Voting in Person at the Annual Meeting.~~Submitting your vote by proxy will not affect your right to attend the annual meeting and to vote in person.~~ If you attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the annual meeting, you must bring to the annual meeting a proxy from the ~~recordholder~~record holder of the shares authorizing you to vote at the annual meeting.

~~We do~~ Submitting your vote by proxy will not ~~expect that any matters other than those described in this proxy statement will be brought before~~affect your right to attend the annual ~~meeting; however, by giving~~meeting and to vote in person.

To ensure that you are able to participate in our annual meeting, please review the proxy materials and follow the instructions on the voting card or Voting Instruction Form to vote your shares. If you received notice of the availability of proxy materials, please follow the instructions sent to you.

Proposal 2 – Ratification of the Appointment of the Independent Registered Public Accounting Firm

For the proposal relating to ratification of the appointment of our independent registered public accounting firm, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Assuming a quorum is present, the failure to vote – either by not returning a properly executed proxy card or not voting in person at the annual meeting – will have no effect on the outcome of the voting on the proposal. However, abstentions will have the same effect as voting “AGAINST” ratification of our independent registered public accounting firm.

Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2010 requires the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote thereon. If you are a street name stockholder and do not vote your shares, your bank, broker or other nominee can vote your shares at its discretion on the proposal to ratify the appointment of the independent registered public accounting firm.

METHOD AND COST OF SOLICITING AND TABULATING VOTES

The Board is providing these proxy materials to you in connection with the solicitation by the Board of proxies to be voted at our annual meeting. NorthWestern will pay the cost of the solicitation, which will be made primarily by the use of mail and the Internet. Proxies also may be solicited in person, by telephone, facsimile or similar means by our directors, officers or employees without additional compensation.

~~What is a “broker non-vote”?~~

A “broker non-vote” generally occurs when a broker, bank or other nominee holding shares in “street name” on your behalf does not vote on a proposal because the broker, bank or other nominee has not received your voting instructions and lacks discretionary power to vote the shares. However, under the rules of the New York Stock Exchange, or NYSE, brokers, banks and other nominees have the discretion to vote on routine matters, such as the election of directors and the ratification of the appointment of our independent registered public accounting firm, unless you instruct otherwise, but do not have authority to vote on non-routine matters, such as the approval of the NorthWestern Energy Employee Stock Purchase Plan. If you do not provide voting instructions, your broker, bank or other nominee may either vote your shares on routine matters or leave your shares unvoted. We encourage you to provide instructions to your broker, bank or other nominee. This ensures your shares will be voted at the meeting. When a broker, bank or other nominee votes its customers’ unvoted shares on routine matters, these shares are counted for purposes of establishing a quorum to conduct business at the meeting. A brokerage firm, however, cannot vote customers’ shares on non-routine matters. Accordingly, these shares (sometimes referred to as broker non-votes) are considered not entitled to vote on non-routine matters, rather than as a vote against the matter.

Q:	~~Can I change my vote after I have delivered my proxy?~~

Yes. If you are a recordholder of our common stock, you can change your vote at any time before your proxy is voted at the annual meeting by again voting by one of the methods described previously or by attending the annual meeting and voting in person. You also may revoke your proxy by delivering a notice of revocation to our Corporate Secretary prior to the vote at the annual meeting. If your shares are held in “street name,” you must contact your broker, bank or other nominee to revoke your proxy.

Q:	~~What should I do if I receive more than one set of voting materials?~~

You may receive more than one notice of our annual meeting. For example, if you hold your shares in more than one brokerage account, you will receive a separate notice for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive a notice for each registration. Please follow the voting instructions for each notice that you receive.

Q:	~~Who pays for the solicitation of proxies?~~

The Board of Directors of NorthWestern Corporation is providing these proxy materials to you in connection with the solicitation by the Board of proxies to be voted at NorthWestern’s annual meeting of stockholders that will take place on April 22, 2009. NorthWestern will pay the cost of the solicitation, which will be made primarily by the use of mail and the Internet. Proxies also may be solicited in person, by telephone, facsimile or similar means, by our directors, officers or employees without additional compensation.

We will, on request, reimburse stockholders who are brokers, banks or other nominees for their reasonable expenses in sending proxy materials and annual reports to the beneficial owners of the shares they hold of record.

Broadridge Financial Solutions, Inc., will be the proxy tabulator, and a representative from NorthWestern Corporation will act as the Inspector of Election.

ELECTRONIC ACCESS TO PROXY STATEMENT AND ANNUAL REPORT

The proxy statement, annual report, voting card and voting instructions are available on the Internet at www.proxyvote.com and will be available for one year following the annual meeting. You will need the control number provided on your Notice to access the electronic materials.

Important Notice Regarding the Availability of Proxy Materials for the

Annual Meeting of Stockholders to Be Held on April 22, 2010:

The Notice of Annual Meeting, Proxy Statement and 2009 Annual Report to

Stockholders are available on the Internet at www.proxyvote.com.

At www.proxyvote.com, stockholders can view these materials, cast their vote and request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis.

ATTENDING THE ANNUAL MEETING IN PERON OR BY WEBCAST

Only stockholders of record or their legal proxy holders as of the Record Date or our invited guests may attend the annual meeting in person. If you wish to attend the annual meeting and your shares are held in street name at a brokerage firm, bank or other nominee, you will need to bring your Notice or a copy of your brokerage statement or other documentation reflecting your stock ownership as of the Record Date. You may be asked to provide photo identification, such as a driver’s license.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted at the annual meeting. No banners, signs, firearms or weapons will be allowed in the meeting room. We reserve the right to inspect all items entering the meeting room.

The location of the NorthWestern Energy Operations Center is shown below.

The annual meeting will be webcast (audio and slides) simultaneously with the live meeting. You may access the webcast from our Web site at www.northwesternenergy.com under About Us/Investor Information/Presentations and Webcasts. A replay of the webcast will be available at the same location on our Web site through May 22, 2010.

HOUSEHOLDING; RECEIPT OF MULTIPLE NOTICES

Under SEC rules, a single set of annual reports and proxy statements may be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces mailing and printing expenses. In accordance with a notice sent to certain stockholders who shared a single address, only one annual report and proxy statement will be sent to that address unless any stockholder at that address requested that multiple sets of documents be sent. However, if any stockholder who agreed to householding wishes to receive a separate annual report or proxy statement for 2010 or in the future, he or she may telephone toll-free 1+ (800) 542-1061 or write to Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders sharing an address who wish to receive a single set of reports may do so by contacting their banks, brokers or other nominees, if they are beneficial holders, or by contacting Broadridge at the address set forth above, if they are record holders.

ADDITIONAL INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, proxy statements or other information that we file with the SEC at the following location of the SEC:

Public Reference Room

100 F Street, N.E.

Room 1580

Washington, DC 20549

Please call the SEC at 1+ (800) SEC-0330 for further information on the public reference room. You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, DC 20549, at prescribed rates. Our public filings are also available to the public from document retrieval services and the Web site maintained by the SEC at www.sec.gov.

STOCKHOLDER PROPOSALS

Stockholder Proposals for Inclusion in Next Year’s Proxy Statement

To be considered for inclusion in the proxy statement for our annual meeting to be held in 2011, stockholder proposals must be received by the Corporate Secretary of NorthWestern Corporation not later than November 8, 2010. This notice requirement is separate from and in addition to the SEC’s requirements that a stockholder must meet in order to have a stockholder proposal included in the company’s proxy statement.

Other Stockholder Proposals for Presentation at the 2011 Annual Stockholders’ Meeting

For any proposal that is not submitted for inclusion in next year’s proxy statement, but is instead sought to be presented directly from the floor of the 2011 Annual Stockholders’ Meeting, the company’s Bylaws require that timely notice must be given to the Corporate Secretary. To be timely, the notice must be received by the Corporate Secretary of NorthWestern Corporation between December 23, 2010, and January 22, 2011.

Stockholder proposals should be delivered to or mailed and received by us on the dates set forth above and addressed to: Corporate Secretary, NorthWestern Corporation, 3010 W. 69th Street, Sioux Falls, SD 57108.

To be in proper written form, a stockholder’s notice for both annual and special meetings must set forth:

(i) as to each person whom the stockholder proposes to nominate for election as a director, (a) the name, age, business address and residence address of the person, (b) the principal occupation or employment of the person, (c) the class or series and number of shares of capital stock of the company that are owned beneficially or of record by the person, (d) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and (e) such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected;

(ii) as to any other business that the stockholder proposes to bring before the meeting, (a) a brief description of the business desired to be brought before the meeting, (b) the text of the proposal or business (including the text of any resolutions proposed for consideration, and, in the event that such business includes a proposal to amend the Bylaws of the company, the language of the proposed amendment), (c) the reasons for conducting such business at the meeting, and (d) any material interest of such stockholder in the business being proposed and the beneficial owner, if any, on whose behalf the proposal is being made; and

(iii) as to the stockholder giving this notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (a) the name and record address of such stockholder and any such beneficial owner, (b) the class or series and number of shares of capital stock of the company that are owned beneficially or of record by such stockholder and beneficial owner, (c) a description of all arrangements or understandings between such stockholder and any such beneficial owner and each proposed nominee and any other persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (d) a representation that such stockholder is a stockholder of record entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the persons and/or conduct the business being proposed as described in the notice, and (e) a representation of whether such stockholder or any such beneficial owner intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the company’s outstanding capital stock required to approve or adopt the proposal or elect the nominee, and/or (2) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a stockholder with respect to an annual meeting if the stockholder has notified the company of his or her intention to present a proposal at such annual meeting in compliance with Regulation 14A (or any successor thereof) promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the company to solicit proxies for such annual meeting. The company may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the company.

ASSISTANCE

If you need assistance with voting your proxy or have questions regarding our annual meeting, please contact:

Dan Rausch

Director – Investor Relations

(605) 978-2902

Tammy Lydic

Assistant Corporate Secretary

(605) 978-2913

No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person. You should not assume that the information contained in this proxy statement is accurate as of any date other than the date of this proxy statement, and the mailing of this proxy statement to stockholders shall not create any implication to the contrary.

PROPOSAL1

ELECTION OF DIRECTORS

Our Board is nominating eight individuals named in this proxy statement for election as directors. In accordance with our current certificate of incorporation and our current ~~bylaws,~~Bylaws, all members of our Board are elected annually, to serve until the next annual meeting of stockholders and until their successors are duly elected and qualify. Our ~~bylaws~~Bylaws currently authorize a Board consisting of not fewer than five nor more than eleven persons. We currently have eight seats on our ~~board. Jon S. Fossel~~Board; however, if any director is ~~not standing for re-election, and~~unable to complete his or her term, the Board, ~~expressed their appreciation for Mr. Fossel’s contributions to our Board during his tenure. The board has reduced~~by resolution, may reduce the number of ~~seats on our board~~directors or choose a substitute to ~~seven effective as of~~fill the ~~time of our annual meeting. Our Board has determined that, with the exception of Robert C. Rowe, all of the director nominees are independent within the meaning of the listing standards of the NYSE.~~

The nominees for election to the seven positions on our Board, selected by our Nominating and Corporate Governance Committee of the Board and proposed by our Board to be voted upon at the annual meeting, are Stephen P. Adik; E. Linn Draper, Jr.; Dana J. Dykhouse; Julia L. Johnson; Philip L. Maslowe; D. Louis Peoples and Robert C. Rowe.

Unless authority to vote for the election of directors has been specifically withheld, the persons named in the accompanying proxy intend to vote “FOR” the election of director nominees Adik, Draper, Dykhouse, Johnson, Maslowe, Peoples and Rowe to hold office as directors until the next annual meeting of stockholders in 2010 and until their successors are duly elected and qualified. All nominees have advised the Board that they are able and willing to serve as directors.

vacated position.

If any nominee becomes unavailable for any reason (which is not anticipated), the shares represented by the proxies may be voted for such other person or persons as may be determined by the holders of the proxies (unless a proxy contains instructions to the contrary). In no event will the proxy be voted for more than ~~seven~~eight nominees. Directors will be elected by a favorable vote of a plurality of the shares of voting stock present and entitled to vote, in person or by proxy, at the annual meeting. Accordingly, abstentions or broker non-votes as to the election of directors will not affect the election of the candidates receiving a plurality of votes; however, under our Majority Vote Policy described below, if a nominee for director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, such nominee shall immediately tender ~~his/~~his or her resignation under the procedures in the Policy. Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted “FOR” the election of the ~~seven~~eight nominees named above as directors.

~~Nominees~~

~~Stephen P. Adik~~, age 65, director since November 1, 2004, is the retired Vice Chairman (2001-2003) of NiSource Inc. (NYSE: NI), an electric and natural gas production, transmission and distribution company; formerly Senior Executive Vice President and Chief Financial Officer (1998-2001) of NiSource. Mr. Adik serves on the Boards of Beacon Power (NASDAQ: BCON), a designer and manufacturer of power conversion and sustainable energy storage systems for the distributed generation, renewable energy, and backup power markets; the Chicago SouthShore and South Bend Railroad, a regional rail carrier serving northwest Indiana; and Dearborn Midwest Conveyor Company, a manufacturer and installer of conveyor equipment for the bulk materials and automotive industries.

~~E. Linn Draper, Jr.~~, age 67, Chairman of the Board since November 1, 2004, is the retired Chairman, President and Chief Executive Officer of American Electric Power Company (NYSE: AEP), a public utility holding company (1992-2004). Mr. Draper serves on the Boards of Alliance Data Systems Corporation (NYSE: ADS), a provider of transaction services, credit services and marketing services; Alpha Natural Resources Inc. (NYSE: ANR), a coal producer; Temple-Inland Inc. (NYSE: TIN), a corrugated packing and forest products business; and TransCanada (NYSE: TRP), a transporter and marketer of natural gas and generator of electric power in Canada and the United States.

~~Dana J. Dykhouse,~~age 51, director since January 30, 2009, President and Chief Executive Officer of First PREMIER Bank, a regional bank headquartered in Sioux Falls, S.D. with bank locations across eastern South Dakota, since 1995. Mr. Dykhouse also serves in a variety of leadership roles in civic, community and professional organizations in South Dakota.

~~Julia L. Johnson~~, age 46, director since November 1, 2004, is President of NetCommunications, LLC, a strategy consulting firm specializing in the energy, telecommunications and information technology public policy arenas, since 2000. Ms. Johnson served as Commission Chairman (1997-1999) and Commissioner (1992-1997) for the Florida Public Service Commission. Ms. Johnson serves on the Boards of Allegheny Energy Inc. (NYSE: AYE), an electric utility holding company; MasTec, Inc. (NYSE: MTZ), a leading end-to-end voice, video, data and energy infrastructure solution provider; and American Water (NYSE: AWK), the largest investor-owned water and wastewater utility company in the United States which serves more than 15.6 million people in 32 U.S. states and in Ontario, Canada.

~~Philip L. Maslowe~~, age 62, director since November 1, 2004, was formerly Executive Vice President and Chief Financial Officer (1997-2002) of The Wackenhut Corporation, a security, staffing and privatized prisons corporation. Mr. Maslowe serves on the Board of Delek US Holdings, Inc. (NYSE: DK), a diversified energy business focused on petroleum refining and supply and retail marketing; Hilex Poly Co., LLC, a leading manufacturer of plastic bag and film products; and American Media, Inc., a leading publishing company in the field of celebrity journalism and health and fitness magazines.

~~D. Louis Peoples~~, age 68, director since January 14, 2006, is the retired Chief Executive Officer and Vice Chairman of the Board of Orange and Rockland Utilities, Inc. (1994-1999). Mr. Peoples serves on the Boards of the Center for Clean Air Policy, the North Lake Tahoe Historical Society, and the Nevada Area Council, Boy Scouts of America. He is also on the technical Advisory Board of the Nevada Institute for Renewable Energy Commercialization and serves as Regional Director for the San Francisco Bay Area and Northern Nevada for the Naval War College Foundation. Mr. Peoples is a sponsor of the Aspen Institute Forum on Energy, the Environment and the Economy.

~~Robert C. Rowe,~~age 53, President, Chief Executive Officer and director of NorthWestern Corporation since August 2008. Prior to joining NorthWestern, Mr. Rowe was co-founder and senior partner at Balhoff, Rowe & Williams, LLC, a specialized national professional services firm providing financial and regulatory advice to clients in the telecommunications and energy industries (January 2005-August 2008); and served as Chairman and Commissioner of the Montana Public Service Commission (1993–2004).

~~THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”~~

~~THE ELECTION OF THESE SEVEN NOMINEES.~~

~~Directors Not Standing for Re-election~~

~~The following information is given with respect to Mr. Fossel, who is not standing for re-election at our annual meeting. Mr. Fossel will continue to serve on our Board until the annual meeting.~~

~~Jon S. Fossel~~, age 67, director since November 1, 2004, is the retired Chairman, President and Chief Executive Officer of Oppenheimer Management Corporation, a mutual fund investment company (“Oppenheimer”) (1989-1996). Mr. Fossel serves as nonexecutive chairman of the Board of UnumProvident Corporation (NYSE: UNM), a disability and life insurance provider.

~~BENEFICIAL OWNERSHIP OF COMMON STOCK~~

Our common stock is currently the only class of voting securities. The number of shares noted are those beneficially owned, as determined under the rules of the Securities and Exchange Commission (“SEC”), and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power and any shares which the person has the right to acquire within 60 days through the exercise of option, warrant or right.

~~Security Ownership of Directors and Management~~

The following table sets forth certain information as of February 23, 2009, with respect to the beneficial ownership of shares of our common stock owned by our current directors, the Named Executive Officers, and by all of our directors and executive officers as a group.

Amount and Nature of Beneficial Ownership

Name of Beneficial Owner

Unrestricted Shares of
Common
Stock Beneficially
Owned Directly

Unrestricted Shares of
Common
Stock Beneficially
Owned Indirectly

Unvested Restricted Stock

Deferred Stock Units

Total Shares of Common Stock Beneficially Owned

Percent of Common
Stock
Stephen P. Adik (1)

–

20,000

4,999

19,843

44,842

*
E. Linn Draper, Jr.

–

–

4,999

38,276

43,275

*
Dana J. Dykhouse

3,000

–

–

–

3,000

*
Jon S. Fossel

6,501

–

4,999

–

11,500

*
Julia L. Johnson

–

–

4,999

27,671

32,670

*
Philip L. Maslowe

–

–

4,999

25,944

30,943

*
D. Louis Peoples

3,000

–

4,999

12,018

20,017

*
Robert C. Rowe (2)

–

1,725

–

–

1,725

*
Brian B. Bird

19,099

–

9,044

–

28,143

*
Gregory G. A. Trandem

6,417

–

–

–

6,417

*
Curtis T. Pohl

4,476

–

4,367

8,843

*
Miggie E. Cramblit

–

–

1,500

–

1,500

*
Michael J. Hanson

36,031

–

–

–

36,031

*
Thomas J. Knapp

4,197

–

–

–

4,197

*
Directors and Executive Officers as a Group (18 persons)

95,091

21,725

57,414

123,752

297,982

*
* Less than 1%.

~~(1)~~	~~Shares held indirectly by Mr. Adik represent shares held in a trust of which Mr. Adik and his spouse are co-trustees.~~
~~(2)~~	~~Shares held indirectly by Mr. Rowe represent shares held in a SEP IRA which is owned by Mr. Rowe.~~

~~Security Ownership of Certain Beneficial Holders~~

The following table sets forth information regarding whom we know to be the beneficial owners of more than 5 percent of our issued and outstanding common stock as of February 23, 2009. Such information is based on a review of statements filed with the SEC pursuant to Sections 13(d), 13(f) and 13(g) of the Exchange Act.

Name of Beneficial Owner

Shares of Common Stock
Beneficially Owned

Percent of Common Stock
Munder Capital Management (1)

3,445,932

9.6%
480 Pierce Street, Suite 300 Birmingham, MI 48009

Zimmer Lucas Partners LLC (2)

2,481,455

6.9%
535 Madison Avenue, 6^th Floor, New York, NY 10022

~~_________________________~~

~~(1)~~

Reflects shares beneficially owned by Munder Capital Management as of December 31, 2008, according to a statement on Schedule 13G filed with the SEC, which indicates that the company, an investment advisor, has sole voting power with respect to 2,953,692 shares and sole dispositive power with respect to 3,445,932 shares. The company holds shared voting power with respect to none of the shares. The Schedule 13G certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation.

~~(2)~~

Reflects shares beneficially owned by Zimmer Lucas Partners LLC as of December 31, 2008, according to a statement on Schedule 13G filed with the SEC, which indicates that ZLP Master Opportunity Fund, Ltd. has shared voting power with respect to 1,709,724 shares and shared dispositive power with respect to 1,709,724 shares; Zimmer Lucas Capital, LLC has shared voting power with respect to 2,481,455 shares and shared dispositive power with respect to 2,481,455 shares; Stuart J. Zimmer has sole voting power with respect to 75 shares, shared voting power with respect to 2,481,455 shares, sole dispositive power with respect to 75 shares and shared dispositive power with respect to 2,481,455 shares; and Craig M. Lucas has shared voting power with respect to 2,481,455 shares and shared dispositive power with respect to 2,481,455 shares. The Schedule 13G certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation.

~~CORPORATE GOVERNANCE~~

Our Board oversees the business of the company. It establishes overall policies and standards for us and reviews the performance of our management. The Board of Directors of the company operates pursuant to a set of written Corporate Governance Guidelines that set forth the company’s corporate governance philosophy and the governance policies and practices that the company has established to assist in governing the company and its affiliates.

All of our corporate governance materials, including our codes of business conduct and ethics, our Corporate Governance Guidelines, and the charters for the Audit Committee, the Nominating and Corporate Governance Committee and the Human Resources Committee, are available for public viewing on our Web site at http://www.northwesternenergy.com under the heading About Us/Corporate Governance. Copies of our corporate governance material also are available without charge to stockholders who request them. Requests must be in writing and sent to: NorthWestern Corporation, Attention: Corporate Secretary, 3010 W. 69^th ~~Street, Sioux Falls, SD 57108.~~

Our Board has adopted a policy that, in connection with the Board’s annual self-evaluation process, attendance and participation by directors is considered in determining continued service on the Board. The Board held 16 regular and special meetings in 2008. Each current director attended more than 75 percent of the aggregate number of the meetings of the Board and of each committee on which he/she served, except for Mr. Fossel. At our last annual meeting of stockholders in May 2008, all of the seven directors then serving were in attendance at the meeting.

Executive sessions of the non-management directors without management in attendance are provided for at each regularly scheduled Board meeting and are chaired by our non-executive Chairman of the Board.

~~Determination of Independence~~

A majority of NorthWestern’s directors are required to be independent. A director will be considered independent if he or she qualifies as “independent” under (a) NYSE standards and any applicable laws, and (b) he or she has never been (i) an employee of the company or any of its subsidiaries; (ii) is not a close relative of any management employee of the company; (iii) provides no services to the company, or is not employed by any firm providing major services to the company, other than as a director, and (iv) receives no compensation from the company other than director fees and benefits. The Board’s determination of independence is based upon a review of the questionnaires submitted on an annual basis by each director, the company’s relevant business records, publicly available information and the applicable SEC and NYSE requirements.

Based on its review, the Board determined that all of the non-employee directors (Messrs. Adik, Draper, Dykhouse, Fossel, Maslowe and Peoples and Ms. Johnson) are independent as defined in the listing standards of the NYSE. Mr. Rowe is an executive officer of the company and, therefore, is not independent.

Director Majority Vote Policy

~~In August 2006, the~~

The Board ~~adopted~~has in place a Majority Vote Policy for the election of directors. The policy provides that, in an uncontested election, any nominee for director who receives a greater number of “WITHHOLD AUTHORITY” votes from his or her election than votes “FOR” such election (a “Majority Withheld Vote”) shall promptly tender his or her resignation following certification of the stockholder vote.

Under this policy, the Nominating and Corporate Governance, or NCG, Committee shall promptly consider the resignation offer and a range of possible responses based on the circumstances that led to the Majority Withheld Vote, if known, and make a recommendation to the Board. The Board will act on the ~~Nominating and Corporate Governance~~NCG Committee’s recommendation within 90 days following certification of the stockholder vote. Thereafter, the Board will promptly disclose its decision-making process and decision regarding whether to accept the director’s resignation offer (or the reason(s) for rejecting the resignation offer, if applicable) in a Current Report on Form 8-K furnished to the SEC.

Any director who tenders his or her resignation pursuant to this provision shall not participate in the ~~Nominating and Corporate Governance Committee~~NCG Committee’s recommendation or Board action regarding whether to accept the resignation offer. However, if each member of the ~~Nominating and Corporate Governance~~NCG Committee receives a Majority Withheld Vote at the same election, then the independent directors who did not receive a Majority Withheld Vote shall appoint a committee amongst themselves to consider the resignation offers and recommend to the Board whether to accept them. If the only directors who did not receive a Majority Withheld Vote in the same election constitute three or fewer directors, all directors may participate in the action regarding whether to accept the resignation offers, with each director recusing ~~himself/~~himself or herself from consideration of ~~his/~~his or her resignation offer.

Important Information About Voting for Directors

As described earlier in this proxy statement, your broker is no longer permitted to vote on your behalf in an election of directors. For your vote to be counted for the election of directors, you now will need to communicate your voting decisions to your broker, bank or other nominee before the date of the stockholder meeting by following the instructions on the proxy card or Voting Instruction Form to vote your shares. If you received a notice of the availability of proxy materials, you will need to follow the instructions sent to you to vote your shares.

Director Nominees

The nominees for election to the eight positions on our Board, selected by our NCG Committee of the Board and proposed by our Board to be voted upon at the annual meeting, are: Stephen P. Adik; Dorothy M. Bradley; E. Linn Draper Jr.; Dana J. Dykhouse; Julia L. Johnson; Philip L. Maslowe; Denton Louis Peoples and Robert C. Rowe.

Unless authority to vote for the election of directors has been specifically withheld, the persons named in the accompanying proxy intend to vote “FOR” the election of director nominees Adik, Bradley, Draper, Dykhouse, Johnson, Maslowe, Peoples and Rowe to hold office as directors until the next annual meeting of stockholders in 2011 and until their successors are duly elected and qualified. All nominees have advised the Board that they are able and willing to serve as directors.

Our goal is to maintain a diverse Board that operates cohesively and challenges management in a constructive way. The NCG Committee has not established specific minimum qualifications for director nominees or set forth specific qualities or skills that the committee believes are necessary for one or more directors to possess. Instead, in considering director candidates, the NCG Committee considers the diversity of our Board and takes into account whether the Board as a whole has the skills, experience and background that add to and complement the range of skills, experience and background of each director, based on the following: integrity, accomplishments, business judgment, experience and education, commitment, representation of stockholders, industry knowledge, independence, financial literacy, race and gender. With the exception of the company’s President and Chief Executive Officer, or CEO, all of our directors are required to be independent.

When nominating persons to serve on our Board, the NCG Committee considers individuals who can add value to the strategic policymaking and oversight responsibilities of the Board and provide skills and personal experiences that add to and complement the skills, experience and background of the Board as a whole and are needed to achieve the company’s corporate objectives. A director’s ability to contribute to the Board, the time he or she has available and his or her participation on other boards also are considered because we believe these are important factors that enhance the quality of the Board’s decision-making, its oversight of management and our business overall. The NCG Committee believes that our incumbent Board members collectively possess the experience, skills and attributes necessary to lead the company to a long and successful future. The individual qualifications of each nominee are described as follows.

Stephen P. Adik

Age 66, Director since 2004, Independent

Business Experience: Mr. Adik is the retired Vice Chairman (2001-2003) of NiSource Inc. (NYSE: NI), an electric and natural gas production, transmission and distribution company. Mr. Adik was Senior Executive Vice President and Chief Financial Officer (1998-2001), and Executive Vice President and Chief Financial Officer (1996-1998), of NiSource.

Public Company Directorships Since 2005: Beacon Power (NASDAQ: BCON), a designer and manufacturer of power conversion and sustainable energy storage systems for the distributed generation, renewable energy and backup power markets (since 2004); American Water Works Company, Inc. (NYSE: AWK) a provider of high-quality water and wastewater services to more than 1,600 communities in the United States and Ontario, Canada (since 2009); and NiSource (2001-2005).

Other Current Directorships and Memberships: Director of The Chicago SouthShore and South Bend Railroad, a regional rail carrier serving northwest Indiana; director of Dearborn Midwest Conveyor Company, a manufacturer and installer of conveyor equipment for the bulk materials and automotive industries; and president of the board of the Northwest Indiana Regional Bus Authority.

Qualifications Relative to Service on Our Board: Our Board concluded that Mr. Adik is qualified to serve as a Board member because of his 25+ year career in the energy and utility industries, having served on the board and as the chief financial officer for a Fortune 500 utility holding company engaged in natural gas transmission, storage and distribution, as well as electric generation, transmission and distribution. Mr. Adik holds an MBA in Finance, is considered financially literate under NYSE rules and qualifies as an audit committee financial expert under SEC rules. Mr. Adik also serves on the boards of other companies in energy- and utility-related industries, which provides him a wide perspective on various issues applicable to the company. During his six-year tenure on our Board, Mr. Adik has gained a good working knowledge of our company that provides efficiency and continuity to our Board.

Dorothy M. Bradley

Age 63, Director since 2009, Independent

Business Experience: Ms. Bradley is the retired District Court Administrator for the 18th Judicial Court of Montana (2000-2007). Ms. Bradley was the Director of the University Water Center, an education and research arm of Montana State University (1993-2000); law clerk, hearing master and mediator for the Honorable Joseph Gary, Montana District Court Judge (1983-1990); and served eight terms in the Montana House of Representatives beginning in 1971.

Public Company Directorships Since 2005: None

Other Current Directorships and Memberships: Chair of the Burton K. Wheeler Center for Public Policy, an independent non-profit organization that promotes the discussion, analysis and eventual resolution of critical issues facing Montana and the region; member of the Montana Water Compact Commission; and National Advisor for the American Prairie Foundation.

Qualifications Relative to Service on Our Board: Our Board concluded that Ms. Bradley is qualified to serve as a Board member because of her experience with the Montana judicial system and her reputation as a respected civic leader in Montana. That experience brings to the Board a local perspective on relevant regulatory and community issues facing our company in Montana, where we serve approximately two-thirds of the state. Ms. Bradley’s work in the public policy arena also provides valuable background as the company addresses the environmental issues that are facing utility companies today. Ms. Bradley was new to our Board in 2009 and brings a fresh perspective to counteract complacency that can occur with a long-tenured board.

E. Linn Draper Jr.

Chairman of the Board

Age 68, Director since 2004, Independent

Business Experience: Mr. Draper is the retired Chairman, President and Chief Executive Officer of American Electric Power Company (NYSE: AEP), a public utility holding company (1992-2004).

Public Company Directorships Since 2005: Alliance Data Systems Corporation (NYSE: ADS), a provider of transaction services, credit services and marketing services (since 2005); Alpha Natural Resources Inc. (NYSE: ANR), a coal producer (since 2004); Temple-Inland Inc. (NYSE: TIN), a corrugated packing and forest products business (since 2004); TransCanada (NYSE: TRP), a transporter and marketer of natural gas and generator of electric power in Canada and the United States (since 2005); and Sprint (NYSE: S), a leading nationwide wireless data services provider (2003-2005).

Other Current Directorships and Memberships: None

Qualifications Relative to Service on Our Board: Our Board concluded that Mr. Draper is qualified to serve as a Board member because of his 12 years of service as chairman of the board and president and chief executive officer of one of the largest electric utilities in the United States. In addition, Mr. Draper also currently serves or has in the past served on the boards of other companies in energy- and utility-related industries, which provides him a wide perspective on the issues impacting the company today. Mr. Draper’s public board experience spans 11 companies, and he has served on a variety of committees on those boards. Mr. Draper is considered financially literate under NYSE rules. Mr. Draper has gained a good working knowledge of our company during his six-year tenure on our Board that provides efficiency and continuity to our Board.

Dana J. Dykhouse

Age 53, Director since 2009, Independent

Business Experience: Mr. Dykhouse is the President and Chief Executive Officer of First PREMIER Bank, a regional bank headquartered in Sioux Falls, SD with bank locations across eastern South Dakota (since 1995).

Public Company Directorships Since 2005: None

Other Current Directorships and Memberships: Mr. Dykhouse serves in a variety of leadership roles in civic, community and professional organizations in South Dakota.

Qualifications Relative to Service on Our Board: Our Board concluded that Mr. Dykhouse is qualified to serve as a Board member because of his reputation as a respected civic, community and professional leader in South Dakota. Mr. Dykhouse has served as president and chief executive officer of a $1 billion regional bank for 15 years and provides a local perspective on the issues relevant to our service area that spans the eastern one-third of South Dakota. Mr. Dykhouse has 30 years of experience in the financial services industry and is considered financially literate under NYSE rules. Mr. Dykhouse was new to our Board in 2009 and brings a fresh perspective to counteract complacency that can occur with a long-tenured board.

Julia L. Johnson

Age 47, Director since 2004, Independent

Business Experience: Ms. Johnson is President of NetCommunications, LLC, a strategy consulting firm specializing in the energy, telecommunications and information technology public policy arenas (since 2000). Ms. Johnson was Chairwoman (1997-1999) and Commissioner (1993-1997) of the Florida Public Service Commission.

Public Company Directorships Since 2005: Allegheny Energy Inc. (NYSE: AYE), an electric utility holding company (since 2003); MasTec, Inc. (NYSE: MTZ), a leading end-to-end voice, video, data and energy infrastructure solution provider (since 2002); and American Water Works Company, Inc. (NYSE: AWK), a provider of high-quality water and wastewater services to more than 1,600 communities in the United States and Ontario, Canada (since 2008).

Other Current Directorships and Memberships: None

Qualifications Relative to Service on Our Board: Our Board concluded that Ms. Johnson is qualified to serve as a Board member because of her experience in the public utility regulatory arenas, having founded and served nearly 10 years as president of a strategy consulting firm specializing in the energy, telecommunications and information technology public policy arenas and her extensive experience working with federal, state and local legislative, regulatory and administrative agencies. Ms. Johnson also served two years as chairwoman and four years as a commissioner on the Florida Public Service Commission. Ms. Johnson currently serves on the boards of three other public companies, one of which is a large investor-owned electric and natural gas utility holding company. Ms. Johnson is financially literate under NYSE rules. Ms. Johnson has gained a good working knowledge of our company during her six-year tenure on our Board that provides efficiency and continuity to our Board.

Philip L. Maslowe

Age 63, Director since 2004, Independent

Business Experience: Mr. Maslowe was the nonexecutive Chairman of the Board for AMF Bowling Worldwide, Inc., operators of bowling centers and providers of sporting goods (2002-2004); Executive Vice President and Chief Financial Officer of The Wackenhut Corporation, a security, staffing and privatized prisons corporation (1997-2002); and Executive Vice President and Chief Financial Officer of Kindercare Learning Centers, a provider of learning programs for preschoolers (1993-1997).

Public Company Directorships Since 2005: Delek US Holdings, Inc. (NYSE: DK), a diversified energy business focused on petroleum refining and supply and retail marketing (since 2006).

Other Current Directorships and Memberships: Director and chairman of the audit committee of United Site Services, a national provider of portable restrooms, temporary fence, storage, erosion control, power sweeping and other services; and director and chairman of the audit committee of American Media, Inc., a publishing company in the field of celebrity journalism and health and fitness magazines.

Qualifications Relative to Service on Our Board: Our Board concluded that Mr. Maslowe is qualified to serve as a Board member because of the diverse experience he gained over his business career, having served as chief financial officer for a number of national companies, including KinderCare Learning Centers, Thrifty Corporation and The VONS Companies, Inc. Mr. Maslowe also served as the nonexecutive chairman of the board of AMF Bowling Worldwide, Inc. Mr. Maslowe is considered financially literate under NYSE rules. Mr. Maslowe has gained a good working knowledge of our company during his six-year tenure on our Board that provides efficiency and continuity to our Board.

Denton Louis Peoples

Age 69, Director since 2006, Independent

Business Experience: Mr. Peoples was founder and served as President of Nyack Management Company, Inc., a nationwide general business consulting firm (2004-2007), and is the retired Chief Executive Officer and Vice Chairman of the Board of Orange and Rockland Utilities, Inc., an investor-owned electric and natural gas utility (1994-1999). Mr. Peoples also served as Executive Vice President and was a member of the board of directors of Madison Gas and Electric Company, an investor-owned electric and natural gas utility (1992-1993).

Public Company Directorships Since 2005: None

Other Current Directorships and Memberships: Director of the Center for Clean Air Policy; director of the North Lake Tahoe Historical Society; director of the Nevada Area Council, Boy Scouts of America; Technical Advisory Board Member of the Nevada Institute for Renewable Energy Commercialization; regional director for the San Francisco Bay Area and Northern Nevada for the Naval War College Foundation; and a sponsor of the Aspen Institute Forum on Energy, the Environment and the Economy.

Qualifications Relative to Service on Our Board: Our Board concluded that Mr. Peoples is qualified to serve as a Board member because of his broad expertise in the electric and natural gas energy industries gained during his tenure as chief executive officer and vice chairman of the board of a mid-sized investor-owned utility and executive positions held at other utility or energy-related companies during his 35+ year business career. Mr. Peoples is considered financially literate under NYSE rules. Mr. Peoples has gained a good working knowledge of our company during his four-year tenure on our Board that provides efficiency and continuity to our Board.

Robert C. Rowe

Age 54, Director since 2008

Business Experience: Mr. Rowe is the President and Chief Executive Officer of NorthWestern Corporation (since August 2008). Mr. Rowe was co-founder and senior partner at Balhoff, Rowe & Williams, LLC, a specialized national professional services firm providing financial and regulatory advice to clients in the telecommunications and energy industries (January 2005-August 2008), and served as Chairman and Commissioner of the Montana Public Service Commission (1993–2004).

Public Company Directorships Since 2005: None

Other Current Directorships and Memberships: None

Qualifications Relative to Service on Our Board: Our Board concluded that Mr. Rowe is qualified to serve as a Board member because of his position as president and chief executive officer of our company and his significant experience in the regulatory and public policy arenas. Mr. Rowe previously founded and was senior partner for three and one-half years in a specialized national professional services firm providing financial and regulatory advice to clients in the telecommunications and energy industries. In addition, Mr. Rowe previously served 12 years as a commissioner (and chairman) of the Montana Public Service Commission. Mr. Rowe also served a term as president of the National Association of Regulatory Utility Commissioners. Mr. Rowe is financially literate under NYSE rules.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”

THE ELECTION OF THESE EIGHT NOMINEES.

CORPORATE GOVERNANCE

Our Board oversees the business of the company. It establishes overall policies and standards for us and reviews the performance of our management. The Board operates pursuant to a set of written Corporate Governance Guidelines that set forth the company’s corporate governance philosophy and the governance policies and practices that the company has established to assist in governing the company and its affiliates.

Board Leadership Structure

Our Board has placed the responsibilities of Chairman with an independent nonexecutive member of the Board which we believe provides better accountability between the Board and our management team. We believe it is beneficial to have an independent Chairman whose sole responsibility to us is leading our Board members as they provide leadership to our executive team. Our Chairman is responsible for providing leadership to the Board and facilitating communication among the directors; setting the Board meeting agendas in consultation with the President and CEO; presiding at Board meetings, executive sessions and stockholder meetings; and serving as an ex-officio member of each Board committee. This delineation of duties allows the President and CEO to focus his attention on managing the day-to-day business of the company. We believe this structure provides strong leadership for our Board, while positioning our President and CEO as the leader of the company in the eyes of our customers, employees and other stakeholders.

Risk Oversight of the Company

Our Audit Committee is primarily responsible for overseeing the company’s risk management processes on behalf of the full Board by monitoring company processes for management’s identification and control of key business, financial and regulatory risks. The Audit Committee receives reports from management at least quarterly regarding the company’s assessment of risks. In addition, the Audit Committee reports regularly to the full Board, which also considers the company’s risk profile. The Audit Committee and the full Board focus on the most significant risks facing the company and review the corporate risk appetite. While the Board oversees the company’s risk management, our executive Enterprise Risk Management Committee acts to ensure that our enterprise risk management and business continuity programs, or ERM, objectives are achieved. While management is responsible for the day-to-day risk management processes, we have structured our ERM reporting relationship through our Chief Audit and Compliance Officer who reports functionally to the Audit Committee. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.

Determination of Independence

A director will be considered independent if he or she qualifies as “independent” under (a) NYSE standards and any applicable laws, and (b) he or she (i) has never been an employee of the company or any of its subsidiaries; (ii) is not a close relative of any management employee of the company; (iii) provides no services to the company, or is not employed by any firm providing major services to the company, other than as a director; and (iv) receives no compensation from the company other than director fees and benefits. The Board’s determination of independence is based upon a review of the questionnaires submitted on an annual basis by each director, the company’s relevant business records, publicly available information and the applicable SEC and NYSE requirements.

Based on its review, the Board determined that all of the non-employee directors (Messrs. Adik, Draper, Dykhouse, Maslowe, Peoples and Mses. Bradley and Johnson) are independent as defined in the listing standards of the NYSE. Mr. Rowe is an executive officer of the company and, therefore, is not independent.

Code of Conduct

Our Board adopted a Code of Business Conduct and Ethics, (“or Code of ~~Conduct”)~~Conduct, and reviews it annually. Our Code of Conduct sets forth standards of conduct for all of our officers, directors and employees and those of our subsidiary companies, including all full- and part-time employees and certain persons that provide services on our behalf, such as agents. Our Code of Conduct is available on our Web site at ~~http://www.northwesternenergy.com.~~www.northwesternenergy.com. We intend to post on our Web site any amendments to, or waivers from, our Code of Conduct. In addition, our Board adopted a separate code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, which provides for a complaint procedure that specifically applies to this code. This code of ethics, along with the complaint procedures, also is reviewed annually and is available on our Web site.

Committees of the Board

We have three Board committees composed solely of independent directors, each with a different independent director serving as chair of the committee. Our Board ~~has the following standing committees:~~committees are: Audit Committee, Human Resources Committee, and Nominating and Corporate Governance ~~Committee, and Human Resources~~ Committee. The members of ~~these~~the committees, ~~the~~ general functions of the committees and number of committee meetings in ~~2008~~2009 are set forth below. ~~The company maintains copies~~Each of ~~the charters of each of the~~these committees ~~of the Board~~has a written charter that can be found on ~~its~~our Web site at ~~http://www.northwesternenergy.com.~~

www.northwesternenergy.com.

Audit Committee

Our Audit Committee ~~provides~~assists the Board in fulfilling its responsibilities for oversight of (a)(i) the Company’s accounting and financial reporting ~~process,~~processes, (ii) the ~~system~~audits and integrity of the Company’s financial statements, (iii) the Company’s compliance with legal and regulatory requirements, (iv) the independent auditor’s qualifications and independence, and (v) the performance of the Company’s internal ~~controls~~audit function and independent auditors; (b) preparation of the ~~audit process~~Committee reports that the rules of ~~NorthWestern,~~the SEC require be included in the Company’s annual proxy statement; and ~~(ii) our independent auditor. Our Audit Committee also recommends to the Board the appointment of our independent registered public accounting firm. As required~~(c) significant financings and dividend policy and dividend payment recommendations; and (d) such other duties as directed by the ~~Audit Committee Charter, each of the members of our Audit Committee is an independent director within the meaning of applicable SEC regulations and the listing standards of the NYSE.~~

Board.

Our Audit Committee is currently composed of ~~five non-employee directors. The current members of the Audit Committee are~~four independent directors: Chairman Stephen P. Adik, Dana J. Dykhouse, ~~Jon S. Fossel,~~ Philip L. Maslowe and D.Denton Louis Peoples. The Board determined that Audit Committee Chairman Adik qualifies as an audit committee financial expert under the applicable SEC regulations and that each member of the Audit Committee is financially literate within the meaning of the listing standards of the NYSE. Our Audit Committee held ~~five~~six meetings during ~~2008.~~

2009.

Human Resources Committee

Our ~~Human Resources, or~~ HR Committee acts on behalf of and with the concurrence of the Board with respect to ~~matters relating to the company concerning~~ compensation, benefits and other ~~personnel~~employment matters for executives; stock-based compensation plans for employees; the election and appointment of executive officers and other officers; the assessment of the performance of the CEO; and the compensation of non-employee members of the Board.

Our Compensation and Benefits Department administers our executive compensation and benefits plans.

Our HR Committee is composed of ~~not less than three non-employee directors.~~four independent directors: Chairman Philip L. Maslowe, Stephen P. Adik, Julia L. Johnson and Denton Louis Peoples. Each of the members of our HR Committee ~~is an independent director within the meaning of the listing standards of the NYSE and also~~ is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code and a “non-employee” director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934. ~~The current members of our HR Committee are Chairman Philip L. Maslowe, Stephen P. Adik and Julia L. Johnson.~~ Our HR Committee held ~~eight~~seven meetings during ~~2008.~~

2009.

The HR Committee has retained Towers ~~Perrin~~Watson1 as its independent, external compensation consultant for the last several years. Towers ~~Perrin~~Watson is an independent consulting firm that provides services in the areas of executive compensation and benefits and has specific expertise in evaluating compensation in the utility industry. At the HR Committee’s request, Towers ~~Perrin~~Watson provides an annual evaluation and analysis of trends in both executive compensation and director compensation. Towers ~~Perrin~~Watson also evaluates other compensation issues at the direct request of the HR Committee.

Nominating and Corporate Governance Committee

Our ~~Nominating and Corporate Governance, or~~ NCG Committee assists the Board in identifying qualified individuals to become Board members, in determining the composition of the Board and its committees, in monitoring a process to assess Board effectiveness, and in developing and implementing our corporate governance principles. Further, the NCG Committee reviews and oversees our position on (a) corporate social responsibilities and (b) public policy issues that significantly affect us, our stockholders, our customers and our other key stakeholders.

Our NCG Committee is composed of ~~not less than~~ three ~~non-employee directors. The current members of our NCG Committee are~~independent directors: Chairwoman Julia L. Johnson, Dorothy M. Bradley and Dana J. ~~Dykhouse, Jon S. Fossel and D. Louis Peoples.~~Dykhouse. Our NCG Committee held ~~five~~six meetings during ~~2008. Each of~~2009.

Our NCG Committee evaluates each director candidate to determine whether such candidate should be recommended to the ~~members of~~Board as a director nominee. In considering new individuals for nomination as directors, the NCG Committee typically solicits recommendations from its current directors and is ~~an independent director within~~authorized to engage third-party advisors, including search firms, to assist in the ~~meaning~~identification and evaluation of ~~the listing standards~~candidates.

1 Formerly Towers Perrin; a merger of ~~the NYSE.~~

Towers Perrin and Watson Wyatt was completed in January 2010.

Our NCG Committee also considers nominees for directors properly recommended by stockholders. A stockholder who wishes to submit a candidate for consideration at the annual meeting of stockholders must notify our Corporate Secretary in writing not less than 90 days nor more than 120 days prior to the first anniversary date of the preceding year’s annual meeting. The stockholder’s written notice must include information about each proposed nominee, including name, age, business address, principal occupation and other information required in proxy solicitations. The nomination notice also must include the nominating stockholder’s name and address, the number of shares of our common stock beneficially owned by the stockholder, and any arrangements or understandings between the nominee and the stockholder. The stockholder also must furnish a statement from the nominee indicating that the nominee wishes and is able to serve as a director. The manner in which the ~~NGC~~NCG Committee evaluates candidates recommended by stockholders is generally the same as candidates from other sources. However, the NCG Committee will also seek and consider information concerning the relationship between the recommending stockholder and the candidate to determine if the candidate can represent the interests of all of the stockholders. The NCG Committee will not evaluate a candidate recommended by a stockholder unless the stockholder notice states that the potential candidate has indicated a willingness to serve as a director, to comply with the expectations and requirements for Board service publicly disclosed by NorthWestern, and to provide all of the information required to conduct an evaluation.

Our Board has adopted a policy that, in connection with the Board’s annual self-evaluation process, attendance and participation by directors is considered in determining continued service on the Board. The ~~NCG Committee will evaluate each~~Board held eight regular and special meetings in 2009. Each current director ~~candidate to determine whether such candidate should be recommended to~~attended more than 75 percent of the aggregate number of the meetings of the Board ~~as a director nominee. In considering individuals for nomination as directors, the NCG Committee typically solicits recommendations from its current directors~~ and ~~is authorized to engage third party advisors, including search firms, to assist~~of each committee on which he or she served. At our last annual meeting of stockholders in ~~the identification and evaluation of candidates. Mr. Dykhouse was recommended by current directors~~April 2009, all of the ~~company.~~

~~The NCG Committee has not established specific minimum qualities for~~eight director nominees ~~or set forth specific qualities or skills that~~were in attendance at the nominating and corporate governance committee believes are necessary for one or more directors to posses. Instead, in considering director candidates, the NCG Committee will take into account whether a candidate has skills, experience and background that add to and complement the range of skills, experience and background of existing directors, based on the following: integrity, accomplishments, business judgment, experience and education, commitment, representation of stockholders, industry knowledge, independence and financial literacy.

meeting.

~~Communications with Our Board~~

Communications by stockholders to our Board, including our Chairman and the non-management directors, individually or as a group, should be addressed to our Corporate Secretary at our principal offices at 3010 W. 69^th ~~Street, Sioux Falls, South Dakota 57108. The Corporate Secretary will forward directly to the Board any communication received.~~

~~Section 16(a) Beneficial Ownership Reporting Compliance~~

Based solely on information furnished to us and contained in reports filed with the SEC, as well as written representations that no other reports were required, NorthWestern believes that during 2008, all of its directors and executive officers timely filed all reports required by Section 16 of the Securities Exchange Act of 1934, as amended.

Transactions with Related Persons

Our Audit Committee has adopted a written Related Persons Transaction Policy. The policy requires that any related person transaction be reviewed and approved by the Audit Committee based on its consideration of all available relevant facts and circumstances. The Audit Committee should approve a related person transaction only if it determines in good faith that such transaction is in, or is consistent with, the best interests of the company and its stockholders.

Under the policy, a “related person” is an officer, director, director nominee, or 5% or more stockholder of the company, as well as an immediate family member of such individuals or an entity which is owned or controlled by any of such individuals; and a “related person transaction” is a transaction involving (i) the company, (ii) a related person, and (iii) an aggregate annual amount in excess of $120,000.

The policy also provides ratification procedures for approval of transactions that have been commenced or consummated prior to any knowledge of the involvement of a related person and for the annual review of ongoing related person transactions to ensure that such transactions continue to remain in the best interests of the company and its stockholders. The policy is available on our Web site at ~~http://~~www.northwesternenergy.com.

No material related person transactions were identified during ~~2008.~~

2009.

Communications with Our Board

Communications by an interested party to our Board, including our Chairman and the non-management directors, individually or as a group, should be addressed to our Corporate Secretary at 3010 W. 69th Street, Sioux Falls, SD 57108. The Corporate Secretary will forward directly to the Board any communication received.

AUDIT COMMITTEE REPORT

Our Audit Committee assists the Board in fulfilling its responsibilities for oversight of (a)(i) the Company’s accounting and financial reporting processes, (ii) the audits and integrity of the Company’s financial statements, (iii) the Company’s compliance with legal and regulatory requirements, (iv) the independent auditor’s qualifications and independence, and (v) the performance of the Company’s internal audit function and independent auditors; (b) preparation of the Committee reports that the rules of the SEC require be included in the Company’s annual proxy statement; and (c) significant financings and dividend policy and dividend payment recommendations; and (d) such other duties as directed by the Board. The Audit Committee operates pursuant to a charter that was last amended in October 2009, a copy of which is available on NorthWestern’s Web site at www.northwesternenergy.com.

In the performance of the Audit Committee’s oversight function, and in connection with the December 31, 2009, financial statements, the Audit Committee reviewed and discussed the audited financial statements with management. The Audit Committee has discussed the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board, or PCAOB, in Rule 3200T. The Audit Committee received the written disclosures and the letter from Deloitte & Touche LLP, or Deloitte, our independent registered public accounting firm, required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence. The compatibility of non-audit services was considered with the auditor’s independence.

Based on its review of the consolidated financial statements and discussions with and representations from management and Deloitte referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in NorthWestern Energy’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC.

Audit Committee

Stephen P. Adik, Chairman

Dana J. Dykhouse

Philip L. Maslowe

Denton Louis Peoples

COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

The Compensation Discussion and Analysis describes our compensation program, including the rationale and processes used to determine the ~~2008~~2009 compensation of our executive officers. This includes the objectives and specific elements of our compensation program, including cash compensation, equity compensation and post-termination compensation. This Compensation Discussion and Analysis, which may include forward-looking statements, should be read together with the compensation tables and related disclosures that follow this section.

We believe that executive compensation should be structured to align the long-term interests of our executives and our stockholders and be reflective of individual and company performance in achieving financial and non-financial objectives. We believe that a significant portion of an executive’s compensation should be “at risk” in the form of incentive awards that are paid, if earned, based on individual and company performance. Our executive compensation program is therefore designed to:

~~Attract and retain an executive team by providing competitive compensation and benefits that reflect our financial and operational size;~~

~~Reward executives for both individual and company performance; and~~

~~Maximize stockholder value by putting a significant emphasis on annual and long-term performance-based compensation.~~

·	Attract and retain an executive team by providing competitive compensation and benefits that reflect our financial and operational size;

·	Reward executives for both individual and company performance; and

·	Maximize stockholder value by putting a significant emphasis on annual and long-term performance-based compensation.

We provide electricity and natural gas to approximately ~~656,000~~661,000 customers in Montana, South Dakota and Nebraska. As further described in this section, we consider our executive compensation program to be instrumental in helping us achieve our business objectives and effective in rewarding our executive officers for helping us achieve strong financial performance. In ~~2008,~~2009, our net income increased to ~~$67.6~~$73.4 million, representing an increase of ~~$14.4~~$5.8 million or 278.5 percent over the prior year. Our financial results and improvement in operational measures resulted in a 91108 percent payout of our annual short-term incentive program for ~~2008.~~

~~While we experienced strong operating results~~2009. All regular non-represented employees participate in ~~2008, our Board determined that,~~this Board-designed program. Regular, represented employees participate in ~~light of the broader economic circumstances, there will be no base pay increases for executive officers in 2009.~~

a separate management-designed annual incentive program.

Oversight of Our Executive Compensation Program

The HR Committee acts on behalf of and with the concurrence of the Board with respect to compensation, benefits and other employment matters for executives; stock-based compensation plans for employees; the election and appointment of executive officers and other officers; the assessment of the performance of the ~~Chief Executive Officer, or~~ CEO; and the compensation of non-employee members of the Board. Our CEO does not vote at the committee level and does not vote on Board matters concerning executive compensation. Our Compensation and Benefits Department administers our executive compensation and ~~benefit~~benefits plans.

In its oversight of our executive compensation program, the HR Committee works with Towers ~~Perrin~~Watson and the CEO. Towers ~~Perrin~~Watson assists the HR Committee in determining both the mix and amounts of compensation that we pay to our executive officers, taking into account the philosophy and goals of our compensation program. Towers ~~Perrin~~Watson also provides research and

market data as further described below. A Towers ~~Perrin~~Watson representative ~~generally~~ attends meetings of the HR Committee ~~when compensation decisions are to be made~~as necessary and ~~also~~ communicates directly with the HR Committee ~~Chair.~~Chairman. The CEO provides recommendations to the HR Committee with respect to the corporate performance objectives and goals on which awards of both annual and long-term incentive compensation are based and with respect to issues related to attracting, retaining or motivating individual executive officers. The HR Committee considers this information, along with the advice of Towers ~~Perrin,~~Watson, and takes into account several factors including but not limited to (1) the desire to align management (and employee) interests with those of ~~stockholders;~~stockholders, (2) the desire to link management pay to both annual and long-term ~~performance;~~performance, (3) the need to attract talent from both within and outside of the utility ~~industry;~~industry, and (4) economic circumstances including turnover and retention considerations -− all of which ultimately determine ~~the~~our executive compensation program.

The HR Committee conducts an annual performance assessment of the CEO and determines appropriate adjustments to all elements of his total compensation based on individual and company performance. The CEO performs assessments and recommends to the HR Committee total compensation adjustments for the other executive officers. The HR Committee has discretion to make adjustments to the CEO’s recommendations and recommends both CEO and executive officer compensation to the Board for approval.

Targeted Overall Compensation and Competitive Analysis

We target base salary, annual cash incentive awards and long-term equity grants, as well as total compensation, to be market competitive for our ~~named~~ executive ~~officers, or NEOs.~~officers. As a component of the HR Committee’s review, Towers ~~Perrin~~Watson provides an analysis of published survey data that focuses on the energy and utility industry, which is size-adjusted based on our revenues for appropriate market comparison. ~~This~~For 2009, this data ~~includes~~included the Towers Perrin Compensation DataBank, Mercer Benchmark Database and Watson Wyatt Survey Report on Top Management Compensation. These surveys and the calculations to size-adjust by revenue are proprietary tools of the sponsoring organizations, and, as such, the individual companies to which we are compared are not disclosed.

This size-adjusted revenue data is the statistical reference for determining market competitive total compensation, base salary and annual incentive targets. For long-term incentive purposes, Towers ~~Perrin~~Watson performs its analysis ~~using the Towers Perrin Compensation DataBank,~~ focusing on companies in the energy services industry, specifically with annual revenues less than $3 billion.

The HR Committee considers the responsibilities of the job performed by each of our ~~NEOs~~executive officers and his or her performance, and adjusts each executive’s targeted compensation amounts accordingly. Internal comparison with other officer positions also is considered.

Towers ~~Perrin~~Watson also provides to the HR Committee a comparison of our executive compensation levels compared with a peer group selected by the HR Committee based on the following criteria: (1) companies having a market capitalization of less than $2.5 billion, and (2) energy-related revenues of at least 75% of total revenues. In addition, peer group companies either must be located near our existing service territory or have both electric and gas customers. The HR Committee reviews the peer group comparison as a reference in determining compensation. For ~~2008,~~2009, our peer group consisted of ALLETE, Inc.; Avista Corp.; Black Hills Corporation; Empire District Electric Company; IDACORP, Inc.; MGE Energy Inc.; PNM Resources Inc.; Portland General Electric Company; UniSource Energy Corporation; Vectren, Inc.; and Westar Energy, Inc.

Several of these companies provide Supplemental Executive Retirement Plan, or SERP, or other special executive retirement plans, which may add significant value to overall compensation. NorthWestern does not provide executive retirement plans other than those available to regular employees. The targeted compensation (salary, annual incentive and long-term incentive) for our CEO, excluding benefits, is 87 percent of the median for energy and utility industry survey data.

A publication issued by the Economic Policy Institute in February 2010 reported that a typical chief executive at a U.S. company earned 262 times the pay of a typical worker in 2005. In 2009, our CEO earned approximately 20 times the average pay of employees in our company.

Components of Executive Compensation

The primary components of total compensation for our executive officers for ~~2008~~2009 were:

~~Base salary;~~

~~Annual cash incentive awards; and~~

~~Vesting of long-term equity grants for executives hired prior to 2008.~~

·	Base salary;

~~By targeting each component and total compensation levels to be consistent with utility and energy industry survey data and our peers, the~~

·	Annual cash incentive awards; and

·	Long-term incentive awards.

The HR Committee believes the compensation components align the interests of our executives and our stockholders by basing total compensation primarily on performance and achievement of our short- and long-term goals. The specific mix among the individual components reflects our understanding of market compensation arrangements, with base salary representing about 40 percent to 60 percent of each executive’s targeted total compensation, depending on market levels and individual position and performance, while combined annual incentive and ~~vesting~~ long-term ~~equity amounts~~incentive awards represent the remaining portion of targeted total compensation.

Retirement, health care and welfare benefit programs for executives are generally the same as for all employees and are discussed in the “Compensation of Executive Officers and Directors” section of this proxy statement.

Base Salary

The general guideline for determining salary levels for all executive officers, including the CEO, is ~~market median.~~to approximate the middle of the competitive range. Adjustments from market levels are made based on experience in the position, industry experience and individual performance and responsibilities. While the base salary component of our program for all executive officers, including the CEO, generally is targeted at market median of the survey data, our primary goal is to compensate our executives at a level that best achieves our compensation philosophy, whether or not this results in actual pay for some positions that may be higher or lower than the initial target. We find that ~~proxy and~~ survey results for particular positions can vary from year to year, so we consider market trends for certain positions over a period of years rather than a one-year period in setting compensation for such positions. ~~Salaries for~~While we experienced improved operating results in 2008 ~~for~~as compared with 2007, our ~~executive officers ranged between 85 percent and 120 percent~~Board determined that, in light of the ~~size-adjusted market mid-point average, as provided by Towers Perrin. The increase in~~broader economic circumstances, there would be no base ~~salary for 2008 for executive officers averaged 3.2 percent. In addition, the base salary adjustment for 2008 also included a corresponding~~pay increase for ~~vehicle allowances that were discontinued as a separate perquisite~~any executive officer in ~~2007.~~

2009.

Annual Cash Incentive Awards

Annual cash incentive awards are used to motivate employees to meet and exceed annual company objectives that are a part of our strategic plan. All regular, non-represented employees participate in the plan described in this section, and regular, represented employees participate in a separate management-designed program. Actual payouts for annual cash incentive awards reflect both company performance, based on financial and operational measures, and the individual performance of the employee. There are four factors that determine the amount of each executive’s final payout under the annual incentive plan: (1) the executive’s base salary,

(2) the executive’s target incentive percentage, (3) the annual incentive plan payout percentage, and (4) the executive’s performance multiple. These factors are utilized in the following formula to determine actual payouts of annual cash incentive awards:

Base Salary x Target Incentive % x Plan Payout % x Performance Multiple = Individual Payout

Each year, the HR Committee approves a target incentive percentage of base salary for each executive based on market analysis. Management also annually proposes specific performance targets for the company’s financial and operational measures, which are reviewed ~~and approved~~ by the HR Committee as well as the Board. The HR Committee and the Board set the targets. At the end of the fiscal year, the HR Committee reviews data submitted by management on company performance against each of the specific performance targets and determines the degree to which each financial and operational measure was met during the year, subject to Board approval. The aggregate percentage of financial and operational measures met during the year represents the plan payout percentage for the annual incentive plan. The HR Committee may use discretion in increasing or decreasing the plan payout percentage from actual performance due to specific facts and circumstances, such as current economic conditions as well as unusual items that significantly impact financial results. As described further below, each executive’s annual individual performance is then evaluated in order to determine a performance multiple, which is factored into the incentive payout calculation. The annual incentive plan covers all non-union employees, including our ~~NEOs.~~executive officers. For ~~2008,~~2009, the target amount of annual cash incentive awards for executive officers ranged from 35 percent to 70 percent of ansuch executive officer’s base salary.

Assuming achievement of the minimum financial metric threshold for payout, as further described below, the above formula provides for individual payouts ranging from 85 percent to 138 percent of the individual’s annual cash incentive opportunity.

Company Performance

The performance measures and specific performance targets established for ~~2008~~2009 included both financial and operational measures and targets. The financial target was based on net income and represented 55 percent of the targeted ~~2008~~2009 plan payout percentage. Net income was chosen as the financial metric because it is a financial measure that investors consider significant to evaluate company performance and net income can be ~~impacted~~ directly affected by individual employee and team performance. Operational targets represented 45 percent of the ~~2008~~2009 plan payout percentage, and are targeted indices or averages for employee safety, system reliability and customer ~~satisfaction and safety.~~satisfaction. We believe that employee safety and providing ~~safe and~~ reliable service to our customers’ satisfaction over the ~~long-term~~long term is critical to our customer commitment and regulatory obligations, which ultimately supports our financial goals and enhances stockholder value. A minimum of 90 percent of the net income target must behave been attained in order for any awards under the ~~2008~~2009 incentive plan to be earned and paid out. This coincides with the threshold net income target shown ~~below,~~in the following table, which represents 90 percent of the target amount. The ~~following~~ table also shows the associated weighting and plan payout percentage for ~~2008~~2009 for each of the performance measures:

2008 Incentive Plan Information

Weight
(Percent of Total Plan Payout Percentage)

Performance Level

Target % Achieved

Final Funding % of Total
Performance Measures

Threshold

Target

Maximum

Actual Achieved
Financial

Net Income (millions)

55%

$61.6

$68.5

$75.3

$67.6

93.7%

52%
Operational

Reliability (1)

CAIDI
(average outage per customer─minutes)

15%

99.80

94.80

89.80

93.21

116.0%

22%
Customer Satisfaction (2)

Image Rating
(based on independent survey results)

15%

7.50

7.65

7.80

7.35

—

—
Safety (3)

Lost Work Day Incident Target Rate

15%

2.60

2.00

1.50

1.20

150.0%

17%

	2009 Incentive Plan Information
	Weight (Percent of Total Plan Payout %)	Performance Level				Target % Achieved	Final Funding % of Total
Performance Measures	Weight (Percent of Total Plan Payout %)	Threshold ($)	Target ($)	Maximum ($)	Actual Achieved ($)	Target % Achieved	Final Funding % of Total
Financial
Net Income ($ in millions)	55%	66.4	73.8	81.2	73.4	97.6%	53.7%
Operational
Safety (1)
Lost Work Day Incident Target Rate	15%	1.30	1.10	1.00	0.9	150.0%	22.5%
Reliability (2)
SAIDI (total duration of outage per customer─minutes)	15%	104	90	87	101	61.0%	9.2%
Customer Satisfaction (3)
Image Rating (based on independent survey results)
Reliability	5%	7.87	8.07	8.30	8.4	150.0%	7.5%
Friendly	5%	8.10	8.30	8.50	8.5	150.0%	7.5%
Value	5%	6.78	6.98	7.18	7.2	150.0%	7.5%

(1)

Customer Average Interruption Duration Index, or CAIDI, is a system reliability index used by us and participating Institute of Electrical and Electronic Engineers, Inc. benchmarking utilities to measure the duration and frequency of interruptions on a utility’s electric system. CAIDI measures the average duration interruption for a customer on our system. The threshold level for the reliability measure represents 2007 actual results, the target level represents a 5% improvement over threshold, and the maximum level represents a 5% improvement over target.

~~(2)~~

Customer satisfaction is measured based on an external survey that measures company image improvement through an annual customer survey reflecting customer views on reliability, customer service and image. An independent party conducts the survey, and scoring ranges between 1 and 10 (10 being most favorable).

~~(3)~~

Safety performance is calculated by us and participating Edison Electric Institute, or EEI, benchmarking utilities as defined by Occupational Safety and Health Administration, or OSHA. OSHA specifically defines what workplace injuries and illnesses should be recorded and, of those recorded, which must be considered lost time incidents. The threshold level for the safety measure ~~represent 2007 actual results,~~represents performance better than our peer average; the target level represents continual improvement over the ~~EEI industry average~~2008 actual rate of ~~comparable companies,~~1.2; and the maximum level represents a 10 percent improvement over target.

(2)

System Average Interruption Duration Index, or SAIDI, is a system reliability index used by us and participating Institute of Electrical and Electronic Engineers, Inc. benchmarking utilities to measure the duration of interruptions on a utility’s electric system. SAIDI indicates the total duration of interruption for the average customer during a predefined period of time. The threshold level for the reliability measure represents first quartile performance within the industry; the target level represents continual improvement over 2008 results of 93 minutes; and the maximum level represents a more than 5 percent improvement over 2008 results.

(3)

Customer satisfaction is measured based on ~~EEI reported data.~~

an external survey that measures company image improvement through an annual customer survey reflecting customer views on reliability, friendliness of our employees and the value received for our service rates. An independent party conducts the survey, and scoring ranges between 1 and 10 (10 being most favorable). The threshold level for the customer satisfaction metrics represents a slight decrease from 2008 results to account for the influence of national and global factors as well as our results relative to industry average; the target level represents maintaining 2008 results; and the maximum level represents modest improvement over 2008 results.

For ~~2008, we achieved a funding level of 91 percent of target. The~~2009, based on company performance, the annual incentive plan was funded at 75108 percent of target. For 2008 and 2007, company performance levels resulted in funding at 91 percent and 4575 percent of target, ~~for 2007 and 2006,~~ respectively. The annual incentive ~~targets and~~ metrics for ~~2009~~2010 are consistent with those used in ~~2008, and are based on budgeted results.~~

2009.

Individual Performance

Each executive officer, in consultation with the CEO, annually sets individual operational and financial performance goals supportive of our corporate goals, as applicable, based on his or her area of responsibility. The CEO and executive officers are then evaluated against these goals at the end of the year to determine a performance rating. The HR Committee determines the CEO’s rating and performance multiple. The HR Committee also determines the individual ratings and performance multiples for executive officers other than the CEO, but bases its determination, in part, on the CEO’s assessment of the individual’s ~~performance,~~performance; and the Board reviews and approves this determination. Once the HR Committee establishes the ~~executives’~~executive officers’ performance multiples, the HR Committee determines individual payout amounts based on the formula described previously.

In determining individual performance, the HR Committee assesses both quantitative and qualitative factors. The HR Committee may exercise discretion related to the annual cash incentive calculation in both company and individual performance areas, including matters related to market and economic trends and forces, extraordinary internal and market-driven

events, unanticipated developments and other extenuating circumstances. The HR Committee analyzes the total mix of available information (including performance against any quantitative performance goals) on a qualitative, and not strictly quantitative, basis in making annual cash incentive determinations.

For ~~2008,~~2009, the HR Committee exercised discretion and based its determination of each ~~executive’s~~executive officer’s individual performance primarily on a qualitative analysis based on events that affected us during the year, rather than on an individual performance evaluation. ~~First, there~~In light of the economic environment, we had a successful year. Significant achievements included obtaining Internal Revenue Service approval of a tax accounting method change resulting in an income tax benefit of $16.6 million during 2009; accessing the capital markets to obtain new financing as well as refinance existing debt under attractive terms; and receiving regulatory approval to construct the 150-megawatt Mill Creek Generating Station. These efforts were significant changes in our management team at different points during the year. Specifically, we hired Mr. Rowe as our new CEO in August and Ms. Cramblit as our new General Counsel in May, and we eliminated the position of Vice President - Administrative Services in January 2009. Second, we received approval from the Montana Public Service Commission to place our interest in Colstrip Unit 4 into utility rate base effective January 1, 2009 at an equivalent value as if the asset had been sold. This was a significant first step toward vertical integration in Montana. It provides our customers greater price stability and provides us an increase in net income beginning in 2009 of approximately $9 million annually. This effort was successful due to the substantial efforts of our ~~current and former NEOs, as well as other~~executive officers and many other employees across all departments of ~~our departments.~~the company. In addition, during 2009, three senior level positions were eliminated and their duties were assumed by the remaining executives. As a result of the factors noted above, the HR Committee, in consultation with the CEO, determined that it was appropriate to assign a 100% performance multiplier to all ~~NEOs.~~

executive officers.

See “Compensation of Executive Officers and Directors—~~2008~~2009 Summary Compensation” in this proxy statement for the individual amounts paid to ~~each NEO~~certain of the executive officers related to the annual incentive plan.

~~Vesting of~~

Long-Term ~~Equity Grants~~

~~Our~~Incentive Plan Program

All outstanding equity awards were granted under our 2005 Long-Term Incentive Plan (2005 Plan), which was designed to provide for annual equity grants. In November 2006, the HR Committee and the Board considered the terms of ~~the~~a proposed ~~Merger Agreement with Babcock & Brown Infrastructure, Ltd., which allowed for all of the shares available under the 2005 Long-Term Incentive Plan to be awarded before completion of the transaction~~merger and the fact that ~~all~~we do not offer supplemental retirement benefits, which are typical for executives in the utility ~~industry, had been terminated prior to or during our bankruptcy.~~industry. As such, the HR Committee and the Board approved accelerating the grant of long-term equity awards, subject to a ~~5-year~~five-year vesting schedule. The vesting schedule established for the awards was one-ninth on November 1, 2007; two-ninths on November 1, 2008; three-ninths on November 1, 2009; two-ninths on November 1, 2010; and one-ninth on November 1, 2011. ~~Had~~If the merger had been completed, the grants would have vested upon completion of the merger.

The ~~long-term incentive percentage for~~value of the ~~then~~restricted shares awarded to the former CEO and other executive officers who participated in this grant ranged from 3540 percent to 70100 percent of base salary. The HR Committee established the targeted incentives under the long-term program following its review of a variety of data, including a competitive market analysis by Towers ~~Perrin~~Watson of long-term incentive programs, the scope of the position, incumbent performance, internal comparison with other officers and total direct compensation at comparable companies with similar revenues. In addition, the HR Committee considered the total pay packages of the ~~named~~ executive officers and used the long-term incentive target as a method of achieving the appropriate mix of salary to at-risk pay. ~~The Towers Perrin analysis indicates that these percentages are at or below the median for our peer group.~~

No other awards ~~have been~~were made to executive officers under the 2005 ~~Long-Term Incentive~~ Plan during 2007 and 2008 except for 1,500 shares of restricted stock to Ms. Cramblit upon commencement of her employment with us in May 2008. Ms. Cramblit’s award iswas subject to a three-year vesting schedule of one-third on November 1, ~~2009,~~2009; one-third on November 1, ~~2010~~2010; and one-third on November 1, 2011. ~~The HR Committee does not consider any executive’s current stock holding to be so large as to warrant~~Upon termination of her employment with us in January 2010, she forfeited the ~~reduction or elimination~~second and third installments of ~~further long-term incentive awards.~~

the nonvested shares.

~~2009 Long-Term Incentive Plan Program~~

In February 2009, the Board approved a three-year, performance-based award program under the 2005 ~~Long-Term Incentive~~ Plan that ~~will be~~is subject to cliff vesting on December 31, 2011. Shares will vest if, at the end of ~~year three, with~~ the ~~first potential~~three-year performance period, we have achieved certain performance goals and the individual remains employed by us. The exact number of shares issued will vary from 0% to 200% of the target award, depending on actual company performance relative to the performance goals. These awards ~~to vest on December 31, 2011.~~contain both a market- and performance-based component. The performance ~~measures~~goals for these awards are ~~based on a combined total stockholder return~~independent of each other and ~~financial results matrix, and the~~equally weighted. The program is intended to align management with stockholder interests. Targets range from ~~40%~~40 percent to ~~100%~~100 percent of ~~NEO~~each executive officer’s base pay, depending on position. Settlement of awards will be made only if we maintain investment grade credit ratings on both a secured and unsecured basis.

The performance goals for these awards are based on a 50% weighting for both a three-year Return on Average Equity, or ROAE, and Basic Earnings Per Share, or EPS, growth performance; and a 50% weighting for Total Shareholder Return, or TSR, relative to the peer group noted above.

The ROAE and EPS growth levels are tied to management performance as this goal relates to revenue enhancement and cost containment. The ROAE and EPS goals for the 2009-2011 period are as follows:

Threshold – 8% ROAE and 6% EPS growth

Target – 10% ROAE and 10% EPS growth

Maximum – 12% ROAE and 14% EPS growth

TSR is determined by our common stock price change and dividends paid over the 2009-2011 performance period. We then compare our 2009-2011 TSR with the total shareholder returns achieved by our 11 peers over the same three-year period and determine our ranking. The TSR performance levels for the 2008-2010 performance period are:

Threshold – 8th out of 12 companies

Target – 5th out of 12 companies

Maximum – 1st out of 12 companies

The HR Committee does not consider any executive officer’s current stock holding to be so large as to warrant the reduction or elimination of further long-term incentive awards.

Stock Ownership Guidelines

In February 2009, the Board approved guidelines for stock ownership by the executives, ranging from a multiple of five times base salary for the President and CEO, tofour times base salary for the Chief Financial Officer and two or three times base salary for the other ~~NEOs.~~executive officers. The stock ownership levels are to be met in five years. More specific details of our officer stock ownership guidelines are available in our Corporate Governance Guidelines that can be found on our Web site at ~~http://www.northwesternenergy.com.~~www.northwesternenergy.com. While there is no penalty if an executive does not achieve his or her ownership guideline in five years, that executive officer will be restricted from selling stock until his or her guideline amount is achieved.

Mr. Rowe executed a Rule 10b5-1 stock trading plan on February 25, 2010, to purchase company stock during the period of March 15-31, 2010, with $130,000 of his 2009 annual incentive award.

Retirement and Other Benefits

Retirement benefits are offered to ~~all~~ employees hired prior to January 1, 2009, through tax-qualified company-funded pension plans and to all eligible employees through a 401(k) defined contribution plan. Both pension plans and 401(k) plans are common benefits provided in the utility and energy industry. ~~Executive~~Our executive officers, including the CEO, participate in these plans, and the terms governing the retirement benefits under these plans are the same as those available for substantially all employees. We do not offer any supplemental retirement benefits to our executive officers. Our healthcare, insurance and other welfare and employee-benefit programs are generally the same for substantially all employees, including the CEO and executive officers. We share the cost of health and welfare benefits with our employees, which is dependent on the benefit coverage option that each employee elects. ~~Executive officers, including the named~~Our executive officers do not receive any material perquisites or special benefits.

Severance and Post-Termination Benefits

We provide severance and post-termination benefits to our executive officers under our severance plan or pursuant to the terms of various employment, separation or consulting agreements we may enter into with our executive officers from time to time. Severance and post-termination benefits are explained in detail under the “Compensation of Executive Officers and Directors” section of this proxy statement.

Employment Agreements

We believe that, generally, ongoing employment agreements are not necessary to retain talented executives; however, agreements may be appropriate on a case-by-case basis, such as when an executive begins employment with us. Due to the ~~ever-changing~~changing marketplace in which we compete for talent, the HR Committee regularly reviews this practice to help ensure that we remain competitive in our industry. WeUpon commencement of his employment in August 2008, we entered into an employment agreement with Robert C. Rowe, our President and CEO, that sets forth certain terms of his employment with us. ~~See “Compensation of Executive Officers and Directors—Employment Agreement” in this proxy statement for a detailed description of the terms of this agreement.~~

~~Human Resources Committee Interlocks and Insider Participation~~

~~During 2008, Stephen P. Adik, Julia L. Johnson and Philip L. Maslowe served on our Human Resources Committee. Each~~Mr. Rowe’s employment agreement is an independent member as defined by New York Stock Exchange corporate governance listing standards. None of the persons who served as members of our HR Committee during 2008 are officers or employees or former employees of NorthWestern or any of its subsidiaries. In addition, no executive officer of NorthWestern or any of its subsidiaries served as a member of the Board or compensation committee of any other entity.

~~COMPENSATION COMMITTEE REPORT~~

The HR Committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in the proxy statement and the Annual Report on Form 10-K for the year ended December 31, 2008.

~~Human Resources Committee~~

~~Philip L. Maslowe, Chairman~~

~~Stephen P. Adik~~

~~Julia L. Johnson~~

~~COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS~~

The table below shows the compensation earned during the years ended December 31, 2008, 2007 and 2006 by our Chief Executive Officer, Chief Financial Officer and the three most highly compensated officers, other than the Chief Executive Officer and Chief Financial Officer, who were serving as executive officers at the end of 2008. The table also includes our former Chief Executive Officer and a former executive officer who would have been among the three most highly compensated employees other than our Chief Executive Officer and Chief Financial Officer had they been employed by us at the end of 2008. Collectively, these officers are referred to as named executive officers, or NEOs.

~~2008 Summary Compensation~~

~~The following table sets forth the compensation earned during 2008, 2007 and 2006 for services in all capacities by the NEOs:~~

Name and
Principal Position
Year

Salary
($)

Stock Awards
(1)
($)

Non-equity Incentive Plan Compensation
(2)
($)

Change in Pension Value and Nonqualified Deferred Compensation Earnings
(3)
($)

All Other Compen- sation
(4)
($)

Total
($)
Robert C. Rowe (5)
2008

169,231

—

120,960

15,050

107,253

412,494
President & Chief

Executive Officer

Brian B. Bird
2008

325,129

132,221

149,244

11,415

35,759

653,768
Vice President and
2007

301,846

208,235

109,411

4,731

44,638

668,862
Chief Financial Officer
2006

287,500

96,505

69,537

10,722

32,646

496,910

Gregory G. A. Trandem (6)
2008

216,000

74,335

78,624

13,006

41,680

423,645
Former Vice President –
2007

206,731

108,534

60,912

6,447

40,007

422,631
Administrative Services
2006

199,588

31,205

36,240

10,327

34,874

312,234

Curtis T. Pohl
2008

207,988

63,840

67,012

17,813

39,159

395,812
Vice President –
2007

190,000

93,973

51,846

—

41,426

377,245
Retail Operations

Miggie E. Cramblit
2008

175,385

9,033

69,160

N/A

127,663

381,241
Vice President,

General Counsel &

Corporate Secretary (7)

Michael J. Hanson (8)
2008

355,180

(127,678
)
210,825

26,115

608,158

1,072,600
Former President &
2007

521,635

431,975

—

14

53,175

1,006,799
Chief Executive Officer
2006

494,231

175,625

169,014

10,901

46,972

896,743

Thomas J. Knapp (9)
2008

200,398

(119,100
)
68,543

11,018

348,655

509,514
Former Vice President,
2007

265,420

139,482

77,842

7,950

46,338

537,033
General Counsel &
2006

254,808

39,216

48,978

11,131

41,384

395,517
Corporate Secretary

~~(1)~~

~~These values reflect compensation expense recognized for restricted stock awards made in prior years and are calculated utilizing the provisions of SFAS No. 123R,~~ ~~Share-Based Payments~~~~. See Note 16 to the consolidated financial statements in our 2008 Form 10-K for further information regarding assumptions underlying the valuation of equity awards.~~

~~(2)~~

The Non-equity Incentive Plan Compensation column reflects cash incentive awards earned pursuant to our annual incentive plan as previously described. These awards are earned during the year reflected and paid in the following fiscal year.

~~(3)~~

These amounts are attributable to a change in the value of each NEO’s defined benefit pension account balance. We do not provide any nonqualified deferred compensation arrangements to officers. Changes in 2007 actuarial assumptions for the discount rate from 5.75% to 6.25% and interest crediting rate from 6.0% to 5.5% resulted in significantly lower changes in pension value than was reported for 2006. The actuarial assumptions for the discount rate and interest crediting rate in 2008 remained consistent with the 2007 rates.

~~(4)~~

The following table identifies the items included in the All Other Compensation column for 2008. Employee benefits include employer contributions, as applicable, for health benefits (medical, dental, vision, and employee assistance plan), group term life and 401(k) plan, which are generally available to all employees on a nondiscriminatory basis. Life insurance also includes imputed income consistent with IRS guidelines for coverage amounts in excess of $50,000 for each of the NEOs. Ms. Cramblit’s relocation benefit reflects payments associated with her relocation to Sioux Falls, South Dakota, following her appointment as Vice President, General Counsel and Corporate Secretary. Mr. Rowe’s other income is related to the buyout of his contract with his former employer (see the “Employment Agreement” section below for further discussion). Mr. Hanson’s and Mr. Knapp’s other income reflects the value of accrued vacation that was paid upon termination The remaining amounts reflected in other income are perquisites, which consists of the use of a modest company-owned property in Montana.

Health Benefits
($)

Life Insurance
($)

401(k) Contributions
($)

Severance Payments
($)

Relocation Expenses
($)

Other Income
($)

All Other Compensation
($)
Robert C. Rowe

1,291

962

5,000

—

—

100,000

107,253
Brian B. Bird

13,867

1,313

20,579

—

—

—

35,759
Gregory G. A. Trandem

13,867

4,353

22,917

—

—

543

41,680
Curtis T. Pohl

13,867

1,826

22,923

—

—

543

39,159
Miggie E. Cramblit

5,560

999

14,141

—

106,963

—

127,663
Michael J. Hanson

14,655

3,518

20,494

536,900

—

32,591

608,158
Thomas J. Knapp

14,918

4,218

22,363

284,012

—

23,1445

348,655

~~(5)~~

Mr. Rowe was hired in 2008 as President and Chief Executive Officer. Mr. Rowe’s compensation reflects amounts earned from August 14 to December 31, 2008. Mr. Rowe’s annualized salary for 2008 was $500,000.

~~(6)~~

~~Mr. Trandem’s position was eliminated effective January 30, 2009.~~

~~(7)~~

Ms. Cramblit was hired in 2008 as Vice President, General Counsel and Corporate Secretary. Ms. Cramblit’s compensation reflects amounts earned from May 5 to December 31, 2008. Ms. Cramblit’s annualized salary for 2008 was $285,000. Ms. Cramblit was not eligible to participate in the pension plan applicable to her, and therefore had no Change in Pension Value.

~~(8)~~

Mr. Hanson’s 2008 compensation reflects amounts earned through August 13, 2008, and amounts paid pursuant to termination and consulting agreements dated August 13, 2008, which are reflected in the “All Other Compensation” column. The termination and consulting agreements are described in more detail in the discussion of “Post Employment Compensation” below.

~~(9)~~

Mr. Knapp’s 2008 compensation reflects amounts earned through September 5, 2008, and amounts paid pursuant to termination and consulting agreements dated September 5, 2008, which are reflected in the “All Other Compensation” column. The termination and consulting agreements are described in more detail in the discussion of “Post Employment Compensation” below.

~~2008 Grants of Plan-Based Awards~~

Name

Grant Date

Estimated Future Payouts Under
Non-Equity Incentive Plan Awards

All Other Stock Awards: Number of Shares of Stock or Units
(#)

Grant Date Fair Value of Stock Awards
($)

Plan Type

Threshold
($)

Target
($)

Maximum
($)

Robert C. Rowe (1)

Annual Cash Incentive

—

66,462

132,924

199,386

—

—
Brian B. Bird

Annual Cash Incentive

—

82,002

164,004

246,006

—

—
Gregory G.A.Trandem

Annual Cash Incentive

—

43,200

86,400

129,600

—

—
Curtis T. Pohl

Annual Cash Incentive

—

36,820

73,640

110,460

—

—
Miggie E. Cramblit (1)

Long-term Equity

5/5/08

—

—

—

1,500

32,374

Annual Cash Incentive

38,000

76,000

114,000

Michael J. Hanson (1)

Annual Cash Incentive

—

115,838

231,676

347,514

—

—
Thomas J. Knapp (1)

Annual Cash Incentive

—

37,661

75,322

112,983

—

—

~~(1)~~

The Estimated Future Payouts Under Non-Equity Incentive Plan Awards for Messrs. Rowe, Hanson and Knapp and Ms. Cramblit were prorated to reflect their service during 2008 consistent with the amount of time each was employed in 2008.

~~Non-equity Incentive Plan Awards~~

Non-equity incentive plan compensation includes amounts earned under the NorthWestern Energy 2008 Employee Incentive Plan, which were paid in 2009. The HR Committee reviewed 2008 performance against plan targets and the plan achieved a payout percentage of 91 percent, as discussed in the “Compensation Discussion and Analysis—Annual Cash Incentive Awards—Company Performance” section of this proxy statement. Awards for the NEOs for 2008 were calculated based on the formula described ~~previously and are as follows:~~

Name

Annual Target Incentive as Percent of Base Pay

2008 Actual Incentive as Percent of Base Pay
(1)

Incentive Award
(1)
($)
Robert C. Rowe

70%

63.7%

120,960
Brian B. Bird

50%

45.5%

149,244
Gregory G. A. Trandem

40%

36.4%

78,624
Curtis T. Pohl

35%

31.9%

67,012
Miggie E. Cramblit

40%

36.4%

69,160
Michael J. Hanson

70%

63.7%

210,825
Thomas J. Knapp

40%

36.4%

68,543

~~(1)~~

~~The incentive awards for Messrs. Rowe, Hanson and Knapp and Ms. Cramblit were prorated to reflect their service during 2008 consistent with the amount of time each was employed in 2008.~~

~~Equity Incentive Plan Awards~~

Upon our emergence from bankruptcy in 2004 and pursuant to our Plan of Reorganization, we designated 2,265,957 shares for the Board to use in establishing equity-based compensation plans for employees and directors. Stockholder approval of any new incentive plans was not required under the provisions of the Plan of Reorganization.

In March 2005, the Board established the NorthWestern Corporation 2005 Long-Term Incentive Plan, an equity-based plan that provides for grants of stock options, share appreciation rights, restricted and unrestricted share awards, deferred share units and performance awards. To date, all long-term incentive awards for employees have been provided in the form of restricted stock. Initially, we funded the 2005 incentive plan with 700,000 of the shares designated for equity-based compensation plans, and substantially all of those shares were granted to employees, executives and directors prior to 2007, as previously discussed in the “Compensation Discussion and Analysis—Long-Term Equity Grants” section in this proxy statement. On October 31, 2007, the Board approved funding the 2005 incentive plan with an additional 600,000 shares; however, none of these shares have yet been utilized.

~~We awarded Ms. Cramblit 1,500 restricted shares under the 2005 incentive plan upon her appointment as Vice President, General Counsel and Corporate Secretary in May 2008.~~

~~Employment Agreement~~

below.

Mr. Rowe

Mr. Rowe is entitled to receive an annual salary of $500,000, which the HR Committee will review on an annual basis, and is eligible to participate in existing executive compensation plans as well as those established in the future. In addition, we agreed to reimburse Mr. Rowe for up to $25,000 for expenses he incurred in connection with his appointment as President and ~~Chief Executive Officer.~~CEO. The actual amount of Mr. Rowe’s expenses, related primarily to legal and accounting matters, was $15,586. Mr. Rowe also is eligible to participate in the benefit plans made available to all employees. Mr. Rowe was granted 20 years of service credit solely for the determination of paid time off. The term of Mr. Rowe’s employment agreement is two years. If Mr. Rowe’s employment is terminated before August 13, 2010, for any reason other than resignation or for cause, as defined by the applicable severance plan, and upon delivery of a waiver and release in favor of us, he will be entitled to an amount equal to the salary he would have been paid had the term of the agreement been completed and payable in the same manner as any payments that are made under the applicable severance plan. This payment is in addition to any payments made under the severance plan for officers and executives in effect at the time of termination of employment. This benefit was necessary to secure Mr. Rowe’s agreement to leave his consulting firm.

As of August 13, 2010, Mr. Rowe will continue to serve as CEO at the pleasure of the Board, but without a contract.

Immediately prior to his appointment as an executive officer, Mr. Rowe withdrew from Balhoff & Williams, formerly Balhoff, Rowe & Williams. We had retained Balhoff, Rowe & Williams in the past for services. For the year ended December 31, 2007, and for the six month period ended June 30, 2008, we paid Balhoff, Rowe & Williams fees in the amount of $281,428 and $252,342, respectively. Mr. Rowe was a member of Balhoff, Rowe & Williams during these periods. Effective April 1, 2008, we entered into a professional services contract with Balhoff, Rowe & Williams through June 2009 specifying minimum base fees against a baseline of hours worked of $100,000 for April, $75,000 for each of May and June, and $35,000 per month for July 2008 through June 2009. ~~Under the services contract, either party may terminate the services contract, and the base fees at its option upon 60 days notice.~~

To enable us to hire Mr. Rowe as an executive officer, we agreed to pay Balhoff & Williams a buyout payment of $250,000 less applicable withholding taxes, payable in three installments ending December 31, 2009, in consideration for Balhoff & Williams’ release of Mr. Rowe from his obligations to Balhoff & Williams. Mr. Rowe ~~has~~ agreed to pay Balhoff & Williams an amount equal to the amount of taxes withheld by us from the buyout ~~payment. Assuming the full~~payment, which is $81,125. The buyout payment is made and a 38.65 percent standard supplemental federal and state tax withholding rate applicable to Montana residents, the total amount to be withheld would be approximately $96,600. In addition, a total of $250,000 will bewas reported as imputed income to Mr. Rowe ($100,000 in 2008 and $150,000 in 2009), including a credit equal to the amount of taxes withheld by us from the buyout payment. Mr. Rowe ~~will be~~is responsible for paying all applicable taxes. In the event Mr. Rowe is terminated for cause or he resigns, or his employment is terminated without cause and he rejoins Balhoff & Williams prior to August 31, 2009, our obligation to pay any unpaid installment of the buyout payment shall cease.

In addition to the buyout payment, we agreed to extend the services contract for 24 months, beginning on September 1, 2008, and to pay Balhoff & Williams a retainer of $500,000, payable in monthly amounts of $20,833.33, in addition to the base fees. Our obligation to pay the retainer may be terminated only for the gross negligence or willful misconduct of Balhoff & Williams, or in the event Mr. Rowe’s employment with us ceases for any reason and he rejoins or affiliates with Balhoff & Williams in any capacity.

Mr. Rowe did not participate in the discussions or negotiations related to the retainer, the buyout payment or the extension of the services contract. Mr. Rowe ~~will~~did not receive, share in or otherwise participate in any of the buyout payment, retainer or any other payments made by us to Balhoff & Williams after August 13, 2008.

Mr. Rowe did not receive any payment from Balhoff & Williams for his ownership interest in the firm.

Compensation Committee Interlocks and Insider Participation

During 2009, Stephen P. Adik, Julia L. Johnson, Philip L. Maslowe and Denton Louis Peoples served on our HR Committee. Each is an independent member as defined by NYSE corporate governance listing standards. None of the persons who served as members of our HR Committee during 2009 are officers or employees or former employees of NorthWestern or any of its subsidiaries. In addition, no executive officer of NorthWestern or any of its subsidiaries served as a member of the Board or compensation committee of any other entity.

COMPENSATION COMMITTEE REPORT

Human Resources Committee

Philip L. Maslowe, Chairman

Stephen P. Adik

Julia L. Johnson

Denton Louis Peoples

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

The table below shows the compensation earned during the years ended December 31, 2009, 2008 and 2007 by our Chief Executive Officer, Chief Financial Officer and the three most highly compensated officers, other than the Chief Executive Officer and Chief Financial Officer, who were serving as executive officers at the end of 2009. Collectively, these officers are referred to as named executive officers, or NEOs.

2009 Summary Compensation

The following table sets forth the compensation earned during 2009, 2008 and 2007 for services in all capacities by the NEOs:

Name and
Principal Position
Year
Salary
(1)
($)

Stock Awards
(2)
($)

Non-equity Incentive Plan Compensation
(3)
($)

Change in Pension Value and Nonqualified Deferred Compensation Earnings
(4)
($)

All Other Compen- sation
(5)
($)

Total
($)
Robert C. Rowe (6) 2009 519,231 433,972 378,000 25,176 167,372 1,523,751
President & Chief 2008 169,231 — 120,960 15,050 107,253 412,494
Executive Officer

Brian B. Bird 2009 340,624 213,532 177,124 23,843 38,702 793,825
Vice President, 2008 325,129 — 149,244 11,415 35,759 521,547
Chief Financial Officer 2007 301,846 — 109,411 4,731 44,638 460,626
and Treasurer

Miggie E. Cramblit (7) 2009 295,961 123,692 123,120 19,433 36,343 598,549
Vice President, 2008 175,385 32,374 69,160 N/A 127,663 404,582
General Counsel,
Corporate Secretary and
Chief Compliance Officer

Curtis T. Pohl 2009 218,492 73,049 79,531 55,102 41,448 467,622
Vice President – 2008 207,988 — 67,012 17,813 39,159 331,972
Retail Operations 2007 190,000 — 51,846 — 41,426 283,272

David G. Gates (8) 2009 224,899 75,179 81,863 96,633 28,744 507,318
Vice President –
Wholesale Operations

(1)	Base salary amounts for 2009 reflect 27 pay periods during the calendar year.

(2)

These values reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and does not represent earned or paid compensation as the shares are subject to performance and vesting conditions. For the 2009 awards, the exact number of shares issued will vary from 0% to 200% of the target award, depending on actual company performance relative to the performance goals. The values in the table above assume 100% payout based on grant date fair value. See Note 13 to the consolidated financial statements in our 2009 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards. The values of awards assuming a maximum payout based on grant date fair value would be $867,944; $427,064; $247,385; $146,099 and $150,359 for each NEO, respectively.

(3)	The Non-equity Incentive Plan Compensation column reflects cash incentive awards earned pursuant to our annual incentive plan as previously described. These awards are earned during the year reflected and paid in the following fiscal year.

(4)

These amounts are attributable to a change in the value of each NEO’s defined benefit pension account balance. Changes in actuarial assumptions for the discount rate from 6.25% to 6.0% for the NorthWestern Energy Pension Plan and 5.75% for the NorthWestern Pension Plan resulted in significantly higher changes in pension value than was reported for 2008. Ms. Cramblit was not eligible to participate in the pension plan applicable to her in 2008, and therefore had no change in pension value.

(5)

The following table identifies the items included in the All Other Compensation column for 2009. Employee benefits include employer contributions, as applicable, for health benefits (medical, dental, vision and employee assistance plan), group term life and 401(k) plan, which are generally available to all employees on a nondiscriminatory basis. Life insurance also includes imputed income consistent with IRS guidelines for coverage amounts in excess of $50,000 for each of the NEOs. Mr. Rowe’s other income is related to the buyout of his contract with his former employer. Mr. Bird’s other income is a perquisite, which consists of the use of a modest company-owned property in Montana. Ms. Cramblit’s other income includes relocation benefits. Mr. Gates’ other income includes vacation sold back to the company at a rate of 75% ($6,950) and the use of a modest company-owned property in Montana.

Health Benefits
($)

Life Insurance
($)

401(k) Contributions
($)

Other Income
($)

All Other Compensation
($)
Robert C. Rowe 4,464 3,108 9,800 150,000 167,372
Brian B. Bird 14,763 1,311 22,050 578 38,702
Miggie E. Cramblit 9,839 1,710 22,050 2,744 36,343
Curtis T. Pohl 14,763 2,185 24,500 — 41,448
David G. Gates 10,261 1,271 9,800 7,412 28,744

(6)	Mr. Rowe was hired in 2008 as President and CEO. Mr. Rowe’s 2008 compensation reflects amounts earned from August 14 to December 31, 2008. Mr. Rowe’s annualized salary for 2008 was $500,000.

(7)	Ms. Cramblit was hired in 2008 as Vice President, General Counsel and Corporate Secretary. Ms. Cramblit’s 2008 compensation reflects amounts earned from May 5 to December 31, 2008. Ms. Cramblit’s annualized salary for 2008 was $285,000.

(8)	Mr. Gates did not meet the criteria in 2008 and 2007 to be included as an NEO.

2009 Grants of Plan-Based Awards

Name Grant Date
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards

Estimated Future Payouts Under
Equity Incentive Plan Awards (1)
Grant Date Fair Value of Stock Awards (2) ($)
Threshold
($)

Target
($)

Maximum
($)
Threshold
(#)

Target
(#)

Maximum
(#)
Robert C. Rowe
  Annual Cash Incentive — 175,000 350,000 525,000 — — — —
  Long-term Equity 2/13/09 — — — — 20,781 41,562 433,972
Brian B. Bird
  Annual Cash Incentive — 82,002 164,004 246,006 — — — —
  Long-term Equity 2/13/09 — — — — 10,225 20,450 213,532
Miggie E. Cramblit
  Annual Cash Incentive — 57,000 114,000 171,000 — — — —
  Long-term Equity 2/13/09 — — — — 5,923 11,846 123,692
Curtis T. Pohl
  Annual Cash Incentive — 36,820 73,640 110,460 — — — —
  Long-term Equity 2/13/09 — — — — 3,498 6,996 73,049
David G. Gates
  Annual Cash Incentive — 37,900 75,799 113,699 — — — —
  Long-term Equity 2/13/09 — — — — 3,600 7,200 75,179

(1)	Reflects possible payout range of 2009 Plan performance awards. Each unit has a weighted average grant date fair value of $21.53.

(2)

Non-equity Incentive Plan Awards

Non-equity incentive plan compensation includes amounts earned under the NorthWestern Energy 2009 Employee Incentive Plan, which were paid in 2010. The HR Committee reviewed 2009 performance against plan targets and the plan achieved a payout percentage of 108 percent, as discussed in the “Compensation Discussion and Analysis—Annual Cash Incentive Awards—Company Performance” section of this proxy statement. Awards for the NEOs for 2009 were calculated based on the formula described previously and are as follows:

Name Annual Target Incentive as Percent of Base Pay 2009 Actual Incentive as Percent of 2009 Salary
Incentive Award
($)
Robert C. Rowe (1) 70% 72.8% 378,000
Brian B. Bird 50% 52.0% 177,124
Miggie E. Cramblit 40% 41.6% 123,120
Curtis T. Pohl 35% 36.4% 79,531
David G. Gates 35% 36.4% 81,863

(1)	Mr. Rowe executed a Rule 10b5-1 stock trading plan on February 25, 2010, and elected to purchase company stock during the period March 15-31, 2010, with $130,000 of his 2009 annual incentive award.

Equity Incentive Plan Awards

As previously discussed in the “Compensation Discussion and Analysis—Components of Executive Compensation—Long-Term Incentive Plan Program” section in this proxy statement, the Board approved granting performance awards in 2009 under the 2005 Plan. The values of stock awards included in the tables reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and does not represent earned or paid compensation as the shares are subject to performance and vesting conditions. For the 2009 awards, the exact number of shares issued will vary from 0% to 200% of the target award, depending on actual company performance relative to the performance goals. See Note 13 to the consolidated financial statements in our 2009 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards.

Outstanding Equity Awards at ~~2008~~2009 Fiscal Year-End

The following table contains information regarding outstanding equity-based awards, including the potential dollar amounts realizable with respect to the awards for each NEO.

Stock Awards

Name

Grant Date

Number of Shares or Units of Stock That Have Not Vested
(#)

Market Value of Shares or Units of Stock That Have Not Vested
($)

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)

Robert C. Rowe

—

—

—

—

—

Brian B. Bird (1)

11/6/06

9,044

212,263

—

—

Gregory G. A. Trandem (2)

11/6/06

5,084

119,321

—

—

Curtis T. Pohl (1)

11/6/06

4,367

102,493

—

—

Miggie E. Cramblit (3)

5/5/08

1,500

35,205

—

—

Michael J. Hanson

—

—

—

—

—

Thomas J. Knapp

—

—

—

—

—

		Stock Awards
Name	Grant Date	Number of Shares or Units of Stock That Have Not Vested (#) (1)	Market Value of Shares or Units of Stock That Have Not Vested ($) (3)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (4)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (3)
Robert C. Rowe	2/13/09	—	—	41,562	1,081,443
Brian B. Bird	2/13/09	—	—	20,450	532,109
	11/6/06	4,521	117,636	—	—
Miggie E. Cramblit (2)	2/13/09	—	—	11,846	308,233
	5/5/08	1,000	26,020	—	—
Curtis T. Pohl	2/13/09	—	—	6,996	182,036
	11/6/06	2,183	56,802	—	—
David G. Gates	2/13/09	—	—	7,200	187,344
	11/6/06	1,912	49,750	—	—

(1)	For Messrs. Bird, Pohl and ~~Pohl,~~Gates, these remaining shares vest over a ~~three-year~~two-year period as follows: ~~three-ninths on November 1, 2009;~~ two-ninths on November 1, 2010; and one-ninth on November 1, 2011.

(2)	~~Mr. Trandem’s~~Ms. Cramblit’s remaining shares ~~vested~~were forfeited upon her termination of employment on ~~February 6, 2009 under~~January 5, 2010.

(3)	Values were calculated based on a $26.02 closing price of our common stock, as reported on the ~~terms of his separation agreement with us. Mr. Trandem’s severance benefits~~New York Stock Exchange on December 31, 2009.

(4)	These shares cliff vest on December 31, 2011, if performance targets are ~~described in detail in~~met, and are reflected at the ~~“Termination or Change In Control Arrangements” section of this proxy statement.~~ maximum payout level.

~~(3)~~

~~For Ms. Cramblit, these remaining shares vest over a three-year period as follows: one-third on November 1, 2009; one-third on November 1, 2010; and one-third on November 1, 2011.~~

During ~~2008, two-ninths~~2009, three-ninths of the original service-based restricted shares vested for Messrs. Bird, Pohl and Gates. The number of shares that have not vested represents three-ninths of the original share ~~award~~award. One-third of the original service-based restricted shares vested for ~~Messrs. Bird, Trandem~~Ms. Cramblit, and ~~Pohl; therefore,~~ the number of shares that have not vested represents ~~six-ninths~~two-thirds of the original share award. ~~We determined the market value by utilizing our closing stock price as of December 31, 2008, which was $23.47.~~ Dividends are not paid or accrued on any unvested shares.

~~2008~~2009 Stock Vested

The table below shows the dollar amounts realized pursuant to the vesting of equity-based awards during the last fiscal year.

Stock Awards
Name

Number of Shares Acquired on Vesting
(#)

Value Realized on Vesting
($)
Robert C. Rowe

—

—
Brian B. Bird

3,016

61,315
Gregory G. A. Trandem

1,696

34,479
Curtis T. Pohl

1,456

29,600
Miggie E. Cramblit

—

—
Michael J. Hanson

6,414

165,994
Thomas J. Knapp

—

—

	Stock Awards
Name	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
Robert C. Rowe	—	—
Brian B. Bird	4,523	109,547
Miggie E. Cramblit	500	12,110
Curtis T. Pohl	2,184	52,896
David G. Gates	1,914	46,357

Shares vested during ~~2008~~2009 for Messrs. Bird, Pohl and Gates represent ~~two-ninths~~three-ninths of the restricted shares granted on November 6, 2006, under the 2005 ~~incentive plan~~Plan as discussed above. Shares vested during 2009 for Ms. Cramblit represent one-third of the restricted shares granted on May 5, 2008, under the 2005 Plan as discussed above. We determined the value realized for ~~Messrs. Bird, Trandem and Pohl by~~the 2009 vesting using the fair market value of our common stock on November ~~3, 2008,~~2, 2009, which was $20.33. As part of Mr. Hanson’s termination agreement, the Board approved accelerated vesting, effective August 28, 2008, of 6,414 shares that would have vested on November 3, 2008, had Mr. Hanson been employed by us on the vesting date. The value realized by Mr. Hanson as a result of this acceleration was $165,994. We determined this amount by using the fair market value of our common stock on August 28, 2008, of $25.88.

$24.22.

Post Employment Compensation

~~2008~~

2009 Pension Benefits

We have two separate defined benefit pension plans. The NorthWestern Energy Pension Plan is applicable to employees who begin their employment in Montana, and the NorthWestern Pension Plan is applicable to employees who begin their employment in South Dakota or Nebraska. Mr. Rowe ~~is a participant~~and Mr. Gates are participants in the NorthWestern Energy Pension Plan. Mr. Bird, ~~Mr. Trandem,~~Ms. Cramblit and Mr. Pohl ~~and Ms. Cramblit~~ are participants in the NorthWestern Pension Plan.

Name

Plan Name

Number of Years Credited Service
(#)

Present Value of Accumulated Benefit
($)

Payments During Last Fiscal Year
($)

Robert C. Rowe

NorthWestern Energy Pension Plan

0

15,050

—

Brian B. Bird

NorthWestern Pension Plan

5.08

49,627

—

Gregory G. A. Trandem

NorthWestern Pension Plan

9.42

82,183

—

Curtis T. Pohl

NorthWestern Pension Plan

22.39

160,456

—

Miggie E. Cramblit (1)

NorthWestern Pension Plan

—

—

—

Michael J. Hanson (2)

NorthWestern Pension Plan

10.58

—

118,507

Thomas J. Knapp

NorthWestern Pension Plan

5.84

60,195

—

~~(1)~~

~~Ms. Cramblit is not yet eligible to participate in the plan.~~

~~(2)~~

~~Mr. Hanson received a rollover distribution of $118,507 from the NorthWestern Pension Plan on December 1, 2008, and as of December 31, 2008, no longer has a pension benefit with us.~~

Name	Plan Name	Number of Years Credited Service (#)	Present Value of Accumulated Benefit ($)	Payments During Last Fiscal Year ($)
Robert C. Rowe	NorthWestern Energy Pension Plan	1.00	40,226	—
Brian B. Bird	NorthWestern Pension Plan	6.08	73,470	—
Miggie E. Cramblit	NorthWestern Pension Plan	1.66	19,433	—
Curtis T. Pohl	NorthWestern Pension Plan	23.39	215,558	—
David G. Gates	NorthWestern Energy Pension Plan	31.00	632,546	—

We calculated the present value of accumulated benefits assuming benefits commence at age 65 and using the discount rate, mortality assumption and assumed payment form consistent with those disclosed in Note 1512 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, ~~2008.~~2009. While we calculated the present values in the table above assuming that benefits commence at age 65, the following table ~~below~~ summarizes the cash balance available if the individual were to terminate service as of December 31, ~~2008.~~

2009.

Name		Cash Balance ($)
Robert C. Rowe		~~15,984~~ 40,799
Brian B. Bird		~~56,677~~ 70,440
~~Gregory G. A. Trandem~~ Miggie E. Cramblit		~~86,873~~ 18,959
Curtis T. Pohl		~~185,754~~ 205,731
~~Miggie E. Cramblit (1)~~ David G. Gates		—
~~Michael J. Hanson (2)~~		—
~~Thomas J. Knapp~~		~~64,007~~ 641,564

~~(1)~~

~~Ms. Cramblit is not yet eligible to participate in the plan.~~

~~(2)~~

~~Mr. Hanson received a rollover distribution of $118,507 from the NorthWestern Pension Plan on December 1, 2008, and as of December 31, 2008, no longer has a pension benefit with us.~~

Under the NorthWestern Energy Pension Plan, a ~~participant's~~participant’s account grows based upon (1) contributions by the company made once per year, and (2) interest credits at the rate of 6 percent per year. Contribution rates range from 3 percent to 12 percent for compensation below the taxable wage base and from 1.5 percent to 6 percent for compensation above one-half of the taxable wage base. Upon termination of employment, an employee who is at least 50 years of age with five years of service may begin receiving a monthly annuity or defer receiving benefits until ~~they are~~he or she is required to take a minimum distribution.

Under the cash balance formula of the NorthWestern Pension Plan, a participant’s account grows based upon (1) annual pay credits, and (2) annual interest credits based on the average Federal 30-year Treasury Bill rate for November of the preceding year. Pay credits range from 3 percent to 7.5 percent for compensation below the taxable wage base, and such amounts are doubled for compensation above the taxable wage base. Upon termination of employment, an employee, or if deceased, his or her beneficiary, may elect to receive a lump sum equal to the cash balance in the account, a monthly annuity if age 55 or greater, or defer receiving benefits until ~~they are~~he or she is required to take a minimum distribution.

~~To be eligible for either pension plan, an employee must have been employed on or before October 3, 2008, and have worked at least 1,000 hours in 2008.~~

The plans were closed to new entrants January 1, 2009. For both pension plans, credited years of service isare based on actual hire date, and pensionable earnings include base pay only.

Mercer Human Resources Consulting, the actuary for our pension plans, calculated the present value of accumulated benefits using participant data provided by us.

Non-qualified Deferred Compensation

During 2009, we implemented a Non-qualified Deferred Compensation Plan that provides the opportunity for eligible officers, including the NEOs, to defer certain compensation including base salary, short-term incentive awards and long-term equity awards beginning January 1, 2010. Under the Plan, eligible employees may elect to defer up to 100% of base salary, subject to compliance with Section 409A of the Internal Revenue Code compensation limit and up to 100 percent of short-term and long-term incentives. There are no company contributions to the Non-qualified Deferred Compensation Plan.

At the time of deferral election, Non-qualified Deferred Compensation Plan participants may elect to have deferrals credited to their account in cash or in company stock. If cash deferrals are elected, participants may choose to invest their plan account balances in investment options that substantially mirror the qualified employee 401(k) plan investment options.

Plan participants do not pay income taxes on amounts deferred or earnings thereon, until those amounts are distributed from the Non-qualified Deferred Compensation Plan. A participant’s benefits under the Non-qualified Deferred Compensation Plan are fully vested and are payable after terminating employment. Benefits are paid in a lump sum unless a participant elects annual installments

~~We do not offer any non-qualified deferred compensation plan for our executives.~~

Termination or Change in Control Arrangements

2008 Key Employee Severance Plan

~~Effective October 1, 2008, our~~

Our NEOs are participants in the 2008 Key Employee Severance Plan, which we refer to as the 2008 Severance Plan. The 2008 Severance Plan was reviewed by the HR Committee with recommendations from professional advisors and approved by the Board. The ~~2008 Severance Plan replaces the 2006 Officer Severance Plan that expired on September 30, 2008. The~~ HR Committee believes that it is appropriate for us to have a severance plan to provide a consistent means of addressing severance situations.

The 2008 Severance Plan provides for the payment of severance benefits in the event an officer is terminated involuntarily without cause. Cause generally is defined in the 2008 Severance Plan as (i) fraud, misappropriation of corporate property or funds, or ~~embezzlement,~~embezzlement; (ii) malfeasance in office, misfeasance in office which is willful or grossly negligent, or nonfeasance in office which is willful or grossly ~~negligent,~~negligent; (iii) failure to comply with our Code of ~~Conduct,~~Conduct; (iv) illegal conduct, gross misconduct or dishonesty, in each case which is willful and results (or is reasonably likely to result) in substantial damage to the ~~company,~~company; or (v) willful and continued failure by the employee to perform substantially his/her duties. For this purpose, involuntary termination does not include a termination resulting from a participant’s death or disability.

The severance benefits payable under the 2008 Severance Plan consist of:

~~a lump-sum cash payment equal to one times annual base pay;~~

~~reimbursement of COBRA premiums paid by the participant during the 12-month period following the participant’s termination date; and~~

~~$12,000 of outplacement services during the 12-month period following the participant’s termination date.~~

·	a lump-sum cash payment equal to one times annual base pay;

·	reimbursement of COBRA premiums paid by the participant during the 12-month period following the participant’s termination date; and

·	$12,000 of outplacement services during the 12-month period following the participant’s termination date.

The following table shows the amount of potential cash severance that would have been payable, based on an assumed termination date of December 31, ~~2008,~~2009, under the normal severance provisions of the 2008 Severance Plan, including the amount that each ~~executive officer~~NEO would be entitled to be reimbursed for outplacement expenses and reimbursement of costs for continuing coverage and other benefits under our group health, dental and life insurance plans. Severance benefits are not provided for terminations with cause.

In addition, an eligible employee who was severed under the 2008 Severance Plan from October 1, 2008 through December 31, 2008, would have received a prorated short-term incentive payment, if any, in accordance with the NorthWestern Energy 2008 Employee Incentive Plan. Effective January 1, 2009, prorated short-term incentive is not a component of the 2008 Severance Plan or the NorthWestern Energy 2009 Employee Incentive Plan.

��

Name

Base
Salary
($)

Short-Term Incentive
(1)
($)

COBRA Premiums
($)

Out placement Services
($)

Amount of Potential Severance
Benefit
($)
Robert C. Rowe (2)

1,326,923

120,960

4,988

12,000

1,464,871
Brian B. Bird

328,008

149,244

16,548

12,000

505,800
Gregory G.A. Trandem (3)

216,000

78,624

16,548

12,000

323,172
Curtis T. Pohl

210,400

67,012

13,341

12,000

302,753
Miggie E. Cramblit

285,000

69,160

11,499

12,000

377,659

Name	Base Salary ($)	COBRA Premiums ($)	Outplacement Services ($)	Amount of Potential Severance Benefit ($)
Robert C. Rowe (1)	500,000	4,534	12,000	516,534
Brian B. Bird	328,008	15,040	12,000	355,048
Miggie E. Cramblit (2)	285,000	10,017	12,000	307,017
Curtis T. Pohl	210,400	15,040	12,000	237,440
David G. Gates	216,569	10,448	12,000	239,017

(1)	~~Effective January 1, 2009, prorated short-term incentive is not a component of the 2008 Severance Plan or the NorthWestern Energy 2009 Employee Incentive Plan~~

~~(2)~~

Mr. Rowe’s severance benefits were calculated in accordance with his employment agreement and provisions of the 2008 Severance Plan, as applicable.

~~(3)~~

(2)

Actual severance benefits received by ~~Mr. Trandem~~Ms. Cramblit in ~~2009~~2010 are described in detail in the subsequent paragraphs of this proxy statement.

The 2008 Severance Plan does not provide for change in control payments. ~~The 2006 Severance Plan described below included change in control provisions due to merger activity at the time.~~

~~2006 Officer Severance Plan~~

Prior to October 1, 2008, our NEOs participated in the 2006 Officer Severance Plan, which we refer to as the 2006 Severance Plan. The HR Committee engaged Towers Perrin in 2006 to evaluate our severance and change in control practices, particularly related to other utilities and believed it was important to implement a plan to ensure retention of key employees in the event of employment uncertainty related to a proposed merger transaction. The HR Committee believes the 2006 Severance Plan established a balance between the need to retain key employees without providing an overly generous benefit.

The 2006 Severance Plan provided for the payment of severance benefits in the event an officer was terminated involuntarily without cause. Cause generally was defined in the 2006 Severance Plan as (i) any form of illegal conduct or gross misconduct that results in substantial damage to NorthWestern, (ii) failure to comply with our Code of Conduct, (iii) willful failure to perform duties or (iv) willful and continued conduct injurious to us. For this purpose, involuntary termination does not include a termination resulting from a participant’s death or disability. The severance benefits payable under the 2006 Severance Plan included:

~~a lump-sum cash payment equal to one times annual base pay;~~

~~a pro-rata short-term incentive bonus;~~

~~reimbursement of COBRA premiums paid by the participant during the 12-month period following the participant’s termination date; and~~

~~$12,000 of outplacement services during the 12-month period following the participant’s termination date.~~

The pro-rata short-term incentive bonus is determined on the same basis as all other employees, as described in the “Compensation Discussion and Analysis—Individual Performance and Targets” section of this Proxy Statement, and then pro-rated based on the number of days during the year the individual was employed. The calculation is as follows:

~~(Base Salary x Target Incentive % x Total Plan Payout x Performance Multiple = Individual Payout )~~

~~x (# of days worked ÷ 360)~~

The 2006 Severance Plan also provided for change in control severance benefits in the event an eligible officer was terminated within 18 months after a change in control of the company. The change in control benefits included: (i) a lump-sum cash payment equal to two times annual base salary plus target annual short-term incentive pay to the Chief Executive Officer and Chief Financial Officer and one and one-half times annual base salary plus target annual short-term incentive pay to all other eligible officers, (ii) a pro-rata short-term incentive bonus (as described above), (iii) reimbursement of COBRA premiums paid by the participant during the 18-month period following the participant’s termination date, and (iv) $12,000 in outplacement services during the 12-month period following the participant’s termination date. In addition, the 2005 LTIP provides for accelerated vesting in the event of a change in control.

~~Mr. Hanson~~

Mr. Hanson submitted his resignation as our President, Chief Executive Officer and as a member of the Board on August 13, 2008. Upon receipt of Mr. Hanson’s resignation, the Board considered, among other things, entering into a separation agreement and a consulting agreement with Mr. Hanson. In evaluating the appropriateness of the terms of the agreements, the Board considered a number of factors, including the need for a smooth transition between Mr. Hanson and Mr. Rowe, the positive financial state of the company, including the fact that substantially all prior bankruptcy-related litigation had been resolved, and the benefits established pursuant to the 2006 Severance Plan. Based on the foregoing, the Board determined that the terms and conditions of the agreements were appropriate.

~~A Waiver and Release Agreement and a Consulting Agreement were each executed on August 21, 2008. Under the 2006 Severance Plan, Mr. Hanson received the following:~~

~~a lump-sum payment of $536,900, which equals Mr. Hanson’s then-current base salary;~~

~~a pro-rata annual short-term incentive bonus equal to $210,825, which was calculated at the end of the 2008 fiscal year and payable on or before March 15, 2009;~~

~~reimbursement of any COBRA premiums paid by Mr. Hanson during the 12-month period following his separation from the company; and~~

~~outplacement services provided by a company selected provider up to a maximum of $12,000 over the 12-month period following Mr. Hanson’s separation from the company.~~

In addition to these benefits, the Board agreed to accelerate the vesting, effective on August 28, 2008, of 6,414 restricted shares valued at $165,994, which were granted to Mr. Hanson on November 6, 2006 and scheduled to vest on November 3, 2008. To support the consulting work we requested of Mr. Hanson, including serving as a key witness in ongoing regulatory proceedings, he also was provided access to office space for a six-month period at a total cost to us of approximately $5,000. Mr. Hanson’s account balances under our qualified retirement plans were fully vested and were unaffected by the agreements. Mr. Hanson received a rollover distribution of $118,507 from the NorthWestern Pension Plan on December 1, 2008, and as of December 31, 2008, no longer has a pension benefit with the company.

Under a separate consulting agreement, Mr. Hanson agreed to provide services to us through February 2009, with compensation of $22,371 for August, 2008 and a monthly fee of $44,742 thereafter through the term of the agreement.

~~Mr. Knapp~~

On May 1, 2008, we announced that, effective May 5, 2008, Thomas J. Knapp would no longer serve in the capacity of Vice President, General Counsel and Corporate Secretary, but would remain as senior legal and governmental affairs advisor. On August 29, 2008, Mr. Knapp resigned from the company. Mr. Knapp’s resignation was deemed a termination without cause, and he executed a Waiver and Release Agreement effective September 5, 2008. Under the 2006 Severance Plan, Mr. Knapp received the following:

~~a lump-sum payment of $284,012, which equals Mr. Knapp’s then-current base salary;~~

~~a pro-rata annual short-term incentive bonus equal to $68,543, calculated at the end of the 2008 fiscal year and payable on or before March 15, 2009;~~

~~reimbursement of any COBRA premiums paid by Mr. Knapp during the 12-month period following his separation from the company; and~~

~~outplacement services provided by a provider selected by us up to a maximum of $12,000 over the 12-month period following Mr. Knapp’s separation.~~

Mr. Knapp’s account balances under our qualified retirement plans were fully vested and are unaffected by the agreement (as of December 31, 2008, the present value of such pension benefits was $60,195).

To allow Mr. Knapp to conclude various outstanding bankruptcy-related litigation matters, we entered into a consulting agreement with him on September 5, 2008, which provided for compensation for certain agreed upon consulting services of $15,000 per month through the term of the agreement, which expired December 31, 2008.

~~Mr. Trandem~~

On January 30, 2009, we eliminated Mr. Trandem’s position as Vice President - Administrative Services and deemed his termination a termination without cause. Mr. Trandem executed a Waiver and Release Agreement and is entitled to receive certain benefits, which include the following under the 2008 severance plan:

~~a lump-sum payment of $216,000, which equals Mr. Trandem’s current base salary;~~

~~reimbursement of any COBRA premiums paid by Mr. Trandem during the 12-month period following his separation from the company; and~~

~~outplacement services provided by a provider selected by us up to a maximum of $12,000 over the 12-month period following Mr. Trandem’s separation from the company.~~

The Board approved that, with respect to the continuation of medical benefits, Mr. Trandem may elect to be reimbursed, for a period of one year, for the employee portion of early retiree health benefit premiums in lieu of the COBRA premiums noted above. In addition, the Board approved to accelerate the vesting of 5,084 restricted shares, valued at approximately $124,500, which were granted to Mr. Trandem on November 6, 2006, and scheduled to vest in 2009, 2010 and 2011.

Mr. Trandem also received other benefits upon his termination that are due to all employees upon separation, including the value of his accrued but unpaid vacation, vested 401(k) plan account and vested pension benefits.

To allow a smooth transition of responsibilities, we entered into a consulting agreement with Mr. Trandem on January 31, 2009, which provides for compensation for certain agreed upon consulting services of $18,000 per month through April 30, 2009.

2005 Long-Term Incentive Plan Change in Control Provision

~~The~~

All outstanding equity awards were granted under our 2005 Long-Term Incentive Plan (2005 Plan). The 2005 Plan, in a change in control situation, provides that either the vesting of awards shall accelerate so that awards shall vest as to the shares that otherwise would have been unvested, or the HR Committee shall arrange or otherwise provide for the payment of cash or other consideration to participants in exchange for the satisfaction and cancellation of outstanding awards. The following table shows the amount of potential stock value that would have been received, based on an assumed change in control date of December 31, ~~2008~~2009, and a closing stock price of ~~$23.47.~~

$26.02.

Name		Value of Accelerated Stock Vesting ($)
Robert C. Rowe		— 540,722
Brian B. Bird		~~212,263~~ 383,691
~~Gregory G. A. Trandem~~Miggie E. Cramblit (1)		~~119,321~~ 180,136
Curtis T. Pohl		~~102,493~~ 147,820
~~Miggie E. Cramblit~~ David G. Gates		~~35,205~~ 143,422

(1)	~~Mr. Trandem’s~~Ms. Cramblit’s remaining shares ~~vested~~were forfeited upon her termination of employment on ~~February 6, 2009, under his termination agreement, at an approximate value of $124,500.~~ January 5, 2010.

Ms. Cramblit

On December 8, 2009, we announced that, effective January 5, 2010, Miggie E. Cramblit would no longer serve in the capacity of Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer. Ms. Cramblit’s resignation was deemed a termination without cause, and she executed a Waiver and Release Agreement effective January 5, 2010. Under the 2008 Severance Plan, Ms. Cramblit received the following:

·	a lump-sum payment of $285,000, equal to her base salary;

·	an annual short-term incentive bonus of $123,120, calculated at the end of the 2009 fiscal year and payable on or before March 15, 2010;

·	reimbursement of any COBRA premiums paid by Ms. Cramblit during the 12-month period following her separation from the company; and

·	outplacement services through a provider selected by us up to a maximum of $12,000 over the 12-month period following Ms. Cramblit’s separation.

Ms. Cramblit’s account balances under our qualified retirement plans were fully vested and are unaffected by the agreement (as of December 31, 2009, the present value of such pension benefits was $19,433). All outstanding unvested equity awards were forfeited upon termination.

To allow Ms. Cramblit to conclude various outstanding litigation matters, we entered into a consulting agreement with her on January 5, 2010, which provided for compensation for certain agreed upon consulting services of $23,750 per month through the term of the agreement, which expires on April 5, 2010.

Death and Disability Benefits

Our executives are covered by the standard death and disability benefits that are available to substantially all employees.

~~2008~~

2009 Director Compensation

Compensation to our non-employee directors consists of an annual cash retainer, an annual unrestricted stock award, an annual cash retainer for the chair of each committee of the Board, and meeting attendance fees. Non-employee directors are not eligible to participate in our retirement plans. The following table shows the rates for non-employee director compensation for ~~2008:~~

2009:

	Cash ($)	Shares (#)
Annual Board Retainer
Initial Stock Grant (sign-on grant to a new member)	N/A	1,000
Board Chair	100,000	3,000
Board Member	25,000	2,000
Annual Committee Chair Retainer
Audit Committee	10,000	N/A
Nominating and Corporate Governance Committee	6,000	N/A
Human Resources Committee	6,000	N/A
Meeting Fees (1)
Board Meeting	2,000	N/A
Committee Meeting	2,000	N/A

(1)	The Board Chairman does not receive meeting fees.

The company also reimburses non-employee directors for the cost of participation in certain continuing education programs and travel costs to meetings.

The following table sets forth the compensation earned by our non-employee directors for service on our Board during ~~2008.~~2009. Employee directors are not compensated for service on the Board.

Name

Fees Earned or Paid in Cash
(1)
($)

Stock Awards
(1) (2)
($)

Total
($)
E. Linn Draper, Jr., Chairman

100,000

160,178

260,178
Stephen P. Adik

91,000

131,148

222,148
Jon S. Fossel

53,000

131,148

184,148
Julia L. Johnson

87,000

131,148

218,148
Philip L. Maslowe

85,000

131,148

216,148
D. Louis Peoples

75,000

131,148

206,148

Name	Fees Earned or Paid in Cash (1) ($)	Stock Awards (1) (2) ($)	Total ($)
E. Linn Draper Jr., Chairman	100,000	238,829	338,829
Stephen P. Adik	73,000	132,995	205,995
Dorothy M. Bradley (3)	28,667	62,040	90,707
Dana J. Dykhouse (4)	48,917	73,830	122,747
Jon S. Fossel (5)	22,333	46,960	69,293
Julia L. Johnson	67,000	170,997	237,997
Philip L. Maslowe	69,000	164,027	233,027
Denton Louis Peoples	61,000	97,175	158,175

(1)

Amounts deferred under the deferred compensation plan described below included $100,000 ~~and 3,000 shares of stock~~ for Mr. Draper; $35,000 ~~and 2,000 shares of stock~~ for Mr. Adik; ~~$87,000 and 2,000 shares of stock~~$67,000 for Ms. Johnson; ~~2,000 shares of stock~~and $69,000 for Mr. ~~Maslowe; and 2,000 shares of stock for Mr. Peoples.~~

Maslowe.

(2)

These values reflect the ~~compensation expense recognized for restricted~~grant date fair value of annual stock awards ~~made~~described above, and the change in ~~2008 and~~value in ~~prior years and are~~deferred compensation. Grant date fair value is calculated utilizing the provisions of ~~SFAS No. 123R,~~ ~~Share-Based Payments~~.Accounting Standards Codification 718, Stock Compensation. See Note 13 to the consolidated financial statements in our 2009 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards. The grant date fair value of annual stock awards made during ~~2008~~2009 was ~~$29.03~~$23.48 per share, or ~~$87,090~~$70,440 for Mr. Draper and ~~$58,060~~$46,960 for Mr. Adik, Mr. Fossel, Ms. Johnson, Mr. Maslowe and Mr. Peoples. Mr. Adik, Ms. Johnson, Mr. Maslowe and Mr. Peoples deferred these grants under the ~~remaining directors.~~deferred compensation plan described below. Ms. Bradley and Mr. Dykhouse received stock awards in conjunction with the beginning of service on our Board, which had a grant date fair value of $20.68, or $62,040, and $24.61, or $73,830, respectively. As of December 31, ~~2008, each director has 4,999~~2009, Mr. Draper, Mr. Adik, Ms. Johnson, Mr. Maslowe and Mr. Peoples have 2,499 shares of stock granted in 2006 under the 2005 ~~incentive plan~~Plan that have not vested.

The value of the adjustments to deferred compensation accounts reflects amounts deferred, appreciation/depreciation and dividends. The number of deferred share units outstanding as of December 31, 2009, are as follows: E. Linn Draper – 46,387; Stephen P. Adik – 24,703; Julia L. Johnson – 34,416; Philip L. Maslowe – 32,667; and Denton Louis Peoples – 15,249.

(3)	Ms. Bradley began service on our Board on April 22, 2009.

(4)	Mr. Dykhouse began service on our Board on January 30, 2009.

(5)	Mr. Fossel resigned from our Board effective April 22, 2009.

Non-employee directors may elect to defer up to 100% of any qualified cash or equity-based compensation that would be otherwise payable to ~~him or her,~~them, subject to compliance with NorthWestern’s 2005 Deferred Compensation Plan for Non-employee Directors and Section 409A of the Internal Revenue Code. For those directors who defer their compensation, the meeting fee or retainer, as applicable, is the value utilized to determine the amount of deferred compensation. The deferred compensation may be invested in deferred stock units or designated investment ~~funds.~~options that substantially mirror the qualified employee 401(k) plan options. Based on the election of the non-employee director, following separation from service on the Board, other than on account of death, he or she shall receive a distribution ~~equal to one share of common stock for each deferred stock unit~~ either in a lump sum or in approximately equal installments over a designated number years (not to exceed 10 years). Distributions of deferred share units will be equal to one share of common stock for each unit. All deferrals made in ~~2008~~2009 and prior years are invested in deferred stock units. The value of ~~the~~ each deferred compensation account is adjusted periodically to reflect the gains, losses and dividends associated with ~~a notional investment in our common stock.~~

~~Each~~the designated investments.

Director Stock Ownership Guidelines

Our director stock ownership guidelines provide that each non-employee Board member ~~must~~is to retain at least five times the value of his or her annual Board and committee chair retainer(s) in common stock or deferred stock units within five years of commencing service on our Board. AsThe following table shows the non-employee Board members’ stock ownership levels as of December 31, 2009:

Name	Stock Ownership Requirement ($)	Number of Shares or DSUs Owned (#)	Ownership as a Percent of Requirement (1)
E. Linn Draper Jr., Chairman	500,000	46,387	241%
Stephen P. Adik	175,000	44,703	665%
Dorothy M. Bradley (2)	125,000	3,039	63%
Dana J. Dykhouse (2)	125,000	3,000	62%
Julia L. Johnson	155,000	34,416	578%
Philip L. Maslowe	155,000	32,667	548%
Denton Louis Peoples	125,000	18,249	380%

(1)	Ownership percentage calculated as of December 31, 2009, using a closing stock price of $26.02.

(2)	Ms. Bradley and Mr. Dykhouse joined the Board in 2009 and have until 2014 to meet their stock ownership levels.

STOCK OWNERSHIP INFORMATION

Our common stock is currently the only class of voting securities. The number of shares noted are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power and any shares which the person has the right to acquire within 60 days through the exercise of option, warrant or right.

Security Ownership of Directors and Management

The following table sets forth certain information as of February 1,22, 2010, with respect to the beneficial ownership of shares of our common stock owned by our current directors, the NEOs, and by all of our directors and executive officers as a group.

	Amount and Nature of Beneficial Ownership
Name of Beneficial Owner	Unrestricted Shares of Common Stock Beneficially Owned Directly	Unrestricted Shares of Common Stock Beneficially Owned Indirectly	Unvested Restricted Stock	Deferred Stock Units	Total Shares of Common Stock Beneficially Owned	Percent of Common Stock
Stephen P. Adik (1)	–	20,000	2,499	27,061	49,560	*
E. Linn Draper Jr.	–	–	2,499	50,409	52,908	*
Dorothy M. Bradley	3,039	–	–	2,000	5,039	*
Dana J. Dykhouse	5,000	–	–	–	5,000	*
Julia L. Johnson	–	–	2,499	36,733	39,232	*
Philip L. Maslowe	–	–	2,499	34,667	37,166	*
Denton Louis Peoples	3,000	–	2,499	17,249	22,748	*
Robert C. Rowe (2)	–	2,275	–	–	2,275	*
Brian B. Bird	22,836	–	4,521	–	27,357	*
Miggie E. Cramblit	500	–	–	–	500	*
Curtis T. Pohl	5,952	–	2,183		8,135	*
David G. Gates	4,986	–	1,912	–	6,898	*
Directors and Executive Officers as a Group (15 persons)	56,608	22,275	26,450	168,119	251,177	*
* Less than 1%.

(1)	Shares held indirectly by Mr. Adik represent shares held in a trust of which Mr. Adik and his spouse are co-trustees.

(2)

Shares held indirectly by Mr. Rowe represent shares held in a SEP IRA owned by Mr. Rowe. On February 24, 2010, Mr. Rowe purchased an additional 1,955 shares in his SEP IRA; and on February 25, 2010, Mr. Rowe executed a Rule 10b5-1 stock trading plan and elected to purchase company stock during the period March 15-31, 2010, with $130,000 of his 2009 annual incentive award.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on information furnished to us and contained in reports filed with the SEC, as well as written representations that no other reports were required, NorthWestern believes that during 2009 all of ~~our non-employee Board members have met their stock retention requirements.~~

~~NorthWestern also reimburses non-employee~~its directors ~~for~~and executive officers timely filed all reports required by Section 16 of the ~~cost~~Securities Exchange Act of ~~participation in certain continuing education programs and travel costs to meetings.~~

~~AUDIT COMMITTEE REPORT~~

1934, as amended.

Security Ownership of Certain Beneficial Holders

The following report is submitted on behalf of the Audit Committee of the Board. The purpose of the Audit Committee is to assist the Board in its general oversight of the company related to: (i) the accounting and financial reporting processes; (ii) the audits and integrity of the financial statements; (iii) compliance with legal and regulatory requirements; (iv) the independent auditor’s qualifications and independence; and (v) the performance of the internal audit function and independent auditors. We operate pursuant to a charter that was last amended in October 2008, a copy of which is available on NorthWestern’s Web site at http://www.northwesternenergy.com.

In the performance of the Audit Committee’s oversight function, and in connection with the December 31, 2008, financial statements, the Audit Committee reviewed and discussed the audited financial statements with management. The Audit Committee has discussed the matters requiredtable sets forth information regarding whom we know to be ~~discussed by Statement~~the beneficial owners of more than 5 percent of our issued and outstanding common stock as of February 22, 2010. Such information is based on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board, or PCAOB, in Rule 3200T. The Audit Committee received the written disclosures and the letter from Deloitte & Touche LLP, or Deloitte, our independent registered public accounting firm, required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence. The compatibility of non-audit services was considered with the auditor’s independence.

~~Based on its~~a review of ~~the consolidated financial~~ statements and discussions with and representations from management and Deloitte referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in NorthWestern Energy’s Form 10-K for the year ended December 31, 2008 filed with the ~~SEC.~~

SEC pursuant to Sections 13(d), 13(f) and 13(g) of the Exchange Act.

Name of Beneficial Owner
Shares of Common Stock
Beneficially Owned
Percent of Common Stock
Munder Capital Management (1) 3,050,916 8.5%
480 Pierce Street, Suite 300 Birmingham, MI 48009
BlackRock Institutional Trust Company, N.A. (2) 1,924,456 5.4%
500 Howard Street, San Francisco, CA 94105-2618

(1)

Reflects shares beneficially owned by Munder Capital Management as of December 31, 2009, according to a statement on Schedule 13G/A filed with the SEC on February 11, 2010, which indicates that the beneficial owner, an investment advisor, has sole voting power and dispositive power with respect to 3,050,916 shares. The beneficial owner holds shared voting power with respect to none of the shares. The Schedule 13G certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation.

(2)

Reflects shares beneficially owned by BlackRock Institutional Trust Company, N.A. as of December 31, 2009, according to a statement on Schedule 13G filed with the SEC on January 29, 2010, which indicates that the beneficial owner, an asset management subsidiary of Blackrock Inc., an institutional investment management firm, has sole voting and dispositive power with respect to 1,924,456 shares. The beneficial owner holds shared voting power with respect to none of the shares. The Schedule 13G certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation.

~~Audit Committee~~

~~Stephen P. Adik, Chairman~~

~~Dana J. Dykhouse~~

~~Jon S. Fossel~~

~~Philip L. Maslowe~~

~~D. Louis Peoples~~

PROPOSAL2

RATIFICATION OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

Our Audit Committee has selected Deloitte & Touche LLP, or Deloitte, as our independent registered public accounting firm to audit our financial statements for the year ending December 31, ~~2009,~~2010, and recommends that stockholders vote for ratification of such appointment. Although action by the stockholders is not required by law, the Audit Committee and the Board have determined that it is desirable to request approval of this selection by the stockholders. Notwithstanding the selection, the Audit Committee, in its discretion, may direct the appointment of a new independent registered public accounting firm at any time during the year if the Audit Committee feels that such a change would be in the best interest of the company and its stockholders. In the event of a negative vote on ratification, the Audit Committee will reconsider its selection.

Representatives of Deloitte will be present at the annual meeting and will be given the opportunity to make a statement if they so desire and to respond to appropriate questions. The following table is a summary of the fees billed to us by Deloitte for professional services for the fiscal years ended December 31, ~~2008~~2009 and ~~2007:~~

Fee Category

Fiscal 2008
Fees
($)

Fiscal 2007
Fees
($)
Audit fees

1,353,000

1,440,000
Audit-related fees

—

—
Tax fees

60,000

174,000
All other fees

—

—
Total fees

1,413,000

1,614,000

2008:

Fee Category
Fiscal 2009
Fees
($)

Fiscal 2008
Fees
($)
Audit fees 1,281,980 1,353,000
Audit-related fees — —
Tax fees 239,116 60,000
All other fees — —
Total fees 1,521,096 1,413,000

Audit Fees

Audit fees consist of fees billed for professional services rendered for the audit of our financial statements, internal control over financial reporting and review of the interim financial statements included in quarterly reports and services that are normally provided by Deloitte in connection with statutory and regulatory filings or engagements. For ~~2008,~~2009, this amount includes estimated billings for the completion of the ~~2008~~2009 audit, which were rendered after year-end.

Audit-related Fees

Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” There were no audit-related fees in fiscal ~~2008~~2009 and ~~2007.~~

2008.

Tax Fees

Tax fees consist of fees billed for professional services for tax compliance of ~~$60,000~~$239,116 and ~~$174,000~~$60,000 for the years ended December 31, ~~2008~~2009 and ~~2007,~~2008, respectively. These services include assistance regarding federal and state tax compliance.

All Other Fees

All other fees consist of fees for products and services other than the services reported above. In fiscal years ~~2008~~2009 and ~~2007,~~2008, there were no other fees.

~~Preapproval~~

Pre-approval Policies and Procedures

Rules adopted by the SEC in order to implement requirements of the Sarbanes-Oxley Act of 2002 require public company audit committees to pre-approve audit and non-audit services. Our Audit Committee follows procedures pursuant to which audit, audit-related and tax services, and all permissible non-audit services, are pre-approved by category of service. The fees are budgeted, and actual fees versus the budget are monitored throughout the year. During the year, circumstances may arise when it may become necessary to engage the independent public accountants for additional services not contemplated in the original pre-approval. In those instances, we will obtain the specific pre-approval of the Audit Committee before engaging the independent public accountants. The procedures require the Audit Committee to be informed of each service, and the procedures do not include any delegation of the Audit Committee’s responsibilities to management. The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated will report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

Pursuant to the provisions of the Audit Committee Charter, before Deloitte is engaged to render audit or ~~nonaudit~~non-audit services, the Audit Committee must ~~preapprove~~pre-approve such engagement. For ~~2008,~~2009, 100% of the audit-related fees, tax fees and all other fees were pre-approved by the Audit Committee or the Chairman of the Audit Committee pursuant to delegated authority.

Leased Employees

In connection with their audit of our ~~2008~~2009 annual financial statements, more than 50% of Deloitte’s work was performed by full-time, permanent employees of Deloitte.

The affirmative vote of the holders of a majority in voting power of the shares of our common stock which are present in person or represented by proxy and entitled to vote thereon is required to ratify the selection of Deloitte. Brokers may vote a client’s proxy in their own discretion on this proposal, and accordingly, “broker non-votes” will not affect the outcome of the vote on the proposal. Abstentions will have the same effect as a vote against the proposal. Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted “FOR” the proposal to ratify the selection of Deloitte to serve as the independent registered public accounting firm for NorthWestern for the fiscal year ending December 31, ~~2009.~~

2010.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”

THE RATIFICATION OF DELOITTE & TOUCHE LLP

AS OUR

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

~~PROPOSAL~~3

~~APPROVAL OF NORTHWESTERN ENERGY~~

~~EMPLOYEE STOCK PURCHASE PLAN~~

The company’s stockholders are asked to approve a proposal to create the NorthWestern Energy Employee Stock Purchase Plan, or ESPP. Our Board has approved, subject to the approval of the stockholders, the creation of the ESPP. The ESPP is intended to align the interests of our employees with those of our stockholders by encouraging employees to become stockholders and to increase their share ownership. The ESPP is a broad-based plan that allows eligible employees to purchase shares of our common stock at a discount (to be determined in accordance with the terms of the ESPP, but not more than 15 percent) to the average high and low price on the date of the purchase. Although the ESPP permits us to set the discount for employee purchases under the Plan at up to 15%, we currently do not intend to set the discount at more than 5%. The number of common shares available for purchase under the ESPP will be 500,000 shares, subject to adjustment in the event of a change in capitalization.

Pursuant to Section 423 of the Internal Revenue Code, participating employees in the ESPP are able to enjoy favorable tax treatment with regard to the shares purchased including the deferral of tax liability until the shares are sold and the taxing of any gain at favorable capital gains rates. The required holding period for favorable income tax treatment upon disposition of common stock acquired under the ESPP is the later of (a) two years after the deemed “option” is granted (the first day of the purchase period), or (b) one year after the deemed “option” period is exercised and the common stock is purchased (purchase date). When the common stock is disposed of prior to the expiration of the required holding period, the participant recognizes ordinary income to the extent of the difference between the price actually paid for the common stock and the fair market value of the common stock on the date the option was exercised (the purchase date), regardless of the price at which the common stock was sold.

All regular full-time and regular part-time employees are eligible to participate in the ESPP. However, no employee is eligible to participate in the ESPP if, immediately after participating, the employee would own, directly or indirectly, 5 percent or more of our common stock outstanding. The stock allocated to the participants in the ESPP may be acquired either through open market purchases by an independent administrator, through issuance of new shares or by using treasury shares.

An eligible employee may elect to purchase on a monthly basis, through payroll deduction and/or lump sum payments, shares of common stock at a discount (to be determined in accordance with the terms of the ESPP) to the fair market value of the common stock on the date of purchase. We will pay the remaining percentage of fair market value (if open market purchases). For any calendar year, the aggregate amount of payroll deductions and lump sum payments made by a participant cannot exceed 10 percent of his or her salary or $25,000, whichever is less.

A participant may elect to receive cash dividends or to reinvest dividends in additional shares of our common stock on shares held in the ESPP. A participant has the right to direct the vote of his or her shares held in the ESPP.

Participants incur no brokerage commissions or service charges for purchases of common stock under the ESPP; however, certain administrative fees may be charged to participants for sales, which may change from time to time.

~~We have the right to amend or terminate the ESPP at any time. In the event of termination, all stock and cash will be distributed to participants.~~

Approval of the ESPP requires the affirmative vote of a majority of the shares of common stock present in person or by proxy and entitled to vote at the meeting. Abstentions will be counted as present for quorum purpose, and will have the effect of a vote against the proposal. Brokers may not vote a client’s proxy in their own discretion on this proposal, and accordingly, broker non-votes will not affect the outcome of the vote on the proposal.

~~The full text of the ESPP is included in this proxy statement as Appendix 1.~~

~~THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”~~

~~THE ADOPTION OF THE NORTHWESTERN ENERGY~~

~~EMPLOYEE STOCK PURCHASE PLAN.~~

~~STOCKHOLDER PROPOSALS~~

~~Stockholder Proposals for Inclusion in Next Year’s Proxy Statement~~

To be considered for inclusion in the proxy statement for our annual meeting to be held in 2010, stockholder proposals must be received by the Corporate Secretary of NorthWestern Corporation not later than November 9, 2009. This notice requirement is separate from and in addition to the SEC’s requirements that a stockholder must meet in order to have a stockholder proposal included in the company’s proxy statement.

~~Other Stockholder Proposals for Presentation at the 2010 Annual Stockholders’ Meeting~~

For any proposal that is not submitted for inclusion in next year’s proxy statement, but is instead sought to be presented directly from the floor of the 2010 Annual Stockholders’ Meeting, the company’s by-laws require that timely notice must be given to the Corporate Secretary. To be timely, the notice must be received by the Corporate Secretary of NorthWestern Corporation between December 23, 2009 and January 22, 2010.

~~To be in proper written form, a stockholder’s notice for both annual and special meetings must set forth:~~

(i) as to each person whom the stockholder proposes to nominate for election as a Director, (A) the name, age, business address and residence address of the person, (B) the principal occupation or employment of the person, (C) the class or series and number of shares of capital stock of the company that are owned beneficially or of record by the person, (D) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of Directors pursuant to Section 14 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and (E) such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a Director if elected;

(ii) as to any other business that the stockholder proposes to bring before the meeting, (A) a brief description of the business desired to be brought before the meeting, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration, and, in the event that such business includes a proposal to amend the Bylaws of the company, the language of the proposed amendment), (C) the reasons for conducting such business at the meeting, and (D) any material interest of such stockholder in the business being proposed and the beneficial owner, if any, on whose behalf the proposal is being made; and

(iii) as to the stockholder giving this notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (A) the name and record address of such stockholder and any such beneficial owner, (B) the class or series and number of shares of capital stock of the company that are owned beneficially or of record by such stockholder and beneficial owner, (C) a description of all arrangements or understandings between such stockholder and any such beneficial owner and each proposed nominee and any other persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (D) a representation

that such stockholder is a stockholder of record entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the persons and/or conduct the business being proposed as described in the notice, and (E) a representation of whether such stockholder or any such beneficial owner intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the company’s outstanding capital stock required to approve or adopt the proposal or elect the nominee, and/or (2) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a stockholder with respect to an annual meeting if the stockholder has notified the company of his or her intention to present a proposal at such annual meeting in compliance with Regulation 14A (or any successor thereof) promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the company to solicit proxies for such annual meeting. The company may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a Director of the company.

OTHER MATTERS

Securities Authorized for Issuance under Equity Compensation Plans

The following table presents summary information about our equity compensation plans, including our long-term incentive plan. The table presents the following data on our plans as of the close of business on December 31, ~~2008:~~

2009:

The aggregate number of shares of our common stock subject to outstanding stock options, warrants and rights;

ii.

~~ii.~~

The weighted average exercise price of those outstanding stock options, warrants and rights; and

iii.

~~iii.~~

The number of shares that remain available for future option grants, excluding the number of shares to be issued upon the exercise of outstanding options, warrants and rights described in (i) above.

For additional information regarding our ~~stock~~ long-term incentive plans and the accounting effects of our stock-based compensation, please see ~~Notes 2 and 16~~Note 13 to our Consolidated Financial Statements of our Annual Report on form 10-K for the year ended December 31, ~~2008.~~

2009.

Plancategory	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders
None
Equity compensation plans not approved by security holders
New Incentive Plan (1)	—		~~1,363,998~~ 1,259,465
Total	—		~~1,363,998~~ 1,259,465

(1)

Upon our emergence from bankruptcy in 2004, a New Incentive Plan was established pursuant to our Plan of Reorganization, which set aside 2,265,957 shares for the new Board to establish equity-based compensation plans for employees and directors. As the New Incentive Plan was established by provisions of the Plan of Reorganization, stockholder approval was not required. During 2005 the NorthWestern Corporation 2005 Long-Term Incentive Plan was established under the New Incentive Plan, under which ~~743,912~~815,074 shares have been distributed to officers and employees and ~~158,047~~191,418 shares have been used for Board compensation.

~~Other Business at the 2009 Annual Meeting – Discretionary Voting Authority~~

Management is not aware of any matter to be brought before the annual meeting, other than the matters described in the Notice of Annual Meeting accompanying this proxy statement. The persons named in the form of proxy solicited by our Board will vote all proxies, which have been properly executed, and if any matters not set forth in the Notice of Annual Meeting are properly brought before the meeting, such persons will vote thereon in accordance with their best judgment.

~~Multiple Stockholders Sharing the Same Address~~

In accordance with notices we previously sent to “street name” stockholders who share a single address, we are sending only one Notice of Annual Meeting to that address unless we received contrary instructions from any stockholders at that address. This practice, known as “householding,” is designed to reduce our printing and postage costs. If any stockholder residing at such an address wishes to receive a separate Notice of Annual Meeting for this year’s meeting or in the future, or if you are receiving multiple copies of our Notice of Annual Meeting and wish to request householding, you may contact our Corporate Secretary by phone at (605) 978-2940 or by mail at NorthWestern Corporation, 3010 W. 69th Street, Sioux Falls, South Dakota 57108. We will deliver any requested documents to you promptly upon receipt of your request.

~~Where You Can Find Additional Information~~

~~Public Reference Room~~

~~100 F Street, N.E.~~

~~Room 1580~~

~~Washington, D.C. 20549~~

Please call the SEC at 1+ 800 SEC-0330 for further information on the public reference room. You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Our public filings are also available to the public from document retrieval services and the Internet Web site maintained by the SEC at http://www.sec.gov.

~~Assistance~~

~~If you need assistance with voting your proxy or have questions regarding our annual meeting, please contact~~:

~~Dan Rausch~~

~~Director – Investor Relations~~
~~(605) 978-2902~~

~~Tammy Lydic~~

~~Assistant Corporate Secretary~~
~~(605) 978-2913~~

Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of reports, proxy statements or other information concerning us, without charge, by written or telephonic request directed to us at NorthWestern Corporation, 3010 W. 69^th ~~Street, Sioux Falls, South Dakota 57108, Attention: Investor Relations. If you would like to request documents, please do so by April 8, 2009, in order to receive them before the annual meeting.~~

No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person. This proxy statement is dated March 9, 2009. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement to stockholders shall not create any implication to the contrary.

~~APPENDIX 1~~

~~NORTHWESTERN ENERGY~~

~~EMPLOYEE STOCK PURCHASE PLAN~~

~~Section 1.~~~~ESTABLISHMENT OF PLAN.~~The Company proposes to grant options for purchase of the Common Stock to Eligible Employees of the Company pursuant to this Plan. The Company intends this Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. The Plan shall become effective on June 1, 2009, subject to approval by the stockholders of the Company at the 2009 Annual Meeting of Stockholders.

~~Section 2.~~~~PURPOSE.~~The purpose of the Plan is to align the interests of the Company’s employees with those of its stockholders by encouraging current and future Eligible Employees to become stockholders of the Company and to increase their share ownership of Common Stock. The Plan is intended to comply with the provisions of Code Section 423 and shall be administered, interpreted and construed in accordance with such provisions.

~~Section 3.~~~~DEFINITIONS.~~~~When used in this Plan, the following terms shall have the following meanings:~~

~~3.1~~ “~~Administrator~~” means the Board of Directors or such officer or officers of the Company or such committee (which need not be a committee of the Board of Directors, but, if not a committee of the Board of Directors, then the committee shall be comprised solely of officers of the Company) to whom the Board of Directors delegates authority under the Plan in accordance with Section 13.1.

~~3.2~~ “~~Beneficiary~~” means such person, persons, or entity as are designated pursuant to Section 13.5 to receive, upon a participant’s death, all or a portion of such Participant’s Common Stock Account and Payroll Deduction Account.

~~3.3~~ “~~Board of Directors” means the Board of Directors of the Company, or any committee of such Board of Directors as the Board of Directors may determine from time to time.~~

~~3.4~~ “~~Cash Dividends” means the cash dividends paid with respect to shares of Common Stock held in a Participant’s Common Stock Account~~

~~3.5~~ “~~Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto.~~

~~3.6~~ “~~Common Stock” means common stock, par value $0.01 per share, of the Company.~~

~~3.7~~ “~~Common Stock Account” means the account established with, and maintained by, the Custodian for the purpose of holding Common Stock purchased pursuant to this Plan.~~

~~3.8~~ “~~Company” means NorthWestern Corporation, a Delaware corporation, and its successors and assigns.~~

~~3.9~~ “~~Custodian” means the agent selected by the Company to hold Common Stock purchased under the Plan.~~

~~3.10~~ “~~Disability~~” means disability as defined under any qualified, defined benefit plan sponsored by the Company or any Subsidiary in which an Eligible Employee is a participant on the date such Eligible Employee terminates employment with the Company or any Subsidiary.

~~3.11~~ “~~Eligible Compensation~~” means the sum of the types and amounts of compensation determined from time to time by the Administrator in its sole discretion to be eligible to be taken into account under the Plan, provided that no such determination shall include or exclude any type or amount of compensation contrary to the requirements of Section 423 of the Code and any regulations promulgated thereunder.

~~3.12~~ “~~Eligible Employee~~” means all employees of the Company and its Subsidiaries that have been designated as eligible to participate in the Plan pursuant to and in accordance with rules prescribed by the Administrator from time to time, which rules, however, shall neither permit nor deny participation in the Plan contrary to the requirements of the Code (including, but not limited to, Section 423(b)(3), (4), (5), and (8) thereof) and the regulations promulgated thereunder.

~~3.13~~ “~~Fair Market Value~~” means the average of the high and low sales prices of a share of Common Stock as reported on the New York Stock Exchange Composite Tape on the date in question or, if the Common Stock shall not have been traded on such date, the average of the high and low sales prices on the first day prior thereto on which the Common Stock was so traded or, if the Common Stock was not so traded, such other amount as may be determined in good faith by the Board of Directors in its sole discretion.

~~3.14~~ “~~Investment Date~~” means, for each month during the Plan Year, the fifteenth day of such month, or if the fifteenth day is not a day on which the Custodian is open for business, the next such day of such month on which the Custodian is open for business, or such other day of each month as may be determined by the Board of Directors in its sole discretion.

~~3.15~~ “~~Participant” means an Eligible Employee who has met the requirements of Section 4 and has elected to participate in the Plan pursuant to Section 5.1.~~

~~3.16~~ “~~Payroll Deduction Account” means the bookkeeping entry established by the Company for each Participant pursuant to Section 5.3.~~

~~3.17~~ “~~Plan” means the NorthWestern Energy Employee Stock Purchase Plan as set forth herein and as amended from time to time.~~

~~3.18~~“~~Plan Year” means a calendar year.~~

~~3.19~~ “~~Subsidiary” means any corporation designated by the Administrator which constitutes a “subsidiary” of the Company, within the meaning of Code Section 424(f).~~

~~Section 4~~~~ELIGIBILITY.~~

~~4.1~~~~General Rule~~. Subject to Section 4.3, each Eligible Employee shall be eligible to participate in the Plan beginning on the later of (a) the Eligible Employee’s date of hire by the Company or any Subsidiary and (b) the date such employee becomes an Eligible Employee. An Eligible Employee who has met the requirements of this Section 4.1 and who ceases to be an Eligible Employee shall again become eligible to participate in the Plan when he or she again becomes an Eligible Employee.

~~4.2~~~~Leave of Absence~~. Unless the Administrator otherwise determines, a Participant on a paid leave of absence shall continue to be a Participant in the Plan so long as such Participant is on such paid leave of absence. Unless otherwise determined by the Administrator, a Participant on an unpaid leave of absence shall not be entitled to participate in any offering commencing after such unpaid leave has begun but shall not be deemed to have terminated employment for purposes of the Plan. A Participant who, upon failing to return to work following a leave of absence, is deemed not to be an employee, shall not be entitled to participate in any offering commencing after such termination of employment, and such Participant’s Payroll Deduction Account shall be paid out in accordance with Section 7.1.

~~4.3~~~~Common Stock Account~~. As a condition to participation in this Plan, each Eligible Employee shall be required to hold shares purchased hereunder in a Common Stock Account and such employee’s decision to participate in the Plan shall constitute the appointment of the Custodian as custodial agent for the purpose of holding such shares. Such Common Stock Account will be governed by, and subject to, the terms and conditions hereof and of a written agreement between the Company and the Custodian.

~~Section 5~~~~PARTICIPATION AND PAYROLL DEDUCTIONS.~~

~~5.1~~~~Enrollment~~. Each Eligible Employee may elect to participate in the Plan for a Plan Year by completing a Company-specified enrollment form. Upon completing the enrollment process, an Eligible Employee shall commence participation in the Plan on the next practicable relevant pay date. Each Eligible Employee shall be advised of the purchase price (expressed as a percentage of Fair Market Value) determined under Section 6.2(b) before enrolling in the Plan.

~~5.2~~~~Amount of Deduction~~. When enrolling, the Eligible Employee shall specify a payroll deduction amount which shall be withheld from such Eligible Employee’s regular paychecks, including bonus paychecks, for the Plan Year; ~~provided~~, ~~however~~, that the Administrator may determine and specify, from time to time, (a) the range of permissible amounts of Eligible Compensation an Eligible Employee may specify to be withheld and (b) the maximum amount, if any, of Eligible Compensation that may be deducted for an Eligible Employee in any Plan Year, and provided further, that no such determination shall be contrary to the requirements of Code Section 423 and the regulations promulgated thereunder.

~~5.3~~~~Payroll Deduction Accounts~~. Each Participant’s payroll deduction shall be credited, as soon as practicable following the relevant pay date, to a Payroll Deduction Account, pending the purchase of Common Stock in accordance with the provisions of the Plan. All such amounts shall be assets of the Company and may be used by the Company for any corporate purpose. No interest shall accrue or be paid on amounts credited to a Payroll Deduction Account.

~~5.4~~~~Subsequent Plan Years~~. Unless otherwise specified prior to the beginning of any Plan Year by completing a Company-specified change in participation form, a Participant shall be deemed to have elected to participate in each subsequent Plan Year for which the Participant is eligible to the same extent and in the same manner as at the end of the prior Plan Year.

5.5~~Changes in Participation~~.

(a) At any time during a Plan Year, a Participant may cease participation in the Plan by completing a Company-specified change in participation form. Such cessation will become effective as soon as practicable following completion of such process, whereupon no further payroll deductions will be made, and the Company shall pay to such Participant an amount equal to the balance in the Participant’s Payroll Deduction Account as soon as practicable thereafter. To the extent still an Eligible Employee, any Participant who ceased to participate may elect to participate again as of any subsequent pay period in any calendar quarter after the quarter in which such Participant ceased to participate.

(b) At any time during a Plan Year (but not more than once in any calendar quarter), a Participant may increase or decrease the percentage of Eligible Compensation subject to payroll deduction within the limits approved by the Administrator pursuant to Section 5.2 by completing a Company-specified change in participation form. Such increase or decrease shall become effective with the first pay period following the completion of such process to which it may be applied practically. Notwithstanding any increase in the Eligible Compensation subject to pay deduction pursuant to this Section 5.5(b), in no event may the amount of Eligible Compensation deducted for an Eligible Employee for any Plan Year exceed the maximum amount authorized to be deducted pursuant to Section 5.2.

(c) Notwithstanding anything herein to the contrary, in the event the Board of Directors determines under Section 5.2(b) to change the purchase price of a share of Common Stock, each Participant shall be advised in advance of the effective date of such change and afforded the opportunity to make a change in participation under Section 5.5(a) or 5.5(b) before such change in the purchase price takes effect.

~~Section 6~~~~OFFERINGS.~~

~~6.1~~~~Maximum Number of Shares~~. The Plan will be implemented by making offerings of Common Stock on each Investment Date until the maximum number of shares of Common Stock available under the Plan have been issued pursuant to the exercise of options.

~~6.2~~~~Grant and Exercise of Options~~.

(a) Subject to Section 6.3, on each Investment Date, each Participant shall be deemed, subject to Section 6.4, to have been granted an option to purchase, and shall be deemed, without any further action, to have exercised such option and purchased the number of shares of Common Stock determined by dividing the amount credited to the Participant’s Payroll Deduction Account on such date by the purchase price (as determined in paragraph (b) below). All such shares shall be credited to the Participant’s Common Stock Account.

(b) The purchase price for each share of Common Stock shall be expressed as a percentage of Fair Market Value on the Investment Date and shall be determined from time to time by the Board of Directors, but in no event shall such purchase price be less than 85 percent of the Fair Market Value of such share on the Investment Date.

~~6.3~~~~Oversubscription of Shares~~. If the total number of shares for which options are exercised on any Investment Date exceeds the maximum number of shares available for the applicable offering, the Company shall make a proportional allocation of the shares available for delivery and distribution among the Participants in as nearly a uniform manner as shall be practicable, and the balance of all amounts credited to the Payroll Deduction Accounts shall be applied to the next offering in a manner consistent with the requirements of Code Section 423 and the regulations thereunder.

~~6.4~~~~Limitations on Grant and Exercise of Options~~.

(a) No option granted under this Plan shall permit a Participant to purchase stock under all employee stock purchase plans (as defined by Code Section 423(b)) of the Company and any Subsidiary in an amount which, in the aggregate, would exceed $25,000 based on the Fair Market Value of such stock (determined at the time the option is granted) for each calendar year in which the option is outstanding at any time.

(b) No employee who would own, immediately after the option is granted, stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary (a “5% Owner”) shall be granted an option. For purposes of determining whether an employee is a 5% Owner, the rules of Code Section 424(d) shall apply in determining the stock ownership of an individual and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee.

~~Section 7~~~~DISTRIBUTIONS OF COMMON STOCK ACCOUNT.~~

~~7.1~~~~Termination of Employment~~. If a Participant’s employment with the Company and its Subsidiaries terminates for any reason during a Plan Year, shares credited to the Participant’s Common Stock Account may be withdrawn by the Participant from the Plan or may be sold by the Participant through the Plan. Shares not otherwise withdrawn from or sold through the Plan will be distributed to the Participant as soon as practicable following termination.

~~7.2~~~~During Employment~~. Prior to the Participant’s termination of employment with the Company and its Subsidiaries, a Participant may withdraw some or all of the whole shares credited to the Participant’s Common Stock Account or may sell through the Plan some or all of the whole shares credited to the Participant’s Common Stock Account, subject to the provisions of Section 11.3.

~~7.3~~~~Death. In the event of a Participant’s death, all shares credited to the Participant’s Common Stock Account may be withdrawn from the Plan or sold through the Plan by:~~

~~(a)~~ ~~the Participant’s Beneficiary, or~~

(b) if the Company is maintaining procedures pursuant to Section 0 pursuant to which a Participant may designate a Beneficiary and no Beneficiary has been so designated or if the Company is not maintaining procedures pursuant to Section 13.5 pursuant to which a Participant may designate a Beneficiary, the Participant’s spouse or, if the Participant is not survived by a spouse, the Participant’s estate, and any amount credited to the Participant’s Payroll Deduction Account shall be distributed to such Beneficiary, spouse or estate, as applicable, as soon as practicable after the Company receives notice of the Participant’s death. Shares not otherwise withdrawn from or sold through the Plan will be distributed to the Participant’s Beneficiary, spouse or estate (determined in accordance with clauses (a) and (b) of this Section 7.3) as soon as practicable. Whether a person is a spouse will be determined using the eligibility standards for U.S. Social Security benefits.

~~7.4~~~~Sales through the Plan~~. Subject to the provisions of Section 11.3, a Participant, a former Participant who has terminated employment with the Company and its Subsidiaries, or, in the event of the Participant’s death, a Participant’s Beneficiary, spouse or estate (determined in accordance with Section 7.3) may sell shares of Common Stock acquired under the Plan pursuant to procedures established from time to time by the Administrator.

~~Section 8.~~~~DIVIDENDS ON SHARES.~~ All Cash Dividends shall be distributed as elected by Participant as part of the Company-specified enrollment process. During such enrollment form, Participant shall be entitled to elect whether to (a) receive a cash distribution of all or a portion of the Cash Dividends, or (b) reinvest all or a portion of the Cash Dividends in shares of Common Stock purchased at 100 percent of Fair Market Value on the date such dividend is paid, subject to any limitations specified by the Company. All non-cash distributions paid on Common Stock held in a Participant’s Common Stock Account shall be paid to the Participant (or, in the event of the Participant’s death, the Participant’s Beneficiary, spouse or estate, determined in accordance with Section 7.3) as soon as practicable. At any time during a Plan Year (but not more than once in any calendar quarter), a Participant may change his or her election with respect to the distribution of Cash Dividends by completing a Company-specified change in participation form. Such change shall become effective as of the next record date for payment of dividends; provided that the Participant submits the change in participation form as specified by the Company at least 10 days prior to the next record date for payment of dividends

~~Section 9.~~~~RIGHTS AS A STOCKHOLDER.~~ No Participant shall have any rights of a shareholder with respect to any shares of Common Stock until such shares have been purchased in accordance with Section 6. When a Participant purchases Common Stock pursuant to the Plan or when Common Stock is credited to a Participant’s Common Stock Account, the Participant shall have all of the rights and privileges of a stockholder of the Company with respect to the shares so purchased or credited, whether or not certificates representing shares shall have been issued.

~~Section 10.~~~~OPTIONS NOT TRANSFERABLE.~~ Neither a Participant’s Payroll Deduction Account nor any options granted under the Plan to a Participant may be transferred, pledged or otherwise disposed of in any way (other than by will or the laws of descent and distribution) by a Participant and such options are exercisable during the Participant’s lifetime only by the Participant. Any attempt at such assignment, transfer, pledge or other disposition shall be without effect.

~~Section 11~~~~COMMON STOCK.~~

~~11.1~~~~Reserved Shares~~. There shall be reserved for issuance and purchase under the Plan an aggregate of 500,000 shares of Common Stock, subject to adjustment as provided in Section 12. Shares subject to the Plan may be shares now or hereafter authorized but unissued, treasury shares, or shares purchased on the open market.

~~11.2~~~~Restrictions on Exercise~~. In its sole discretion, the Board of Directors may require as conditions to the exercise of any option that shares of Common Stock reserved for issuance upon the exercise of an option shall have been duly listed on any recognized national securities exchange, and that either a registration statement under the Securities Act of 1933, as amended, with respect to said shares shall be effective, or the Participant shall have represented at the time of purchase, in form and substance satisfactory to the Company, that it is the Participant’s intention to purchase the shares for investment only and not for resale or distribution.

~~11.3~~~~Restriction on Sale of Common Stock Purchased Under the Plan~~. The Plan is intended to provide shares of Common Stock for investment and not for resale. However, the Company does not intend to restrict or influence the conduct of any employee’s affairs. An employee, therefore, may sell shares of Common Stock that are purchased under the Plan at any time, subject to compliance with any applicable federal or state securities laws. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE SHARES OF COMMON STOCK.

~~Section 12.~~~~ADJUSTMENT UPON CHANGES IN CAPITALIZATION.~~ In the event of a subdivision or consolidation of the outstanding shares of Common Stock, or the payment of a stock dividend thereon, the number of shares reserved or authorized to be reserved under this Plan shall be increased or decreased, as the case may be, equitably by the Board of Directors. In the event of any other change affecting the Common Stock, such adjustments shall be made equitably by the Board of Directors to give proper effect to such event, subject to the limitations of Code Section 424.

~~Section 13~~~~ADMINISTRATION.~~

~~13.1~~ The Plan shall be administered by the Board of Directors, which may to the extent permitted by law, but need not, delegate some or all of its authority under the Plan to an Administrator. Any delegation hereunder shall be subject to the restrictions and limits that the Board of Directors specifies at the time of such delegation or thereafter. Nothing in the Plan shall be construed as obligating the Board of Directors to delegate authority under this Plan, and the Board of Directors may at any time rescind the authority delegated to an Administrator appointed hereunder or appoint a new Administrator. At all times, an Administrator appointed under this Section 13.1 shall serve in such capacity at the pleasure of the Board of Directors.

~~13.2~~ The Board of Directors (and the Administrator, to the extent that the Board of Directors delegates its authority under the Plan pursuant to Section 13.1) shall have full power and authority to construe and interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable in administering the Plan. All determinations by the Board of Directors (or the Administrator, as the case may be) in carrying out and administering the Plan and in construing and interpreting the Plan shall be final, binding and conclusive for all purposes and upon all persons interested.

In the event of any disagreement between the Board of Directors and the Administrator, the Board of Director’s determination on such matter shall be final and binding on all interested persons, including the Administrator.

~~13.3~~ No member of the Board of Directors or the Administrator shall be liable for anything whatsoever in connection with the administration of the Plan, except such person’s own willful misconduct. Under no circumstances shall (a) any member of the Board of Directors be liable for any act or omission of any other member of the Board of Directors or the Administrator, or (b) the Administrator be liable for any act or omission of any member of the Board of Directors. In the performance of its functions with respect to the Plan, the Board of Directors and the Administrator shall be entitled to rely upon information and advice furnished by the Company’s officers, the Company’s accountants, the Company’s counsel and any other party the Board of Directors or the Administrator deems necessary, and no member of the Board of Directors or the Administrator shall be liable for any action taken or not taken in reliance upon any such advice.

~~13.4~~ ~~The Company shall pay all the costs of administration of the Plan.~~

~~13.5~~ ~~The Company may maintain procedures pursuant to which a Participant may designate a Beneficiary.~~

~~13.6~~ Notwithstanding the provisions of Section 13.2, the Board of Directors (or any duly appointed Administrator) may establish procedures from time to time relating to the review and determination of claims for benefits under the Plan. Such claims procedures may include appointment of one or more committees, which may be composed of such officers of the Company or other individuals as the Board of Directors (or Administrator, as the case may be) shall determine, to act with respect to any claim for benefits under the Plan. Any such committee shall have such authority as is determined by the Board of Directors (or Administrator, as the case may be), which may include the exclusive discretionary right to interpret the Plan, including those provisions arising under or in connection with the administration of the Plan, including without limitation, the authority to make factual determinations.

~~Section 14~~~~AMENDMENT AND TERMINATION.~~

~~14.1~~~~Amendment~~. Subject to the provisions of Code Section 423, the Board of Directors (and the Administrator, to the extent the Board of Directors delegates its authority under this Section 14.1) may amend the Plan in any respect; ~~provided~~, ~~however~~, that the Plan may not be amended in any manner that will retroactively impair or otherwise adversely affect the rights of any person to benefits under the Plan which have accrued prior to the date of such action, and no amendment shall increase the maximum number of shares of Common Stock that may be purchased under the Plan unless such increase is approved by the shareholders of the Company in accordance with Code Section 423. The Board of Directors may delegate to the Administrator its authority under this Section 14.1 to amend any of the following Sections of the Plan and any other provision of the Plan for which approval by the Board of Directors (or a committee thereof) is not required under applicable law or the rules of any national securities exchange on which the Common Stock is traded: Sections 4.3, 5.4, 5.5(a), 5.5(b), 7.3, 11.3, 16, 17, 18 and 19.

~~14.2~~~~Termination~~. The Plan will terminate on the Investment Date that Participants become entitled to purchase a number of shares greater than the number of shares remaining available for purchase. In addition, the Plan may be terminated at any prior time, at the sole discretion of the Board of Directors.

~~Section 15.~~~~GOVERNMENTAL AND OTHER REGULATIONS.~~ The Plan and the grant and exercise of options to purchase shares hereunder, and the Company’s obligation to sell and deliver shares upon the exercise of options to purchase shares, shall be subject to all applicable Federal, state and foreign laws, rules and regulations, and to such approvals by any regulatory or governmental agency as, in the opinion of counsel to the Company, may be required.

~~Section 16.~~~~NO EMPLOYMENT RIGHTS.~~ The Plan does not create, directly or indirectly, any right for the benefit of any employee or class of employees to purchase any shares from the Company (other than as expressly provided in, and subject to the terms and conditions of, the Plan), or create in any employee or class of employees any right with respect to continuation of employment by the Company or any Subsidiary, and it shall not be deemed to interfere in any way with the Company’s or any Subsidiary’s right to terminate, or otherwise modify, an employee’s employment at any time.

~~Section 17.~~~~WITHHOLDING.~~ As a condition to receiving shares hereunder, the Company may require the Participant to make a cash payment to the Company of, or the Company may withhold from any shares distributable under the Plan, an amount necessary to satisfy all Federal, state, city or other taxes required to be withheld in respect of such payments pursuant to any law or governmental regulation or ruling.

~~Section 18.~~~~OFFSETS.~~ To the extent permitted by law, the Company shall have the absolute right to withhold any amounts payable to any Participant under the terms of the Plan to the extent of any amount owed for any reason by such Participant to the Company or any Subsidiary and to set off and apply the amounts so withheld to payment of any such amount owed to the Company or any Subsidiary, whether or not such amount shall then be immediately due and payable and in such order or priority as among such amounts owed as the Company, in its sole discretion, shall determine.

~~Section 19.~~~~NOTICES, ETC.~~ All elections, designations, requests, notices, instructions and other communications from a Participant to the Administrator or the Company required or permitted under the Plan shall be in Company-specified form, and if required to be in writing shall be mailed by first-class mail or delivered to such Company-specified location and shall be deemed to have been given and delivered only upon actual receipt thereof at such location.

~~Section 20.~~~~CAPTIONS, ETC.~~ The captions of the sections and paragraphs of this Plan have been inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provision of the Plan. References to sections herein are to the specified sections of this Plan unless another reference is specifically stated. Wherever used herein, a singular number shall be deemed to include the plural unless a different meaning is required by the context.

~~Section 21.~~~~EFFECT OF PLAN.~~ The provisions of the Plan shall be binding upon, and inure to the benefit of, all successors of the Company and each Participant, including, without limitation, such Participant’s estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Participant.

~~Section 22.~~~~GOVERNING LAW.~~~~The internal laws of the State of Delaware shall govern all matters relating to this Plan except to the extent superseded by the laws of the United States.~~

~~ANNUAL MEETING GUIDELINES~~

~~In the interest of an orderly and constructive meeting, the following guidelines will apply to NorthWestern’s annual meeting:~~

The annual meeting is open only to our stockholders and our invited guests. Stockholders attending the annual meeting should present evidence of NorthWestern Corporation (NYSE: NWE) stock ownership to gain entrance. You may be asked to provide photo identification, such as a driver’s license, in order to gain admittance to the annual meeting.

The business of the meeting will be set forth in the agenda, which you will receive at the meeting entrance. If you wish to change your vote or have not voted, a ballot will be distributed to you to cast your vote.

~~Stockholder questions and comments related to our business will be addressed only during the question and answer portion of the agenda at the end of the annual meeting.~~

Stockholders will be recognized on a rotation basis, and their questions or remarks must be relevant to the meeting, pertinent to matters properly before the meeting, and briefly stated with a time limit of three minutes.

Although personal grievances, claims and political statements are not appropriate subjects for the annual meeting, you may submit in writing any of these to an usher or company representative, and we will respond in writing.

The use of cameras or sound recording equipment is prohibited, except by those employed by the company to provide a record of the proceedings. The use of cell phones and other personal communication devices also is prohibited during the annual meeting.

~~No firearms or weapons will be allowed in the meeting room.~~

~~No banners or signs will be allowed in the meeting room.~~

~~We reserve the right to inspect all items entering the meeting room. Handbags, briefcases and packages may be inspected.~~

~~BUTTE, MONTANA~~

~~MONTANA TECH CAMPUS~~

VOTING CARD

[Front Side]

~~[stockholder name and address]~~

NORTHWESTERN CORPORATION

3010 W. 69TH STREET

SIOUX FALLS, SD 57108

~~YOUR VOTE IS IMPORTANT!~~

~~PLEASE VOTE PROMPTLY BY INTERNET, PHONE OR MAIL~~

VOTE BY INTERNET - www.proxyvote.com

Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or

meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS

If you would like to reduce the costs incurred by our company in mailing proxy

materials, you can consent to receiving all future proxy statements, proxy

cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials

electronically in future years.

VOTE BY PHONE – 1-800-690-6903

Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way,

Edgewood, NY 11717.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:

KEEP THIS PORTION FOR YOUR RECORDS

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

NORTHWESTERN CORPORATION

For

Withhold

For All

To withhold authority to vote for any individual nominee(s),

All

Except

mark “For All Except” and write the number(s) of the

THIS PROXY IS SOLICITED ON BEHALF

nominee(s) on the line ~~below.~~

below

~~THIS PROXY IS SOLICITED ON BEHALF~~

OF THE BOARD OF DIRECTORS
	__	__	__	________________________________

The Board of Directors recommends that you

vote FOR the following:

Vote on Directors

1.	Election of Directors

~~Nominees:~~

01Nominees:

01) Stephen P. Adik

0505) Julia L. Johnson

02) Dorothy M. Bradley

06) Philip L. Maslowe

02 03) E. Linn Draper, Jr.

~~06 D.~~07) Denton Louis Peoples

	03 04) Dana J. Dykhouse	0708) Robert C. Rowe
	~~04 Julia L. Johnson~~

~~Vote on Proposals~~

~~For~~

~~Against~~

For

Against

Abstain

The Board of Directors recommends that you vote FOR the following proposal:

Ratification of selection of Deloitte & Touche LLP as independent registered

accounting firm for fiscal year ended December 31, ~~2009.~~

2010.

~~Approval of NorthWestern Energy Employee Stock Purchase Plan.~~

Upon such other matters as may come before said meeting or any adjournment

~~4. Upon such other matters as may come before said meeting or any adjournment~~

~~or postponement thereof, in the discretion of the Proxyholders.~~

or postponement thereof, in the discretion of the Proxyholders.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” THE NOMINEES NAMED IN ITEM 1, AND “FOR” RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM IN ITEM ~~2, AND “FOR” APPROVAL OF THE NORTHWESTERN ENERGY EMPLOYEE STOCK PURCHASE PLAN IN ITEM 3.~~

Please sign exactly as name(s) appear(s) on this Proxy.

When signing as attorney, executor, administrator, or other

fiduciary, please give full title as such. Joint owners should

each sign personally. ~~Corporation~~

~~Proxies should be signed~~ All holders must sign. If a corporation

or partnership, please sign in full corporate or partnership name,

by authorized officer. ~~When~~

~~signing as executors, administrators, trustees, etc., give~~

~~full title.~~

~~___________________________________ __________~~		~~___________________________________ __________~~
~~Signature [PLEASE SIGN WITHIN BOX]~~	~~Date~~	~~Signature (Joint Owners)~~	~~Date~~

_____________________________________ __________ ___________________________________ __________

Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date

VOTING CARD

[Back Side]

If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card. To vote

by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.

PLEASE VOTE PROMPTLY BY INTERNET, PHONE OR MAIL.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:

The Notice and Proxy Statement and Annual Report/10-K ~~Wrap~~ are available at ~~www.proxyvote.com.~~

www.proxyvote.com.

NORTHWESTERN CORPORATION

3010 W. 69^TH STREET, SIOUX FALLS, SD 57108

PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON APRIL 22, ~~2009~~

2010

The undersigned hereby appoints E. Linn Draper, Jr. and Robert C. Rowe, and each of them, with full power of substitution, attorneys and proxies to represent the undersigned at the ~~2009~~2010 Annual Meeting of Stockholders of NORTHWESTERN CORPORATION to be held at the ~~Montana Tech Student Union Building, 1300 West Park~~NorthWestern Energy Operations Center, 600 Market Street ~~Butte, Montana~~W., Huron, South Dakota at 2:9:00 ~~p.m. Mountain~~a.m. Central Daylight Time, on ~~Wednesday,~~Thursday, April 22, ~~2009,~~2010, or at any adjournment or postponement thereof, with all power which the undersigned would possess if personally present, and to vote all shares of common stock of the Company which the undersigned may be entitled to vote at said Meeting as directed on the reverse side.

THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED,

WILL BE VOTED “FOR” THE PROPOSALS.

Check the appropriate box:
~~[ ]~~ o	Preliminary Proxy Statement
~~[ ]~~ o	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
~~[ X ]~~ x	Definitive Proxy Statement
~~[ ]~~ o	Definitive Additional Materials
~~[ ]~~ o	Soliciting Material Pursuant to §240.14a-12

Payment of Filing Fee (Check the appropriate box):
x	No fee required.
o	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
	(1)		Title of each class of securities to which transaction applies:

	(2)		Aggregate number of securities to which transaction applies:

	(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

	(4)		Proposed maximum aggregate value of transaction:

	(5)		Total fee paid:

o	Fee paid previously with preliminary materials.
o	Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
	(1)	Amount Previously Paid:

	(2)	Form, Schedule or Registration Statement No.:

	(3)	Filing Party:

	(4)	Date Filed:

Meeting Date:	1. April 22, 2010

Meeting Time:	9:00 a.m. CDT

Location:	NorthWestern Energy Operations Center
	600 Market Street W.
	Huron, South Dakota

Record Date:	February 22, 2010

	Page
~~About~~General Information	1
Items of Business to Be Considered at the Annual Meeting	1
~~When and Where Is the Annual Meeting?~~ Appointment of Proxy Holders	1
~~Will~~ Record Date and Voting	1
Quorum, Vote Required and Method of Counting	2
Method and Cost of Soliciting and Tabulating Votes	4
Electronic Access to Proxy Statement and Annual Report	4
Attending the Annual Meeting ~~Be Webcast?~~ in Person or by Webcast	1 5
~~What Matters Will Be Voted On at the Annual Meeting?~~ Householding; Receipt of Multiple Notices	1 5
~~Who Can Vote at the Annual Meeting?~~ Additional Information	1 6
~~Who Can Attend the Annual Meeting?~~ Stockholder Proposals	1 6
~~What Is a Quorum of Stockholders?~~ Assistance	1 7
~~What Vote Is Required for Each~~ Proposal ~~at the Annual Meeting?~~	2
~~How Does Our Board Recommend that I Vote?~~	2
~~Are the Proxy Materials Available Electronically?~~	2
~~What Methods May I Use to Cast My Vote?~~	3
~~How Are Votes Counted?~~	3
~~What is a “Broker Non-Vote?”~~	4
~~Can I Change My Vote After I Have Delivered My Proxy?~~	4
~~What Should I Do If I Receive More Than One Set of Voting Materials?~~	4
~~Who Pays for the Solicitation of Proxies?~~	4
~~Proposal~~1 – Election of Directors	5 8
~~Beneficial Ownership of Common Stock~~	8
Corporate Governance	10 15
Board Leadership Structure	15
Risk Oversight of the Company	15
Determination of Independence	10 16
~~Director Majority Vote Policy~~	11
Code of Conduct	11 16
Committees of the Board	11 16
Transactions with Related Persons	18
Communications with Our Board	13 19
~~Section 16(a) Beneficial Ownership Reporting Compliance~~ Audit Committee Report	14 19
~~Transactions with Related Persons~~	14
Compensation Discussion and Analysis	15 20
Executive Summary	15 20
Oversight of Our Executive Compensation Program	15 20
Targeted Overall Compensation and Competitive Analysis	16 21
Components of Executive Compensation	17 22
Employment Agreements	22 27
~~Human Resources~~ Compensation Committee Interlocks and Insider Participation	22 28
Compensation Committee Report	22 29
Compensation of Executive Officers and Directors	23 30
~~2008~~ 2009 Summary Compensation	23 30
~~2008~~ 2009 Grants of Plan-Based Awards	24 31
~~Employment Agreement~~	26
Outstanding Equity Awards at ~~2008~~2009 Fiscal Year-End	27 32
~~2008~~ 2009 Stock Vested	28 33
~~2008~~ Post Employment Compensation	33
2009 Pension Benefits	28 33
Non-qualified Deferred Compensation	29 34
Termination or Change in Control Arrangements	30 35
Death and Disability Benefits	34 36
~~2008~~ 2009 Director Compensation	34 37
~~Audit Committee Report~~Stock Ownership Information	36 39
Security Ownership of Directors and Management	39
Section 16(a) Beneficial Ownership Reporting Compliance	39
Security Ownership of Certain Beneficial Holders	40
Proposal2 – Ratification of Independent Registered Public Accounting Firm	37 41
~~Proposal 3 – Approval of NorthWestern Energy Employee Stock Purchase Plan~~	39
~~Stockholder Proposals~~	41
Other Matters	43
~~Appendix 1 – NorthWestern Energy Employee Stock Ownership Plan~~Securities Authorized for Issuance Under Equity Compensation Plans	45
~~Annual Meeting Guidelines~~	55 43

Name of Beneficial Owner	Shares of Common Stock Beneficially Owned	Percent of Common Stock
Munder Capital Management (1)	3,445,932	9.6%
480 Pierce Street, Suite 300 Birmingham, MI 48009
Zimmer Lucas Partners LLC (2)	2,481,455	6.9%
535 Madison Avenue, 6^th Floor, New York, NY 10022

	2008 Incentive Plan Information
	Weight (Percent of Total Plan Payout Percentage)	Performance Level				Target % Achieved	Final Funding % of Total
Performance Measures	Weight (Percent of Total Plan Payout Percentage)	Threshold	Target	Maximum	Actual Achieved	Target % Achieved	Final Funding % of Total
Financial
Net Income (millions)	55%	$61.6	$68.5	$75.3	$67.6	93.7%	52%
Operational
Reliability (1)
CAIDI (average outage per customer─minutes)	15%	99.80	94.80	89.80	93.21	116.0%	22%
Customer Satisfaction (2)
Image Rating (based on independent survey results)	15%	7.50	7.65	7.80	7.35	—	—
Safety (3)
Lost Work Day Incident Target Rate	15%	2.60	2.00	1.50	1.20	150.0%	17%

Name and Principal Position	Year	Salary ($)	Stock Awards (1) ($)		Non-equity Incentive Plan Compensation (2) ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings (3) ($)	All Other Compen- sation (4) ($)	Total ($)
Robert C. Rowe (5)	2008	169,231	—		120,960	15,050	107,253	412,494
President & Chief
Executive Officer

Brian B. Bird	2008	325,129	132,221		149,244	11,415	35,759	653,768
Vice President and	2007	301,846	208,235		109,411	4,731	44,638	668,862
Chief Financial Officer	2006	287,500	96,505		69,537	10,722	32,646	496,910

Gregory G. A. Trandem (6)	2008	216,000	74,335		78,624	13,006	41,680	423,645
Former Vice President –	2007	206,731	108,534		60,912	6,447	40,007	422,631
Administrative Services	2006	199,588	31,205		36,240	10,327	34,874	312,234

Curtis T. Pohl	2008	207,988	63,840		67,012	17,813	39,159	395,812
Vice President –	2007	190,000	93,973		51,846	—	41,426	377,245
Retail Operations

Miggie E. Cramblit	2008	175,385	9,033		69,160	N/A	127,663	381,241
Vice President,
General Counsel &
Corporate Secretary (7)

Michael J. Hanson (8)	2008	355,180	(127,678	)	210,825	26,115	608,158	1,072,600
Former President &	2007	521,635	431,975		—	14	53,175	1,006,799
Chief Executive Officer	2006	494,231	175,625		169,014	10,901	46,972	896,743

Thomas J. Knapp (9)	2008	200,398	(119,100	)	68,543	11,018	348,655	509,514
Former Vice President,	2007	265,420	139,482		77,842	7,950	46,338	537,033
General Counsel &	2006	254,808	39,216		48,978	11,131	41,384	395,517
Corporate Secretary

	Health Benefits ($)	Life Insurance ($)	401(k) Contributions ($)	Severance Payments ($)	Relocation Expenses ($)	Other Income ($)	All Other Compensation ($)
Robert C. Rowe	1,291	962	5,000	—	—	100,000	107,253
Brian B. Bird	13,867	1,313	20,579	—	—	—	35,759
Gregory G. A. Trandem	13,867	4,353	22,917	—	—	543	41,680
Curtis T. Pohl	13,867	1,826	22,923	—	—	543	39,159
Miggie E. Cramblit	5,560	999	14,141	—	106,963	—	127,663
Michael J. Hanson	14,655	3,518	20,494	536,900	—	32,591	608,158
Thomas J. Knapp	14,918	4,218	22,363	284,012	—	23,1445	348,655

Name		Grant Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards			All Other Stock Awards: Number of Shares of Stock or Units (#)	Grant Date Fair Value of Stock Awards ($)
Name	Plan Type	Grant Date	Threshold ($)	Target ($)	Maximum ($)		Grant Date Fair Value of Stock Awards ($)
Robert C. Rowe (1)	Annual Cash Incentive	—	66,462	132,924	199,386	—	—
Brian B. Bird	Annual Cash Incentive	—	82,002	164,004	246,006	—	—
Gregory G.A.Trandem	Annual Cash Incentive	—	43,200	86,400	129,600	—	—
Curtis T. Pohl	Annual Cash Incentive	—	36,820	73,640	110,460	—	—
Miggie E. Cramblit (1)	Long-term Equity	5/5/08	—	—	—	1,500	32,374
	Annual Cash Incentive		38,000	76,000	114,000
Michael J. Hanson (1)	Annual Cash Incentive	—	115,838	231,676	347,514	—	—
Thomas J. Knapp (1)	Annual Cash Incentive	—	37,661	75,322	112,983	—	—

Name	Annual Target Incentive as Percent of Base Pay	2008 Actual Incentive as Percent of Base Pay (1)		Incentive Award (1) ($)
Robert C. Rowe	70%		63.7%	120,960
Brian B. Bird	50%		45.5%	149,244
Gregory G. A. Trandem	40%		36.4%	78,624
Curtis T. Pohl	35%		31.9%	67,012
Miggie E. Cramblit	40%		36.4%	69,160
Michael J. Hanson	70%		63.7%	210,825
Thomas J. Knapp	40%		36.4%	68,543

Name and Principal Position	Year	Salary (1) ($)	Stock Awards (2) ($)	Non-equity Incentive Plan Compensation (3) ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings (4) ($)	All Other Compen- sation (5) ($)	Total ($)
Robert C. Rowe (6)	2009	519,231	433,972	378,000	25,176	167,372	1,523,751
President & Chief	2008	169,231	—	120,960	15,050	107,253	412,494
Executive Officer

Brian B. Bird	2009	340,624	213,532	177,124	23,843	38,702	793,825
Vice President,	2008	325,129	—	149,244	11,415	35,759	521,547
Chief Financial Officer	2007	301,846	—	109,411	4,731	44,638	460,626
and Treasurer

Miggie E. Cramblit (7)	2009	295,961	123,692	123,120	19,433	36,343	598,549
Vice President,	2008	175,385	32,374	69,160	N/A	127,663	404,582
General Counsel,
Corporate Secretary and
Chief Compliance Officer

Curtis T. Pohl	2009	218,492	73,049	79,531	55,102	41,448	467,622
Vice President –	2008	207,988	—	67,012	17,813	39,159	331,972
Retail Operations	2007	190,000	—	51,846	—	41,426	283,272

David G. Gates (8)	2009	224,899	75,179	81,863	96,633	28,744	507,318
Vice President –
Wholesale Operations

	Health Benefits ($)	Life Insurance ($)	401(k) Contributions ($)	Other Income ($)	All Other Compensation ($)
Robert C. Rowe	4,464	3,108	9,800	150,000	167,372
Brian B. Bird	14,763	1,311	22,050	578	38,702
Miggie E. Cramblit	9,839	1,710	22,050	2,744	36,343
Curtis T. Pohl	14,763	2,185	24,500	—	41,448
David G. Gates	10,261	1,271	9,800	7,412	28,744

Name	Grant Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards			Estimated Future Payouts Under Equity Incentive Plan Awards (1)			Grant Date Fair Value of Stock Awards (2) ($)
Name	Grant Date	Threshold ($)	Target ($)	Maximum ($)	Threshold (#)	Target (#)	Maximum (#)	Grant Date Fair Value of Stock Awards (2) ($)
Robert C. Rowe
Annual Cash Incentive	—	175,000	350,000	525,000	—	—	—	—
Long-term Equity	2/13/09	—	—	—	—	20,781	41,562	433,972
Brian B. Bird
Annual Cash Incentive	—	82,002	164,004	246,006	—	—	—	—
Long-term Equity	2/13/09	—	—	—	—	10,225	20,450	213,532
Miggie E. Cramblit
Annual Cash Incentive	—	57,000	114,000	171,000	—	—	—	—
Long-term Equity	2/13/09	—	—	—	—	5,923	11,846	123,692
Curtis T. Pohl
Annual Cash Incentive	—	36,820	73,640	110,460	—	—	—	—
Long-term Equity	2/13/09	—	—	—	—	3,498	6,996	73,049
David G. Gates
Annual Cash Incentive	—	37,900	75,799	113,699	—	—	—	—
Long-term Equity	2/13/09	—	—	—	—	3,600	7,200	75,179

Name	Annual Target Incentive as Percent of Base Pay	2009 Actual Incentive as Percent of 2009 Salary		Incentive Award ($)
Robert C. Rowe (1)	70%		72.8%	378,000
Brian B. Bird	50%		52.0%	177,124
Miggie E. Cramblit	40%		41.6%	123,120
Curtis T. Pohl	35%		36.4%	79,531
David G. Gates	35%		36.4%	81,863

		Stock Awards
Name	Grant Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Robert C. Rowe	—	—	—	—	—
Brian B. Bird (1)	11/6/06	9,044	212,263	—	—
Gregory G. A. Trandem (2)	11/6/06	5,084	119,321	—	—
Curtis T. Pohl (1)	11/6/06	4,367	102,493	—	—
Miggie E. Cramblit (3)	5/5/08	1,500	35,205	—	—
Michael J. Hanson	—	—	—	—	—
Thomas J. Knapp	—	—	—	—	—

	Stock Awards
Name	Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
Robert C. Rowe	—	—
Brian B. Bird	3,016	61,315
Gregory G. A. Trandem	1,696	34,479
Curtis T. Pohl	1,456	29,600
Miggie E. Cramblit	—	—
Michael J. Hanson	6,414	165,994
Thomas J. Knapp	—	—

Name	Plan Name	Number of Years Credited Service (#)	Present Value of Accumulated Benefit ($)	Payments During Last Fiscal Year ($)
Robert C. Rowe	NorthWestern Energy Pension Plan	0	15,050	—
Brian B. Bird	NorthWestern Pension Plan	5.08	49,627	—
Gregory G. A. Trandem	NorthWestern Pension Plan	9.42	82,183	—
Curtis T. Pohl	NorthWestern Pension Plan	22.39	160,456	—
Miggie E. Cramblit (1)	NorthWestern Pension Plan	—	—	—
Michael J. Hanson (2)	NorthWestern Pension Plan	10.58	—	118,507
Thomas J. Knapp	NorthWestern Pension Plan	5.84	60,195	—

Name	Base Salary ($)	Short-Term Incentive (1) ($)	COBRA Premiums ($)	Out placement Services ($)	Amount of Potential Severance Benefit ($)
Robert C. Rowe (2)	1,326,923	120,960	4,988	12,000	1,464,871
Brian B. Bird	328,008	149,244	16,548	12,000	505,800
Gregory G.A. Trandem (3)	216,000	78,624	16,548	12,000	323,172
Curtis T. Pohl	210,400	67,012	13,341	12,000	302,753
Miggie E. Cramblit	285,000	69,160	11,499	12,000	377,659

Name	Fees Earned or Paid in Cash (1) ($)	Stock Awards (1) (2) ($)	Total ($)
E. Linn Draper, Jr., Chairman	100,000	160,178	260,178
Stephen P. Adik	91,000	131,148	222,148
Jon S. Fossel	53,000	131,148	184,148
Julia L. Johnson	87,000	131,148	218,148
Philip L. Maslowe	85,000	131,148	216,148
D. Louis Peoples	75,000	131,148	206,148

Name of Beneficial Owner	Shares of Common Stock Beneficially Owned	Percent of Common Stock
Munder Capital Management (1)	3,050,916	8.5%
480 Pierce Street, Suite 300 Birmingham, MI 48009
BlackRock Institutional Trust Company, N.A. (2)	1,924,456	5.4%
500 Howard Street, San Francisco, CA 94105-2618

Fee Category	Fiscal 2008 Fees ($)	Fiscal 2007 Fees ($)
Audit fees	1,353,000	1,440,000
Audit-related fees	—	—
Tax fees	60,000	174,000
All other fees	—	—
Total fees	1,413,000	1,614,000

Fee Category	Fiscal 2009 Fees ($)	Fiscal 2008 Fees ($)
Audit fees	1,281,980	1,353,000
Audit-related fees	—	—
Tax fees	239,116	60,000
All other fees	—	—
Total fees	1,521,096	1,413,000