of a NorthWestern Delay that adversely impacts Seller, Seller shall be entitled to a Change Order with equitable cost or schedule adjustments, as may be applicable.

11.05 Force Majeure Event and COVID-19 Condition. Neither Party shall be responsible for or liable for or be deemed in breach of this Contract because of any delay, interference, disruption, or hindrance in the performance of their respective obligations hereunder, if and to the extent that any such impact in performance is due solely to a Force Majeure Event or a COVID-19 Condition.

If Seller experiences a delay, interference, disruption, or hindrance or other inability to perform that is due solely to a Force Majeure Event or a COVID-19 Condition, the Delivery Schedule shall be adjusted and the scheduled completion date shall be extended by a period of time equal to the amount of time reasonably determined by the Parties to be necessary for Seller to recover from such impact in performance. Seller expressly agrees that adjustment of the Delivery Schedule shall be Seller’s sole and exclusive remedy and NorthWestern’s sole and exclusive liability in the event Seller is delayed, interfered with, disrupted, or hindered in the performance of its Work by a Force Majeure Event or a COVID-19 Condition.

Laurel, Montana – NW/Caterpillar Procurement Contract

The Party claiming a delay under this section shall use its best efforts to remedy any inability to perform due to the occurrence of a Force Majeure Event or a COVID-19 Condition. As and when such affected Party is able to resume performance of its obligations under this Contract, such affected Party shall give the other Party notice to that effect.

If Seller experiences a delay, interference, disruption, or hindrance or other inability to perform that is due to a Force Majeure Event or a COVID-19 Condition, Seller shall take all reasonable steps to reduce, mitigate, remove, or overcome the delay, interference, disruption or hindrance or its direct or indirect effects or impacts. If Seller fails to take such reasonable steps to reduce, mitigate, remove or relieve such delay, interference, disruption, or hindrance or its direct or indirect effects or impacts and thereafter fails to resume full or partial performance of the Work, NorthWestern may declare Seller in default under this Contract.

Failure of the affected Party to provide the notice or to take the prescribed actions hereunder shall be deemed a waiver by the affected Party of its right to seek an extension of time for its performance.

11.06 Changing Contract Price or Delivery Schedule.

A. The Contract Price or the Delivery Schedule may only be changed by a Change Order.

B. Any Claim for an adjustment in the Contract Price or the Delivery Schedule shall be based on written notice submitted by the party making the Claim to the other party to the Contract in accordance with the provisions of Article 15.

C. Delays attributable to and within the control of Seller’s subcontractors or suppliers shall be deemed to be delays within the control of Seller.

D. Unless the Parties otherwise agree in writing, neither NorthWestern nor Seller shall be entitled to any Damages or to any adjustment to the Contract Price attributable to a Force Majeure Event.

Article 12 – project management

12.01 Project Management. The NorthWestern Project Manager and necessary assistants, will be responsible for the administration of the Contract. Whenever approval or authorization from or communication or submission to NorthWestern is required by the Contract, such communication or submission shall be directed to the NorthWestern Project Manager.

12.02 Clarifications and Interpretations. NorthWestern will issue with reasonable promptness such written clarifications or interpretations of the Contract Documents as requested by Seller, which shall be consistent with or reasonably inferable from the overall intent of the Contract Documents. If Seller disputes any clarifications or interpretations by NorthWestern or believes that a written clarification or interpretation justifies an adjustment in the Contract Price or the Delivery Schedule, either may make a Claim therefor.

12.03 Decisions on Technical Requirements of Contract Documents.

A. The NorthWestern Project Manager will be the initial interpreter of the Specifications with respect to the acceptability of the Equipment and Services and the interpretation of

Laurel, Montana – NW/Caterpillar Procurement Contract

the requirements of the Contract Documents pertaining to performance that both parties mutually agree is a matter or dispute of a technical nature (herein, a “Technical Claim”). Seller shall refer all Technical Claims to the NorthWestern Project Manager in writing, which may include email (provided receipt is confirmed), with a request for a formal decision in accordance with this paragraph. All Claims other than Technical Claims shall be adjudicated pursuant to the dispute resolution provisions of Article 15.

B. The rendering of a decision by the NorthWestern Project Manager pursuant to this Section 12.03 with respect to any such Technical Claim will be a condition precedent to any exercise by Seller of such rights or remedies Seller may otherwise have under the Contract Documents or by Laws or Regulations in respect of any such Technical Claim, provided the NorthWestern Project Manager renders a decision within the timeframes set forth in Section 12.04, failing which, Seller may refer such Claim to dispute resolution pursuant to Article 15.

12.04 Claims and Disputes.

A. Notice: Written notice of each Technical Claim shall be delivered by the claimant to the NorthWestern Project Manager within fifteen (15) Days after Seller’s discovery of the occurrence of the event giving rise thereto, and reasonable written supporting data shall be submitted within thirty (30) Days after such occurrence unless the parties agree to an additional period of time to obtain additional data.

B. Decision: The NorthWestern Project Manager will review each such Technical Claim and render a decision in writing within fifteen (15) Days after receipt of the last submittal of the claimant or the last submittal of Seller, if any.

12.05 If the NorthWestern Project Manager does not render a formal written decision on a Technical Claim within the time stated in Section 12.04B, the NorthWestern Project Manager shall be deemed to have issued a decision denying the Technical Claim in its entirety thirty-one (31) Days after receipt of the last submittal of the claimant or the last submittal of the opposing party, if any.

12.06 The NorthWestern Project Manager’s written decision on such Claim or a decision denying the Claim in its entirety that is deemed to have been issued pursuant to Section 12.04 B, will be final and binding upon Seller thirty (30) Days after it is issued, unless within thirty (30) Days of issuance Seller initiates the dispute resolution procedures set forth in Article 15.

12.07 No Technical Claim will be valid if not initially submitted in accordance with Sections 12.03-12.06.

Article 13 – CANCELLATION, SUSPENSION, AND TERMINATION

13.01 Cancellation. NorthWestern has the right to cancel the Contract, without cause, at any time prior to delivery of the Equipment by written notice. Cancellation pursuant to the terms of this paragraph shall not constitute a breach of contract by NorthWestern. Upon cancellation, NorthWestern shall compensate Seller in accordance with the Cancellation Schedule set forth in

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Exhibit C. Upon payment by NorthWestern of the amount provided in Exhibit C and payment by NorthWestern of the costs of shipment, partially manufactured Equipment shall, at the discretion of NorthWestern be shipped to the Site in their current state and shall become the property of the NorthWestern “as-is” with no applicable warranty.

13.02 Suspension of Performance by NorthWestern. NorthWestern has the right to suspend performance of the Contract for up to a maximum of one-hundred, eighty (180) Days, without cause, by written notice. Upon suspension under this paragraph, Seller shall be entitled to an increase in the Delivery Schedule and Contract Price caused by the suspension, provided that performance would not have been suspended or delayed for causes attributable to Seller. If NorthWestern suspends performance for more than ninety (90) continuous Days without cause, NorthWestern shall pay Seller pro rata for the portion of the Equipment supply completed. In the event that manufacture of the Equipment has proceeded to the point that Seller deems it cannot reasonably reschedule completion or the request for suspension is received less than sixty (60) days prior to the date by which the Equipment is to be ready for delivery, the Equipment supply shall be completed, invoiced, and the Equipment, or the portions thereof completed and placed in storage at NorthWestern's expense and risk. If NorthWestern suspends performance for more than one-hundred, eighty (180) continuous Days without cause, either Party shall have the right to cancel this Contract and such cancellation shall be regarded as a NorthWestern cancellation under Section 13.01.

13.03 Suspension of Performance by Seller. Seller may only suspend the furnishing of the Equipment and Services if NorthWestern has failed to perform any payment obligation or other material obligation beyond any period for cure, such suspension shall entitle Seller to a Change Order with equitable cost or schedule adjustments as may be applicable.

13.04 Breach and Termination.

A. NorthWestern’s Breach:

1. NorthWestern shall be in breach of the Contract if it fails to comply with any material obligation under the Contract Documents, including failure to deliver Milestone Payments in accordance with the requirements of this Contract, and such failure causes damage to Seller.

2. In the event of a NorthWestern breach, Seller shall have the right to terminate the Contract for cause. Upon termination, Seller shall be entitled to all remedies provided by Laws and Regulations. In the event Seller believes NorthWestern is in breach of its obligations under the Contract, Seller shall provide NorthWestern with reasonably prompt written notice setting forth in sufficient detail the reasons for declaring that it believes a breach has occurred. NorthWestern shall have thirty (30) Days from receipt of the written notice declaring the breach (or such longer period of time as Seller may grant in writing) within which to cure or to proceed diligently to cure such alleged breach.

B. Seller’s Breach:

Laurel, Montana – NW/Caterpillar Procurement Contract

1. Seller shall be in breach of the Contract if it fails to comply with any material obligation under the Contract Documents (other than an obligation for which the payment of liquidated damages is stated as the sole and exclusive remedy). In the event of a Seller breach, NorthWestern, in addition to any other rights and remedies provided in the Contract Documents or by law or equity, shall have the rights set forth in Section 13.04 B.2 and Section 13.04 B.3 below.

2. Upon the occurrence of an event set forth in Section 13.04 B.1 above, NorthWestern may provide written notice to Seller that it intends to terminate the Contract. If such event continues for thirty (30) Days after written notice from NorthWestern (which notice requirement shall be waived if Laws and Regulations prohibits the giving of such notice), then NorthWestern may terminate this Contract by delivery of a second written notice.

3. Upon declaring the Contract terminated pursuant to Section 13.04 B.2 above, NorthWestern may take possession, for the purpose of completing the Work, of all Equipment, materials, equipment, tools, appliances and other items thereon, which have been purchased for the performance of the Work or the provision of the Equipment, all of which Seller hereby transfers, assigns and sets over to NorthWestern for such purpose, and to employ any person or persons to complete the Work and provide all of the required labor, services, Equipment, materials, equipment and other items. In the event of such termination, Seller shall be paid for the Work satisfactorily completed by Seller in accordance with the Contract Documents. If NorthWestern’s cost and expense of completing the Work, supplying the Equipment, and performing the Services exceeds the unpaid balance of the Contract Price, then Seller shall be obligated to promptly pay the difference to NorthWestern.

13.05 Termination as a Result of Force Majeure Event or a COVID-19 Condition.

A. If NorthWestern or Seller asserts a Force Majeure Event or a COVID-19 Condition that continues for more than six (6) consecutive months or for any aggregate period in excess of twelve (12) months, then NorthWestern may provide written notice to Seller that it intends to terminate this Contract. If such Force Majeure Event or COVID-19 Condition continues for thirty (30) Days after such written notice, then NorthWestern may terminate this Contract by delivery of a second written notice to Seller.

B. If a Force Majeure Event or a COVID-19 Condition is asserted by Seller before Seller’s satisfaction of Milestone 7 set forth in Exhibit B-3, and NorthWestern terminates this Contract pursuant to Section 13.05 A, then within thirty (30) Days of the effective date of such termination, Seller shall be entitled to payment for any Work performed as set forth in this paragraph. In determining the final payment, Seller shall: (i) credit NorthWestern for 50% of Seller’s internal labor cost and expense associated with Work performed prior to the date of termination; (ii) retain funds paid by NorthWestern for parts and materials manufactured by Seller or ordered by Seller from Seller’s suppliers which have been delivered to the Seller, or for which Seller is liable to accept delivery and is not otherwise cancelable; provided Seller (a) shall use commercially reasonable efforts to mitigate the

Laurel, Montana – NW/Caterpillar Procurement Contract

termination costs to NorthWestern by utilizing the parts and materials purchased by Seller for the Equipment to fulfill orders by third parties during a two (2) year period following termination of this Contract; (b) reduce NorthWestern’s termination costs as a result of the sales to third parties and issue periodic refunds to NorthWestern; and (c) provide NorthWestern with periodic written accountings detailing the use of parts and materials to complete orders for third parties. As an alternative to the foregoing, NorthWestern may elect that all Work completed or in process be delivered to NorthWestern (“as-is” with no applicable warranty) upon Seller’s receipt of payment.

C. If NorthWestern terminates this Contract prior to delivery of the Equipment to the Site as a result of: (i) a Force Majeure Event declared by NorthWestern; or (ii) a Seller Force Majeure Event or a COVID-19 Condition asserted by Seller on or after Seller’s satisfaction of Milestone 7 set forth in Exhibit B-3, such termination shall be treated as a cancellation pursuant to Section 13.01.

Article 14 – LICENSES AND FEES

14.01 Intellectual Property and License Fees.

A. Seller is not transferring any intellectual property rights, patent rights, or licenses for the Equipment delivered to NorthWestern.

B. Seller shall pay all license fees and royalties and assume all costs incident to the use or the furnishing of the Equipment, unless specified otherwise by the Contract Documents.

C. To the extent the Work incorporates Seller’s proprietary or protected intellectual property, Seller grants NorthWestern an irrevocable, nonexclusive, nonassignable, royalty-free license for use of the Work solely in connection with the operation, maintenance, and repair of the Equipment in NorthWestern’s ordinary conduct of business operations.

14.02 Seller’s Infringement.

A. Subject to Section 14.01 A, Seller shall indemnify and hold harmless NorthWestern Indemnified Parties from and against all Damages (including but not limited to all reasonable fees and charges of engineers, architects, attorneys and other professionals and all court or arbitration or other dispute resolution costs) arising out of or relating to any infringement or alleged infringement of any United States or foreign patent or copyright by any of the Equipment as delivered hereunder.

B. In the event of suit or threat of suit for intellectual property infringement, NorthWestern will promptly notify Seller of receiving notice thereof.

C. Seller shall promptly defend the claim or suit, including negotiating a settlement. Seller shall have control over such claim or suit, provided that Seller agrees to bear all expenses and to satisfy any adverse judgment thereof. If Seller fails to defend such suit or claim after written notice by NorthWestern, Seller will be bound in any subsequent suit or claim against Seller by NorthWestern by any factual determination in the prior suit or claim.

Laurel, Montana – NW/Caterpillar Procurement Contract

D. If a determination is made that Seller has infringed upon intellectual property rights of another, Seller shall obtain the necessary licenses for NorthWestern’s benefit or replace the Equipment and provide related design and construction as necessary to avoid the infringement at Seller’s own expense.

14.03 Reuse of Documents. Neither Seller nor any other person furnishing any of the Equipment and Services under a direct or indirect contract with Seller shall: (1) acquire any title to or ownership rights in any of the drawings, Specifications, or other documents (or copies of any thereof) prepared by NorthWestern or its consultants, including electronic media versions; or (2) reuse any of such drawings, Specifications, other documents, or copies thereof prepared by NorthWestern or its consultants on any other project other than to the extent such documents contain the intellectual property of Seller. This prohibition will survive termination or completion of the Contract. Nothing herein shall preclude Seller from retaining copies of the Contract Documents for record purposes.

14.04 Electronic Data.

A. Unless otherwise stated in the Contract Documents, copies of data furnished by NorthWestern to Seller, or by Seller to NorthWestern that may be relied upon are limited to the printed copies (also known as hard copies). Files in electronic media format of text, data, graphics, or other types are furnished only for the convenience of the receiving party. Any conclusion or information obtained or derived from such electronic files will be at the user’s sole risk. If there is a discrepancy between the electronic files and the hard copies, the hard copies govern.

B. Because data stored in electronic media format can deteriorate or be modified inadvertently or otherwise without authorization of the data’s creator, the party receiving electronic files agrees that it will perform acceptance tests or procedures within sixty (60) Days, after which the receiving party shall be deemed to have accepted the data thus transferred. The transferring party will correct any errors detected within the sixty (60)-Day acceptance period.

C. When transferring documents in electronic media format, the transferring party makes no representations as to long term compatibility, usability, or readability of documents resulting from the use of software application packages, operating systems, or computer hardware differing from those used by the data’s creator.

14.05 Data Protection and Network Security.

A. Seller shall implement and maintain administrative, technical and physical safeguards and controls (“Security Measures”) to: (i) protect the security and confidentiality of electronic data, (ii) protect against any threats or hazards to network security if Seller receives access to NorthWestern’s network, (iii) protect against unauthorized access to Seller’s systems or use of electronic data; and (iv) comply with all applicable state and federal laws governing privacy and data security.

B. Seller shall document Security Measures and upon request, Seller shall provide NorthWestern a copy of Security Measures (subject to confidentiality requirements

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consistent with imposed on Seller in Section 7.07). If subcontractors perform Work, Seller’s subcontractors shall reasonably comply with the requirements of this Section 14.05.

C. Seller shall promptly notify NorthWestern if Seller (i) discovers or becomes aware of any unauthorized disclosure or use that adversely impacts NorthWestern’s electronic data or Confidential Information, or (ii) any breach of Seller’s systems (successful or unsuccessful) that materially affects NorthWestern or its network (each of (i) and (ii) a “Security Incident”). Seller shall promptly remedy and mitigate any damages, losses, or expenses caused by a breach in the security of Seller’s systems that adversely impacts NorthWestern and Seller shall take measures necessary to prevent any further Security Incident.

D. In addition to the indemnification obligation set forth in Section 9 and subject to the procedural requirements therein, Seller shall indemnify, defend, and hold harmless the NorthWestern Indemnified Parties from and against any third party claims to the extent such third party claims arise from or in connection with a Security Incident (including a Security Incident by a subcontractor).

Article 15 – DISPUTE RESOLUTION

15.01 Dispute Resolution Method.

A. Either NorthWestern or Seller may initiate mediation of any Technical Claim decided in writing by NorthWestern’s Project Manager under Section 12.05 before such decision becomes final and binding. The mediation will be non-binding and will be governed by the Commercial Mediation Rules of the American Arbitration Association in effect as of the Effective Date of the Contract and take place in Helena, Montana. Timely submission of the request shall stay the NorthWestern Project Manager’s decision from becoming final and binding.

B. NorthWestern and Seller shall participate in the mediation process in good faith. The process shall be concluded within sixty (60) Days of filing of the request. The date of termination of the mediation shall be determined by application of the mediation rules referenced above.

C. If the subject matter of the mediation is a Technical Claim and the mediation process does not result in a resolution of the Technical Claim satisfactory to both Parties, then NorthWestern Project Manager’s written decision under Section 12.05 shall become final and binding thirty (30) Days after termination of the mediation unless, within that time period, NorthWestern or Seller delivers to the other party written notice of its intent to submit the Claim to a court of competent jurisdiction, and within ninety (90) Days of the termination of the mediation institutes such formal proceeding, in which case, the NorthWestern Project Manager’s decision will be of no force and effect.

D. All Claims which have not been resolved in accordance with the procedures set forth in Section 15.01 A above to the satisfaction of the parties shall be subject to the exclusive jurisdiction of the federal courts located in Montana, and the Parties hereby consent to such exclusive jurisdiction.

Laurel, Montana – NW/Caterpillar Procurement Contract

E. Unless provided to the contrary in the Contract Documents, Seller shall continue to perform the Work, other than any portion of the Work that is the subject of the Claim, and NorthWestern shall continue to satisfy its payment obligations to Seller, pending the final resolution of the Claim.

Article 16 – MISCELLANEOUS

16.01 Notice. Whenever any provision of the Contract Documents requires the giving of written notice from one Party to the other, notice shall be delivered to such Party at the address listed below. Notice will be deemed to have been validly given if: (i) delivered in person to the individual or to a member of the firm or to an officer of the corporation for whom it is intended, or (ii) sent by facsimile, or (iii) delivered at or sent by registered or certified mail, postage prepaid, to the last business address known to the giver of the notice.

If to NorthWestern: NorthWestern Energy

11 East Park Street

Butte, Montana 59701

Attn: Jim Williams, Director of Thermal and Wind Generation

With a copy to:

NorthWestern Energy

208 N. Montana Ave., Suite 205

Helena, Montana 59601

Attn: Legal Department

If to Seller: CPGS LLC

c/o Caterpillar

10203 Sam Houston Park Drive

Suite #400

Houston, TX 77064

Attn: Legal Department

16.02 Controlling Law.

A. This Contract shall be governed by and construed and enforced in accordance with the substantive Laws and Regulations of the State of Montana, without regard to the conflict of laws provisions thereof.

B. In the case of any conflict between the express terms of this Contract and the Uniform Commercial Code, as adopted in the State of Montana, it is the intent of the Parties that the express terms of this Contract shall apply.

16.03 Computation of Time. When any period of time is referred to in the Contract Documents by Days, it will be computed to exclude the first and include the last day of such period. If the last day of any such period falls on a Saturday or Sunday or on a day made a legal holiday by the law of the applicable jurisdiction, such day shall be omitted from the computation.

Laurel, Montana – NW/Caterpillar Procurement Contract

16.04 Cumulative Remedies. Unless the terms of this Contract provides for liquidated damages as an exclusive remedy, the duties and obligations imposed by the Contract Documents and the rights and remedies available hereunder to the parties hereto are in addition to, and are not to be construed in any way as a limitation of, any rights and remedies available to any or all of them which are otherwise imposed or available by Laws or Regulations, by special warranty or guarantee, or by other provisions of the Contract Documents, and the provisions of this paragraph will be as effective as if repeated specifically in the Contract Documents in connection with each particular duty, obligation, right, and remedy to which they apply.

16.05 Survival of Obligations. All representations, indemnifications, warranties and guarantees made in, required by, or given in accordance with the Contract Documents, as well as all continuing obligations indicated in the Contract Documents, will survive final payment, completion, and acceptance of the Equipment and Services and termination or completion of the Contract.

16.06 Entire Agreement. NorthWestern and Seller agree that this Contract is the complete and final agreement between them, and supersedes all prior negotiations, representations, or agreements, either written or oral. This Contract may not be altered, modified, or amended except in writing signed by an authorized representative of both parties.

16.07 Counterparts. This Contract may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument.

16.08 Assignment. Neither Party shall either voluntarily or by operation of law assign or transfer its rights nor delegate its duties under this Contract, or any part of such rights or duties, without the written consent of the other Party. Such consent not to be unreasonably withheld, conditioned or denied. Notwithstanding the foregoing, Seller’s consent is not required for a NorthWestern assignment to an affiliate in connection with a consolidation or corporate reorganization; provided such consolidation or corporate reorganization is approved by the Montana Public Service Commission.

Article 17 – DEFINITIONS AND TERMINOLOGY

17.01 Defined Terms. Whenever used in the Contract Documents and printed with initial capital letters, the terms listed below will have the meanings indicated which are applicable to the singular or plural thereof. In addition to terms specifically defined, terms with initial capital letters in the Contract Documents include references to identified articles and paragraphs, and the titles of other documents or forms.

Acceptance Tests means the Thermal Performance Tests, Emissions Tests, Functional Tests, and other tests (except the Reliability Test) as described in Exhibit I,

Bulk-Power System Executive Order is defined in Section 7.08.

Cancellation Schedule means the schedule attached to this Contract as Exhibit C.

Certificate of Final Completion is defined in Section 2.05.

Change Order is a document which is signed by Seller and NorthWestern and authorizes an addition, deletion, or revision to the Contract Documents or an adjustment in the Contract Price

Laurel, Montana – NW/Caterpillar Procurement Contract

or the Delivery Schedule, issued on or after the Effective Date of the Contract. Change Orders may be the result of mutual agreement by NorthWestern and Seller, or of resolution of a Claim.

Claim is a demand or assertion by NorthWestern or Seller seeking an adjustment of Contract Price or the Delivery Schedule, or both, or other relief with respect to the terms of the Contract. A demand for money or services by a third party is not a Claim.

Confidential Information is defined in Section 7.07.

Contract means the entire and integrated written agreement between NorthWestern and Seller concerning the Equipment and Services.

Contract Documents means those documents specified in Section 1.03 of this Contract. Submittals are not Contract Documents, even if accepted, reviewed, or approved by NorthWestern.

Contract Price is defined in Section 4.01.

COVID-19 Condition. A COVID-19 Condition has occurred if, due to the COVID-19 pandemic as declared by the World Health Organization: (i) Seller is unable to ship the Equipment within the dates set forth in Section 2.03 of the Contract because of government imposed export restrictions from countries outside the United States or import restrictions into the United States due solely to the COVID-19 pandemic, (ii) common carriers, including ocean shipping vessels, rail and motor carriers, are precluded from shipping the Equipment within the dates set forth in Section 2.03 of the Contract because of government imposed restrictions due solely to the COVID-19 pandemic, (iii) a government imposed shutdown of Seller’s business precludes Seller from timely fulfilling its obligations under this Agreement, or (iv) a government imposed travel restrictions prohibits Seller from performing Services associated with startup, commissioning and testing; provided, however, to the extent Seller is declaring a COVID-19 Condition arising from relations with subcontractors or suppliers, Seller must demonstrate that, despite the exercise of reasonable diligence, Seller cannot reasonably source the parts, materials or services from alternative subcontractors and suppliers and the occurrence of the COVID-19 Conditions, as applied to the subcontractor or supplier, has a material adverse effect on the ability of Seller to fulfill its obligations under this Contract.

Damages includes all losses, costs, injuries, liabilities, claims, demands, penalties, interest and causes of action, including attorney’s fees.

Disbursement Request means the document in the form of Exhibit B-2 which is submitted by Seller to NorthWestern to request Milestone Payments and the Final Payment and which is accompanied by such supporting documentation as is required by the Contract Documents.

Day means a calendar day of 24 hours measured from midnight to the next midnight.

Delay Liquidated Damages means liquidated damages associated with Delay Liquidated Damages – Equipment, Delay Liquidated Damages – Submittals and Delay Liquidated Damages – Substantial Completion.

Delay Liquidated Damages – Delivery is defined in Section 3.04.

Delay Liquidated Damages – Submittal is defined in Section 3.04.

Laurel, Montana – NW/Caterpillar Procurement Contract

Delay Liquidated Damages – Substantial Completion is defined in Section 3.04.

Delivery Schedule is defined in Section 2.01.

Effective Date means the date indicated in the caption on which this Contract becomes effective.

Engine means any of the reciprocating internal combustion engines.

Equipment means all eighteen (18) Units.

Emissions Guarantees is defined in Exhibit I.

Emissions Tests consist of the emissions test described in Exhibit I.

EUR/USD Base Rate is defined in Section 4.01.

Factory Testing consists of the factory tests performed by Seller in accordance with prudent utility practice and Exhibit A-2.

Final Completion of the Work is achieved when the following conditions have been met: (i) Seller has satisfied the requirements for Substantial Completion; (ii) Seller has achieved all Performance Guarantees or achieved Minimum Performance Requirements and paid applicable Liquidated Damages; (iii) Seller has successfully completed the Reliability Test; (iv) Seller has demonstrated the Equipment Reliability Functional Guarantee and all Functional Guarantees (except Lube Oil Consumption) described in Exhibit I have been successfully completed in compliance with Exhibit I; (v) all Services identified in Exhibit A-1 and Exhibit A-2 have been performed; (vi) any outstanding amounts owed by Seller to NorthWestern have been paid in full, including but not limited to Delay Liquidated Damages and Performance Liquidated Damages; (vii) the items identified on the Punch List have been completed by Seller or Seller has notified NorthWestern in writing that NorthWestern should withhold the Punch List Retainage until the Punch List is completed; and (viii) the Units are capable of being operated in a safe manner and in accordance with the requirements of all Laws and Regulations, Permits and this Contract.

Final Payment is defined in Section 4.04.

Force Majeure Event means a cause or event that hinders or prevents the affected Party from performing its obligations under this Contract if such act or event (i) is beyond the reasonable control of, and without the fault or negligence of a Party claiming force majeure, (ii) such condition, event, or circumstance, despite the exercise of reasonable diligence, could not be prevented, avoided or removed by Seller, and (iii) such condition, event, or circumstance has a material adverse effect on the ability of Seller to fulfill its obligations under this Contract, and includes, without limitation, an emergency, national or industry-wide strikes or labor disturbances, floods, earthquakes, hurricanes, tornadoes, adverse weather conditions not reasonably anticipated; epidemic events declared by the World Health Organization after the Effective Date; or acts of God; sabotage; vandalism beyond that which could reasonably be prevented by a Party claiming force majeure; terrorism; war; riots; fire; explosion; blockades; insurrection; and action or failure to take action by any governmental authority after the date of execution of this Contract (including the adoption or change in any rule or regulation or environmental constraints lawfully imposed by such governmental authority), but only if such requirements, actions, or failures to act prevent or delay performance; and inability, despite due diligence, to obtain any licenses, permits, or approvals required by any governmental authority.

Laurel, Montana – NW/Caterpillar Procurement Contract

Notwithstanding the foregoing, the following do not qualify as Force Majeure Events (i) late delivery of materials and equipment required for the Work (except to the extent caused by the occurrence of an independent condition, event, or circumstance satisfying the requirements above), (ii) shortages of labor, supervisors or personnel strikes or labor disturbances (unless national or industry-wide) affecting Seller or any subcontractors, (iii) late performance as a consequence of any violation of applicable Laws or Regulations or decisions of a governmental authority related to the conduct of Seller or a subcontractor, and (iv) breakdown, loss, or damage to or materials (except when directly due to the occurrence of an independent condition, event, or circumstance satisfying the requirements above), (v) increased costs of the Work, changes in market conditions, economic hardship, and general economic or industry conditions; (vi) Seller’s failure or the failure of its subcontractors to secure and maintain permits, licenses, or other governmental approvals necessary for prosecution of the Work or their respective portions of the Work; (vii) normal weather conditions, including adverse weather conditions predictable through analysis of 100 year historical weather data, (viii) any negligent or intentional acts, errors, omissions or acts which are the fault of the affected Party, and (ix) the COVID-19 pandemic as declared by the World Health Organization.

FNTP Payment means the payment made by NorthWestern in accordance with Exhibit B-3 upon issuance of Full Notice to Proceed.

Full Notice to Proceed or FNTP is defined in Section 2.02.

Functional Guarantees are defined in Exhibit I.

Functional Guarantee Tests consist of the functional tests described in Exhibit I.

Guaranteed Substantial Completion Date is defined in Section 2.04.

Indemnified Claim is defined in Section 9.01.

Initial Payment is defined in Section 4.04.

Installation Agreement is defined in Section 1.05.

Installation Contractor is defined in Section 1.05.

Laws and Regulations; Laws or Regulations. Any and all applicable laws, rules, regulations, (including the Bulk-Power System Executive Order) ordinances, codes, and orders of any and all governmental bodies, regulatory agencies, authorities, and courts having jurisdiction.

Letter of Credit is defined in Section 6.01.

Limited Notice to Proceed or LNTP is defined in Section 2.02.

LNTP Work is defined in Section 2.02.

Manufacturer’s End User Warranty is defined in Section 8.04.

Maximum Liability Cap. A sum equal to the Contract Price.

Mechanical Completion. Mechanical Completion of the Work is achieved when the following conditions have been satisfied and certified by the Installation Contractor and confirmed by Seller (such confirmation not to be unreasonably withheld, conditioned or denied): (i) Equipment and related operating systems have been installed, individually cleaned, leak checked and

Laurel, Montana – NW/Caterpillar Procurement Contract

lubricated; (ii) all initial fills are complete; (iii) all relays have been set and ground checks made; (iv) all piping has been hydro tested and flushed/cleaned as appropriate; (v) all motor rotational checks are complete; (vi) all instrumentation calibrations are complete; (vii) all electrical circuits have been point-to-point checked to verify correct installation and response to simulated test signals; (viii) individual and/or integrated balance of plant systems and associated equipment have been tested successfully and verified to comply with support service needs of each Unit; and (ix) the Work is ready to support first fire in accordance with work scope and ready for start-up and commissioning activities.

Mechanical Completion Date is the Day the requirements of Mechanical Completion are satisfied.

Milestone Payment. The progress payments due Seller upon completion of the milestones established in Exhibit B-3.

Milestone Payment Schedule. The schedule for Milestone Payments set forth in Exhibit B-3.

Minimum Performance Requirements are set forth in Exhibit I.

NorthWestern is defined in the Recitals.

NorthWestern Delay is defined in Section 11.04.

NorthWestern Indemnified Parties. NorthWestern and their respective affiliates, employees, officers, directors, and permitted assigns.

NorthWestern’s Project Manager means NorthWestern’s senior representative on the Project Site.

Party and Parties are defined in the Recitals.

Performance Guarantees are defined in Exhibit I.

Performance Liquidated Damages. Consist of the liquidated damages associated with Seller’s failure to satisfy the Performance Guarantees, as set forth in Exhibit I.

Performance Requirements. Consist of the Performance Guarantees, Emission Guarantees and Functional Guarantees.

Project means the installation of reciprocating internal combustion engine technology and all works and services to design, deliver, install, commission and start-up a nominal 175 MW generating facility at the Site.

Punch List means minor items of Work that do not impact the results of the Acceptance Tests, the operation of the Equipment as intended, Site safety, or compliance with Laws and Regulations.

Punch List Retainage is an amount of money that is 2.5 times the value of Punch List Work as such value is reasonably determined by NorthWestern and Seller.

Ready to Ship means that the Equipment has been placed on a ship for delivery as evidence by (i) an original and two copies of Seller's signed commercial invoice; (ii) an original and two (2) copies of the packing list including a weight description for each package; (iii) an original bill of lading marked “shipped on board”; and (iv) an Insurance Certificate.

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Reliability Test is defined in Exhibit I.

Scheduled Delivery Date is defined in Section 2.03.

Scheduled Delivery Period is defined in Section 2.03.

Seller is defined in the Recitals.

Seller Indemnified Parties. The Seller and its respective affiliates, employees, officers, directors, and permitted assigns.

Services. Those services set forth in Exhibit A-1 and Exhibit A-2.

Site. The Site means the property owned by NorthWestern described as Township 2 South, Range 24 East, MPM, Section: 15: Tract 2 of COS 1677, Yellowstone County, Montana (Laurel, Montana).

Specifications means documents attached as Exhibit A-2 to this Contract.

Submittal means drawings, documents and other information issued by Seller.

Submittal Schedule is defined in Section 2.01.

Substantial Completion. Substantial Completion of the Work is achieved when the following conditions have been satisfied by Seller: (i) NorthWestern has accepted delivery of all Equipment pursuant to Section 10.03; (ii) the Units have achieved Mechanical Completion; (iii) Acceptance Tests (except the Reliability Test) have been successfully completed in compliance with Exhibit I; (iv) Seller has achieved all Emissions Guarantees and Functional Guarantees (except Lube Oil Consumption and the Equipment Reliability Functional Guarantee); (v) Seller has met the Minimum Performance Requirements; (vi) Operations personnel have received or are scheduled to receive training Services as specified and a functional operations manual has been delivered to NorthWestern; (vii) The Punch List has been provided to, and agreed by NorthWestern; and (viii) NorthWestern has approved of and signed the Substantial Completion Certificate.

Substantial Completion Date is the Day the requirements of Substantial Completion have been satisfied by Seller.

Technical Claim is defined in Section 12.03.

Thermal Performance Tests. Includes the Gross Electrical Output, Gross Heat Rate and Equipment Auxiliary Power and are described in Exhibit I.

Unit means any one Engine, generator stator/rotor assemblies and dedicated auxiliary equipment, as included in the Seller’s scope of supply specified in Exhibit A-1 and Exhibit A-2.

Warranty Period is defined in Section 8.02.

Work is the design, manufacture, delivery and off-loading of the Equipment onto the foundation and provision of the Services.

Work Change Directive. A written statement to Seller issued on or after the Effective Date of the Contract and signed by NorthWestern ordering an addition, deletion, or other revision in the Contract Documents with respect to the Equipment and Services. A Work Change Directive that results in any change to the Contract Price or Delivery Schedule is a Change Order.

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17.02 Intent of Certain Terms or Adjectives:

A. The Contract Documents include the terms “as allowed,” “as approved,” “as ordered,” “as directed” or terms of like effect or import to authorize an exercise of professional judgment by NorthWestern’s Project Manager. In addition, the adjectives “reasonable,” “suitable,” “acceptable,” “proper,” “satisfactory,” or adjectives of like effect or import are used to describe an action or determination of NorthWestern’s Project Manager as to the Equipment and Services. It is intended that such exercise of professional judgment, action, or determination will be commercially reasonable and will be solely to evaluate, in general, the Equipment and Services for compliance with the requirements of and information in the Contract Documents and conformance with the design concept of the Equipment as a functioning whole as shown or indicated in the Contract Documents (unless there is a specific statement indicating otherwise).

B. The word “non-conforming” when modifying the words “Equipment and Services,” “Equipment,” or “Services,” refers to Equipment and Services that fail to conform to the Contract Documents.

C. The word "furnish," when used in connection with the Equipment and Services shall mean to supply and deliver said Equipment to the Site (or some other specified location) and to perform said Services fully, all in accordance with the Contract Documents.

D. Unless defined or stated otherwise in the Contract Documents, words or phrases that have a well-known technical or construction industry or trade meaning are used in the Contract Documents in accordance with such recognized meaning.

IN WITNESS WHEREOF, the parties hereto have caused their names to be hereunto subscribed by their officers thereunto duly authorized, intending thereby that this Contract shall be effective as of the Effective Date.

[SIGNATURE PAGES FOLLOW]

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PROCUREMENT CONTRACT SIGNATURE PAGE – NORTHWESTERN ENERGY

NORTHWESTERN ENERGY

By: /s/ Brian B. Bird

Name: Brian B. Bird

Title: President and Chief Operating Officer

Laurel, Montana – NW/Caterpillar Procurement Contract

PROCUREMENT CONTRACT SIGNATURE PAGE – CATERPILLAR POWER GENERATIONS SYSTEMS LLC

CATERPILLAR POWER GENERATION SYSTEMS LLC

By: /s/ Jerome Vannitamby

Name: Jerome Vannitamby

Title: President

CATERPILLAR POWER GENERATION SYSTEMS LLC

By: /s/ Claudio Martino

Name: Claudio Martino

Title: Vice President

Laurel, Montana – NW/Caterpillar Procurement Contract

EXHIBIT 31.1

CERTIFICATION

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.


July 28, 2021
/s/ ROBERT C. ROWE
Robert C. Rowe
President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Crystal D. Lail, certify that:

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

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.


July 28, 2021
/s/ CRYSTAL D. LAIL
Crystal D. Lail
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 June 30, 2021, 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.


July 28, 2021						/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 June 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Crystal D. Lail, 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.


July 28, 2021						/s/ CRYSTAL D. LAIL
						Crystal D. Lail
						Chief Financial Officer