MDU Resources Group, a century-old Bismarck-based conglomerate, is on the cusp of a dramatic transformation. They're shedding their construction materials and services arm, Everus, to become a pure-play regulated energy delivery company. But hidden within their latest earnings call transcript lies a clue to a silent revolution that's already underway: a data center boom that's quietly supercharging their electric utility growth, without the typical capital expenditure burdens.

While analysts dissected Everus' record backlog and pipeline expansion projects, a subtle yet significant detail about MDU's electric utility went largely unnoticed. Their electric retail sales volumes for the first quarter of 2024 soared by a staggering 8% compared to the previous year. The reason? A new data center customer that came online in their service area. This isn't just a blip on the radar. MDU is already poised to serve another data center expected to go live in the second quarter, and they're fielding a growing number of inquiries from data center developers.

What's truly remarkable is how MDU is strategically capitalizing on this data center surge. Unlike traditional power-hungry industries, MDU isn't investing in generation capacity to meet these data centers' electricity demands. Instead, they're leveraging the existing transmission infrastructure within the MISO market, essentially acting as a conduit for electricity delivery. This shrewd approach allows MDU to reap significant financial benefits without the typical capital-intensive investments associated with power generation.

"Let's delve into the numbers. An 8% surge in electric retail sales volume is substantial, especially for a regulated utility. This translates to higher revenues and earnings, driving MDU's bottom line. While the precise financial impact of this single data center customer remains undisclosed, the overall electric utility earnings for the first quarter paint a clear picture: a healthy $17.9 million, up from $16.6 million in the same period last year."

The beauty of MDU's strategy lies in its cost-effectiveness. They're capitalizing on existing transmission infrastructure, thereby avoiding the substantial capital expenditures typically associated with building new power plants. This approach minimizes financial risks and allows for rapid revenue growth. Furthermore, the shared transmission expense within the MISO market translates into savings for MDU and its customers, further amplifying the positive impact of this data center boom.

Projected Utility Rate Base Growth

MDU's management projects a 7% compound annual growth rate in their utility rate base over the next five years. This projection likely incorporates general economic growth and traditional utility demand, the burgeoning data center presence in their service territories is poised to be a significant, if not the primary, catalyst for this robust growth.

There's another intriguing angle to this silent revolution: MDU's positioning for future equity needs. By minimizing capital expenditures in generation, MDU is maximizing its cash flow generation. This, coupled with the robust earnings growth driven by data centers, creates a favorable scenario for funding future capital investments without resorting to equity issuance. In fact, MDU's management has explicitly stated that they have no current plans to issue equity until 2027. This is a powerful statement of confidence in their financial strength and future prospects.

MDU Resources Group is a company undergoing a remarkable transformation, and the data center boom is quietly fueling this shift. While the spin-off of Everus will undoubtedly grab headlines, the strategic positioning of their electric utility to capitalize on the data center revolution is a hidden gem that could propel their growth trajectory for years to come.

"Fun Fact: MDU Resources is a major player in energy-rich North Dakota, a state that's seen a surge in data center development due to its favorable climate, abundant energy resources, and relatively low energy costs. This creates a sweet spot for MDU, allowing them to leverage their existing infrastructure in a region experiencing exponential growth in data center demand."