Prepared remarks
Ladies and gentlemen, thank you for joining us, and welcome to the MDU Resources Group, Inc. Q2 2026 Earnings Conference Call. Operator provided instructions. I will now hand the conference over to Brent Miller, Treasurer of MDU Resources Group. Brent, please go ahead.
Thank you, and welcome, everyone, to the MDU Resources Group Second Quarter 2026 Earnings Conference Call. Our earnings release and supporting materials for this call are available on our website at mdu.com under the Investors section. Leading today's call are Nicole Kivisto, President and Chief Executive Officer; and Jason Vollmer, Chief Financial Officer of MDU Resources Group. During today's call, we will make certain forward-looking statements within the meaning of the federal securities laws. Please refer to our SEC filings for a discussion of risks and uncertainties that could cause actual results to differ. I will now turn the call over to Nicole for her prepared remarks. Nicole?
Thank you, Brent, and good afternoon, everyone. We appreciate you joining us today and for your continued interest in MDU Resources. This morning, we reported second quarter 2026 earnings of $21.3 million, or $0.10 per share. Our results reflected continued execution across our regulated utility and pipeline businesses. New rates, customer growth, investments such as Badger Wind Farm and higher retail sales volumes helped drive the results. We delivered solid results while also continuing to advance strategic infrastructure opportunities that support long-term growth. A key highlight for the quarter was the continued advancement of the proposed Bakken East pipeline project. With recently signed precedent agreements, we now have executed agreements with all customers that submitted binding open season interest, totaling nearly 1.2 billion cubic feet per day of transportation capacity with a negotiated option in place that may increase contracted volumes to nearly all of the original interest from our binding open season. We continue to design the project for 1.4 billion cubic feet per day of transportation capacity. Overall project design is being finalized based on confirmed customer volumes and delivery locations before a final investment decision is made, which is expected ahead of a FERC Section 7(c) filing. This application is now anticipated to be filed in the fourth quarter of 2026. The proposed in-service dates of Phase 1 in late 2029 and Phase 2 in late 2030 remain unchanged. As development progresses, we continue to evaluate financing, partnership and other commercial options to support the projected $2.7 billion to $3.2 billion project. The potential Bakken East investment remains incremental to our current capital program. We also continue to see encouraging development activity across our service territory, including data center opportunities and broader infrastructure demand. Our approach to serving data centers is grounded in protecting existing customers and ensuring that growth creates value for the communities we serve. Data center customers are responsible for paying the costs associated with connecting to and being served by the electric system, including infrastructure and energy-related expenses. At the same time, the additional revenue generated from serving these customers can help support the electric system and contribute to reducing certain fixed costs for existing retail customers by allocating them across a broader customer base. This approach creates benefits for all customers. During the quarter, we entered into an electric service agreement with Applied Digital to serve Polaris Forge 3, an AI factory near Center, North Dakota. At full capacity, the campus would require 430 megawatts of electricity. Approval of the ESA and other regulatory filings by the North Dakota Public Service Commission is pending. We now have over 1 gigawatt of data center load under signed ESAs with approximately 240 megawatts currently online and additional volumes expected over the next few years as additional buildings are constructed. On the electric regulatory front, we filed a North Dakota general rate case on June 30, 2026, requesting an annual revenue increase of approximately $34.5 million with interim rates of approximately $26.3 million requested to begin on September 1 of this year. The filing reflects electric infrastructure investments, normal depreciation, reliability improvements, system safety and higher operation and maintenance expense. In Montana, interim rates reflecting an annual increase of approximately $10.4 million remain in effect subject to refund, and a settlement agreement of $10 million has been filed and is pending commission approval. In Wyoming, our general rate case settlement was approved for an annual increase of $5.8 million with rates effective April 1, 2026. Also in June, the North Dakota Public Service Commission approved the route permit for the Jamestown-to-Ellendale transmission project. This project is expected to enhance reliability, improve resiliency, reduce transmission congestion and support access to lower-cost energy across the region. At our natural gas distribution segment, positive regulatory outcomes in Idaho, Washington, Montana and Wyoming, as well as higher retail sales volumes and continued customer growth, supported improved year-over-year results. In Washington, we filed a multiyear natural gas case requesting an annual revenue increase of $25.1 million in year one and $18.1 million in year two. Our Oregon general rate case remains pending with a multiparty settlement agreement, which was filed on July 31, 2026, with a requested annual increase of approximately $12.2 million. We also anticipate filing a Minnesota general rate case later this year. At our pipeline segment, strategic growth initiatives continue to advance. The Line Section 32 expansion project remains on schedule following our FERC Section 7(c) application filing in March of 2026 and continues to target a late 2028 in-service date, subject to regulatory approvals. Development activities for the potential mine and industrial project also continue under agreements currently extended through late 2026. In addition, our pipeline business filed a FERC rate case on May 29 of this year, requesting a $31 million annual revenue increase. Approximately 30% of the requested revenue increase is due to proposed new depreciation and amortization rates. FERC accepted and suspended the proposed rates on June 30, with rates to become effective December 1, 2026, subject to refund and the outcome of hearing procedures if a settlement with our customers and FERC is not reached. Looking ahead, we are reaffirming our 2026 earnings per share guidance range of $0.93 to $1. This guidance is based on assumptions, including normal weather, economic and operating conditions for the remainder of the year, continued customer growth, successful execution of approved capital investment programs and constructive regulatory outcomes. Our long-term earnings per share growth objective remains at 6% to 8%. Our capital program for 2026 through 2030 totals approximately $3.1 billion, with planned investments of approximately $1.1 billion in our electric business, $1.4 billion at our natural gas distribution business and $643 million at our pipeline. We remain focused on disciplined execution of this plan while advancing additional infrastructure opportunities that support customers, communities and stockholders. As always, MDU Resources is committed to operating with integrity and with a focus on safety. We remain dedicated to delivering safe, reliable, cost-effective and environmentally responsible energy services while positioning the company for compelling long-term growth. And with that, I will now turn the call over to Jason for the financial update.
Thank you, Nicole. As Nicole mentioned, we announced this morning second quarter earnings of $21.3 million, or $0.10 per share, compared to $13.7 million, or $0.07 per share for the second quarter of 2025. On a year-to-date basis, earnings were $102.1 million, or $0.49 per share, compared to $95.7 million, or $0.47 per share for the first six months of last year. Turning to our individual businesses, our electric utility reported second quarter earnings of $14.7 million compared to $10.4 million for the same period in 2025. Results benefited from higher retail sales revenue, including recovery mechanisms associated with renewable investments such as the Badger Wind Farm, which contributed $3.3 million in earnings during the quarter. Interim rates in Montana and new rates in Wyoming, along with higher retail sales volumes across all major customer classes, also contributed to the increase. Our natural gas distribution segment reported a seasonal second quarter loss of $3.9 million compared to a seasonal loss of $7.4 million in the second quarter of 2025. The improved year-over-year results were primarily driven by new rates in Idaho, Washington, Montana and Wyoming, as well as higher retail sales volumes across all customer classes. Retail sales volumes increased 6.7% and customer growth was 1.6% year-over-year. These benefits were partially offset by higher interest expense resulting from higher long-term debt balances. The pipeline segment earned $14.4 million in the second quarter compared to $15.4 million in the same period in 2025. The decrease was driven by lower other income and higher depreciation and amortization expense from a growth project placed in service. These impacts were partially offset by continued customer demand for short-term natural gas transportation contracts and interruptible storage services, along with contributions from previously constructed growth projects, including a contracted volume increase. The other category reported a second quarter net loss of $3.9 million compared to a net loss of $4.7 million in the same period last year. The year-over-year improvement was primarily due to discontinued operations associated with a $1.5 million tax benefit related to strategic initiative costs. We continue to maintain a strong balance sheet and ample access to working capital to finance operations through our peak periods. That summarizes our financial highlights for the quarter. We appreciate your interest in MDU Resources, and ask now that we open the line for questions.
Questions and answers
Operator provided instructions. Your first question comes from the line of Constantine Lednev with Wells Fargo.
Actually, it's Andrew Kadavy on for Constantine right now. Maybe on the financing options for Bakken East. We've seen some peers use a variety of instruments to finance these bigger projects. Are you seeing any favorable markets out there that could help you efficiently finance the project?
Yes. This is Jason. I can field that one. As we've stated before, at this point, we're very excited to have reached executed precedent agreements we have in place as we've been working toward that progress. We continue to look at all options as we think about financing a project of this size and scope. As you mentioned, we've seen others out there too. We've been focused on getting these precedent agreements signed and getting to a point of a decision. Of course, we need to get in front of our Board to consider a final investment decision on this project. It's safe to say we'll look at all options. We feel confident in the ability to finance a project like this and there is good appetite in the market for these types of assets today.
And would that financing decision be part of the Board's FID decision? And is that still on schedule for the third quarter? Or are you looking at fourth quarter for that?
So right now, as we stated in our update this quarter, we are looking to make our 7(c) filing in the fourth quarter. I think we would have previously looked at third quarter based on the schedule, but some of the precedent agreement negotiations took a little longer and some were recently signed. We will continue to bring our Board up to speed on where we're at with the project; they have been involved all along. Work is continuing on this project since we started looking at it. I'm not going to be specific on a timeline yet. We need to get the right information in front of our Board to make a decision in the right manner. But certainly, any FID would happen ahead of the 7(c) filing, which we now expect to happen in the fourth quarter.
Operator provided instructions. Your next question comes from the line of Julien Dumoulin-Smith with Jefferies.
It's actually Tanner on for Julien. Thanks for the new Bakken East disclosures here. Could you provide a little more information on the negotiated option in place, the strategic rationale behind it? And how you would classify the commercial alternatives if a customer does not take the option?
I appreciate the question. I want to give a shout out to the WBI team — extremely proud of this milestone with the recently signed precedent agreements that get us to essentially all customers that were in the nonbinding open season. Regarding the option, essentially what we've done with that customer is allow them the ability to add more volumes under an already negotiated agreement. All customers are working on timing with their applicable customers, and we worked an arrangement where they have an option to add volumes at the agreed terms. If that happens, as we noted in the release, that gets us very close to the open season amount. That said, we are still designing the project at 1.4 billion cubic feet per day, and I feel good about that. With the precedent agreements being recently signed, we did move the 7(c) filing to the fourth quarter and expect to make a final investment decision ahead of that. In-service dates remain unchanged.
Understood. Great. Is the state backstop a portion of the executed agreements? Or have you found an offtaker to stand in their place?
Yes. The state is part of the precedent agreements that we have signed.
Understood. And then maybe just following up on the Polaris Forge 3 ESA. You're in front of the commission requesting approval. Can you speak to the magnitude of margin uplift here relative to what we're seeing at the Ellendale campus? And maybe zooming out, since you've also recently filed your electric rate case in the state, does this give you confidence to be able to elongate the period between filings, given the support to earned ROEs from the capital-light ESA?
We are excited about the ESA we signed; it's for 430 megawatts. We have this in front of the North Dakota Public Service Commission for approval. We would wait for the appropriate approvals before contemplating including it in any numbers or financial guidance. So right now, that would not be contemplated in our long-term growth rate outlook. We are working under a capital-light model as of today. Incremental margin on data center load benefits the company and the customers. We share a piece of that margin with our retail customers, who receive a credit on their bills. Additionally, the data center assumes more of the transmission expense that otherwise would have been allocated to our retail customers, which can result in bill reductions for retail customers. That gives you the company side and the customer side. But the bottom line is the Center ESA is still pending approval, and we will not incorporate it into guidance until it's approved and finalized.
Operator provided instructions. Your next question comes from the line of Aidan Kelly with JPMorgan.
Yes, of course. I just want to hone in on Bakken East again — clearly strong commercial momentum to date with the 1.2 Bcf secured you mentioned, and you're still designing for 1.4 Bcf. Are there any factors that would cause you to expand the Bakken East pipe? In the past, you've mentioned an overbuild scenario as a consideration, so I'm curious about potential expansion and your thoughts in general.
As we mentioned in the release, we are working through the overall design. With the recently signed precedent agreements, we will look at what makes sense in terms of designing the project so that we can have expandability while also meeting the financial hurdles required by our Board and shareholders. It's a balancing act; we will contemplate expandability as we move to a final investment decision.
Great. Understood. Makes sense. And I guess just teeing it all up, you laid out potential FID coming before the 7(c) filing in 4Q and you need to go to the Board for some considerations there. For the investment community, when should we expect you to refresh the capital plan and roll in this Bakken East estimate? Is that on the tails of 4Q? Any color on timing?
Aidan, our normal process for updating capital is in the late November time frame, typically after our third quarter Board meeting. Something the size of Bakken East would be a large incremental increase. When we get to the Board and have an FID decision and more clarity about the impact, we would update the market with a revised range. Right now we've put out a range in the neighborhood of $2.7 billion to $3.2 billion. We will continue to refine that and by our normal November capital update we would have a working assumption built into our capital plan, if the Board decides to proceed with the project.
Great. Sorry, just one follow-up on my first question. Is upside possible? And if so, when would that decision be made?
Yes. We are designing for 1.4 Bcf and that supports the demand we're seeing in the contracting process to date. There would be the ability to expand in the future if additional demand arises. Expansion would likely require additional capital, such as additional compression. Those are the types of decisions we'll make as we go. Right now we are designing to the demand we have today, but we would have the ability to upsize this in the future if more demand shows up.
Operator provided instructions. Your next question comes from the line of Chris Ellinghaus with Siebert Williams Shank.
So could you just give a little color... Technical difficulty.
Chris, are you still there? We can't hear you right now.
Operator provided instructions. Your next question comes from the line of Ryan Levine with Citi.
I wanted to start off on the North Dakota data center front. Given that we're seeing broader community engagement and some public concerns around data centers in the state, how is MDU approaching engagement on those potential issues and trying to advance projects that may support load growth in the region?
As it relates to where we are currently serving, and the communities where we've got signed ESAs, we feel good about how those community conversations are moving forward. We need to continue to tell our story about how we're serving data centers and the potential benefits to existing retail customers and to communities at large. We have been engaged with communities and in local discussions to get that message out, highlighting information on our website, and visiting with our employees to ensure it's understood how we are serving data center loads. Specifically, in areas where we have signed ESAs, we feel good about where we're at today.
And just to clarify, given all the momentum around the pipeline expansion and your indication that no FID until before the 7(c) filing, are there any meaningful milestones that need to be achieved between now and then to move forward with the project? Any clarification you can make around that would be helpful.
I want to clarify: we intend to have an FID before the 7(c) filing, and the 7(c) filing is scheduled for the fourth quarter. We didn't say an FID would definitely be in the fourth quarter; we said it would be before the filing. In terms of other major milestones, we have continued work on this project while negotiating precedent agreements. We've done many activities, whether boots on the ground, or continued the work on financing options. Throughout the process, we've been engaged with our Board. We'll continue that engagement as we head into a final investment decision.
There are no further questions at this time. I will now turn the call back to Nicole Kivisto for closing remarks.
All right. I want to thank everyone again for joining us today and for your thoughtful questions. We certainly appreciate your continued interest in and support of MDU Resources. As we move through the remainder of 2026, we remain focused on disciplined execution of our capital program, constructive regulatory engagement and advancing infrastructure opportunities that support safe, reliable and affordable energy for our customers. Finally, I want to close by thanking all of our employees for their ongoing commitment to safety, reliability, operational excellence and customer service. With that, we look forward to staying engaged with all of you throughout the year. Operator, you may conclude the call.
This concludes today's call. Thank you for attending. You may now disconnect.