Q4 2019 Earnings Call
Good day and welcome to the northwestern corporations. Your any 2019 financial results conference call and webcast at this time I would like to turn the conference over to Northwest Strange Investor Relations Officer Travis Meyer. Please go ahead Sir.
Thank you show me good afternoon, and thank you for joining northwestern corporations financial results conference call on webcast for the year ending December 31st 2019.
Lessors results have been released in the release is available on our website at northwestern energy Dot Com. They've also released our 10-K pre market. This morning.
Joining us on the call today, our Bob <unk>, President and Chief Executive Officer, Brian Bird Chief Financial Officer. Additionally, we have other members of the management team in the room with us to address your questions before I turn the call or for US to begin. Please note that the company's press release. This presentation comments by presenters and responses to your questions may contain.
Any forward looking statements and non-GAAP financial information as such I remind you ever Safe Harbor language.
During the course this presentation there will be forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act 1995 forward looking statements often addressed or expected future business and financial performance and I think contains words such as expects anticipates intends plans believes seeks or will you information in this presentation is based upon occurred.
Expectations, our actual future business and financial performance may differ materially and adversely from our expectations expressed in any forward looking statements. We undertake no obligation to revise or publicly update or forward looking statements or this presentation for any reason.
Although our expectations and beliefs are based upon reasonable some assumptions actual results may differ materially the factors that may affect our results are lifted in certain of our press releases and disclosed in the company's form 10-K in 10-Q, along with other public filings with the FCC.
Today's presentation also contains non-GAAP financial measures. Please refer to the definitions and reconciliations of these measures that are included in our webcast materials. Following our presentation. We'll open the phone lines to allow those dialed into the teleconference to ask questions. The archive replay of todays webcast will be available for one year beginning at six PM Eastern time today and can be found it or what.
Website under.
Our company Investor Relations presentations, and Webcasts link that I'll hand, it over to a president and Chief CEO Bob real.
Good afternoon. Thank you for joining us and that weren't calling in from our Sioux Falls office, where the temperatures at rocket it up over the last couple of hours and it's now a positive two degrees Fahrenheit.
I'll start as always we'll some recent highlights net income for 29 team was 202.1 million, that's up 5.1 million or 2.6% increase compared to last year diluted EPS was $3.98, a six cents or 1.5% increase compared to last year.
GAAP adjusted EPS was $3.42 and that's a three cents or a 9% increase compared to 28.
The board declared a quarterly dividends at 60 cents per share that's a 4.3% increase that's payable March 31st to shareholders of record as of March 13th.
Late last year, we issued a carbon reduction vision for our electric portfolio in Montana, we're targeting 90% reduction this carbon intensity by 2045, starting from a 2010 baseline.
In December we also announced our transaction.
Our an incremental 25% for 185 megawatts of Colstrip unit four French Puget sound energy for one dollar.
In February.
This month, we filed a request for approval of the Colstrip acquisition, but the Montana Commission.
In December.
That commission the Montana Commission issued a final order approving our electric rate case settlement.
This month, we have also issued.
And all source competitive solicitations request for proposals for its 220 megawatts seeking and flexible capacity to be available for commercial operation.
23, and with that I'll turn over to our CFO, Brian birds, who walks through our financial results. Thanks, Bob I'm on slide four shows our summary financial results take away there as Bob talked about net income to an EUR 2.1 million, a 5.1 million or 2.6% improve.
Movement on a year over year basis, I get in the details, but generally the 2.3% improvement in gross margin.
That increases a higher increased an operating expenses of about 1.5%, resulting in operating income improvement about 4% that ultimately drove our good results for the year.
Year over year basis, turning to slide five in terms of gross margin.
Gross margin of 939.9 million at 20.8 million dollar improvement or 2.3%.
If you look into the major drivers there I would talk about two things that really from 2018.
The tax cuts and jobs Act impact.
Benefit this year 22.1 million versus 18 them out a that's offset also with us they better.
Electric qualifying facilities liability adjustment in 2018, so kind of taking notice to offsetting one another what really drove the results to a great extent.
We had good or retail volumes on the gas side and electric retail volumes.
We also saw some benefits from our rate increased 4.4 million this year for a nine month period.
The improvement in our electric supply cost recovery.
Offsetting that to degree we did see some.
Reduction or electric transmission revenues during the year and also stepped out our natural gas production rates that total a change in gross margin those items that impact net income was 20.2 million. In addition.
Things that flow through trackers like property tax and production tax credits netted to a point 6 million dollar increase in gross margin again, netting to a total of 20.8.
Million increase in gross margin.
Moving forward to weather on page six upper right just to summarize we did estimate overall favorable weather in 19 resulted in a 7.3 million pre tax benefit as compared to normal and a 6 million dollar benefit compared to 2018.
They are a calendar months and the weather maps for each month are very very telling all of the favorable weather benefit for the year really came in the first quarter really cold February and March helped drive the favorable results really impacted on the gas side of our business.
When you look at the second and third quarter, we didn't have much cooling load at all.
Matter of fact, so net unfavorable weather if you will during that time period, and then the fourth quarter, though October was cold. It certainly didn't do enough to offset a pretty mild December and so again net net the first quarter drove our favorable were whether results for the year.
Moving onto page seven the terms operating expenses operating expenses totaled 663 million up 10.1 billion EUR, 1.5%.
So keeping operating expenses law that the two primary benefits there is property taxes.
Year to level off certainly leveled off 19, we hope to see that as a trend going forward certainly no certainty of that but certainly a good step into right direction to see those leveling off a point sixmillion or <unk>, 0.4%.
I'm also the depreciation depletion actually down one point Sixmillion are down approximately 1% reason, they're being obviously, we've had increased depreciation as we continue invest in our assets, but the 9 million dollar improvement on depreciation rates as a result of the rate case settlement eyes.
The primary driver further reduction on a net basis terms operating general administrative expenses.
We've shared the past that we did and opened the first brings a bit if you will firm.
On our expenses, we didnt know throughout the year, we're gonna be spending bar hazard treason made really good progress on that during the year, we did through both our generation and RTD business increased maintenance expenses.
Across the board labor was up a bit during the year and then in additional legal technology and benefits are their primary increases in Argentina, you may know that last quarter on a year to date basis, we didn't have a quite a big large other there were questions associated with that we did in the fourth quarter brake pad.
But more so people could see that that changed there and those items impacting net income from LG in a perspective 17 point threemillion.
When you take a look at items that are certainly on the LNG in a category better offset elsewhere in the piano, a 7.8 million pension some operating expenses recovered and trackers and then 2.3 non employee directors deferred comp post the pension and deferred comp I am you'll see in a moment offset in other income those changes.
We were decreased OTN and 6.2 million for a net increase no janey, Oh DNA of 11.1 million.
On the next page eight operating income 276.9 million up 10.6 million or 4%.
Below that interest expense up primarily due to higher borrowings 3.1 million.
Other income as I just spoke the main that decrease is really netting a the pension item.
And the deferred comp I am I just spoke to know DNA, but also that was also partly offset by 1.6 million higher capitalization of any of you DC.
The net there that from an income before tax 182.2 million 3.9 million increase or 2.2% and then following that we did have a slightly higher income tax benefit on a year of your basis I'll speak to that in a moment to explain that difference giving to setting for my second.
Early of $5.1 million improvement on page nine income tax.
South of the two biggest drivers we had a release or unrecognized tax benefit in 2019 of 22.8 million.
That was offset by the impact of the tax cuts in jobs Act excess deferred taxes in 2018 to 19.8 million.
$3 million differences the primary difference other things like the.
Slight improvement in pre tax income.
Also drove the net result of an income tax benefit incremental benefit of 1.2 billion.
For the year.
Moving on to the balance sheet that much to really say here on page 10, obviously continue see improvement in shareholders equity, but ratio of debt to total capitalization and continue to see a downward trend as we continue to shore up our credit metrics and always keyed in on or after FFO to debt try and make sure we maintain our.
Triple B flat unsecured credit ratings.
The onto the cash flow statement on page 11, we did see a fall off in cash provided by operating activities of approximately 85 million on a year over year basis in the Red box to the right. We're really identify five things that drove that.
We did have an under selection or under collection of supply cost during the year not only to be a higher supply costs, but our ER method not collecting those are on an annual basis versus a monthly basis and as a result for the P. Chem settlement that it had some aspects to do that as well, but that under supply. We are now collecting and 2020 suite do it.
Spec CE bit better cash flow.
Now a year over year basis, the tax cuts and jobs Act, we had that settlement that we had an 18 actual refunds to customers didn't start occurring until into 19, there's the 20.5 million there and then that the change your here in terms of people providing deposits for generation interconnections was actually that refund.
22.1 million for the those are the three biggest drivers of the 85.3 million moving forward onto page 12 from an adjusted non-GAAP earnings perspective, I think people follow the company.
Come to understand this page on the far to the far left in the far right really is the GAAP numbers for 19 and far right gap for 18, and then we work towards a non-GAAP numbers for both 1918, the middle in the US you can compare those.
Starting from the far left due to Dps at $3, a 98 cents on a GAAP basis, we had two adjustments. This year, we took an 11 cents.
Favorable weather and we backed out 45 cents associated with the unrecognized tax benefit getting us to $3.42 on a relative run a comparison basis last year's GAAP number and 18 Threeninety too we had three items that we backed out of that number two cents a favorable weather.
26 cents associated with Qs.
Liability adjustment 25 cents associated with T.C.J., netting to a 339.
2039 cents non-GAAP EPS in 2018, a three cents improvement or just under 1% in the comparing the middle columns through the piano no gross margin up about 3% also operating expenses up about 3%, even though property taxes and depreciation actually appreciate slightly down.
We did have a higher amount to know gene and we plan to spend more we talked about hazard trees. We talk talked about some other categories of incremental spend we wanted to have in 19 or that the considering that improvement in gross margin increase in operating expenses at 2.8% improvement in operating income a net ultimately in a 2.2% Inc.
Freeze in net income on a non-GAAP basis.
Going forward to page 13, diluting earnings per share over this time period, you see it from both a gap perspective, and a non-GAAP perspective.
Non-GAAP.
Basis, we are EPS is growing at an average over 5% from 2013 2019.
I will tell you that we do also showing 2020 column our guidance range of 345 to 360.
<unk> cents per diluted share, we do know here really the three assumptions normal weather, we give you a consolidated income tax rate of.
2% benefit to 3%.
Tax increase.
Based upon pre tax income and then diluted shares outstanding.
50.9 million lastly, regarding our 6% to 9% total return.
Long term look.
One thing I would mention here as we do see or capital spend now getting up in 2020, and 2021 to 400 million should be able to sustain that level on a going forward basis, I expect us to move towards the middle of that 6% to 9% total return total shareholder return range again, assuming a reasonable recovery.
Moving forward.
2019, non gap to 2020 bps bridge to the right I mentioned, the 345 to 360 range, how do we get there starting at 342 or 3042 cents. It's a share we show kind of some low and high points to to get to that range. What are some of the drivers on gross margin.
Certainly we expect a the 1% plus of organic growth, we expect a higher industrial commercial loads, we expect some improvement in transmission revenues.
We are <unk> and we expect to get a full year benefit from the rate case.
And then lastly, we are we had a wet year from irrigation perspective, a in 19, we expect to see some improvement in geared irrigation revenues in 2020 that should help on the gross margin side I know AG expense decreases really across the board were looking at the business trying to maintain a cost control and.
20, twond, yet [noise] after kind of as I said, releasing some of the purse strings in 19, certainly tightening up here again in 20, we've made great progress on hazard trees in 19 expects to spend a little us in that category in 2020, and Ah that range of 11 cents to form.
18 cents those are the two big drivers for improvement.
Between gross margin increase and Oh gene a decrease.
Thinking property taxes, depreciation and interest expense for growing company to expect to see those.
Each increasing.
Year over year other income with the South Dakota generation increased capital spend will speak to in a moment.
We're expecting a bit more after you do you see how do your your basis and lastly, we continue to focus on repairs tax deductions and expect to incremental tax benefit associated with that that nets us to $3 45 to 363, a with up to a range from zero to three cents.
Actual dilution from equity.
Needs a likely late 2020 to possibly early 2021.
Net range of $3.45 to $3.60 when you take in consideration or mid point of that at $3.53. When you look at the dividend, we announced today an annualized that that's $2.40 you compare that to dollars in 40 to the midpoint of the Ranger just provided 353, that's about a six.
The 8% dividend payout.
Lastly on this page.
I speak to taxes, good news and regarding that we did expect to be.
Going through our and our wells in 2020, now that's 2021 and as a result, the pushing that back a year with Tam T. credits and PTC credits being available now into 2023 that used to be 2022 to reduce cash taxes and lastly, we anticipate our effective tax rate to reach.
Approximately 10% by 2023 and with that I'll pass that to Bob Thanks, Brian I'll start out with a couple of words about our carbon statement in Montana and.
And as you know that targeted at 90% reduction and.
Carbon intensity by 2045 as compared to a 2010 baseline.
His line.
Is there is all but effectively that's been colstrip unit four.
Was able to be fully dedicated to serve our customers. The first resource that we had in Montana after going through the regulation divestiture and the Montana power.
As you know we're already over 60% carbon free on a delivered basis in Montana that compares to 28%.
Average nationwide. This is a Montana specific statement, although it's notable that in South Dakota, where.
I think about 32% carbon free right now.
We refer to this is really a no B.S. kind of a carbon statements or not.
A lot of qualifications do it hits.
Driven by continued.
Noble's coming on and I'd say very soon we'll have more wind at our Montana system than we have hydro and we'll have more wind or hydro than we have cool pulls from even after we closed on the additional acquisition at Colstrip energy efficiency continues to be important.
Thermal resources will be very important in meeting our customers' demands in Montana Dispatchable resources, but the.
Frequency the.
Range of just patches is going to diminish.
As other resources come online.
Second, we expect or thermal resources that will be.
Retired so this is a glide path, it's also worth noting that.
Oh this really is linked to the same.
Modeling assumptions.
And our.
Resource plan and just like the resource plan. This will be updated on regular basis and that will allow us to capture tranche and economics.
Ranges.
Technology changes in public policy, what other things I'm, particularly excited about that will help us achieve this vision is working with a.
A group of communities that have their own sustainability.
Goals sustainability programs in Montana.
Them.
Often implement solutions that make sense for them well also recognizing our.
Legal obligations to to all of our customers that will be up just a great opportunity work directly.
With our customers.
Turning on to the.
Announced acquisition of 25% of Colstrip unit four.
December nine we executed a purchase and sale agreement to acquire Puget Sound Energy is 25% ownership in unit 485 megawatts that would bring our total ownership at colstrip to 407 megawatts or 55% of unit four or.
But even without additional acquisition, we will have both more.
Hydro and more in our system.
Brian dug deep into as pockets of the dollar.
Due to pay for the resource.
Very importantly, Puget sound will retain responsibility for its current pro rata ownership share for environmental and pension liabilities.
As well as for ultimate.
As it costs.
In tandem we will enter into a purchase power agreement under which we will sell 90 megawatts.
Back to future four or five years.
Index to the mid C index, but with a floor.
Costs in our proposal is too.
Essentially.
But the.
Profits from the PPA.
Into a trust to pre fund.
Pretty meaningful down payment on an eventual closing costs for for here that for US, We think that's farsighted and responsible recognizing that.
All assets do have useful lives.
Filed for.
Approval, if the transaction its various permits with the Montana Commission.
They are being responsible and considering a schedule interventions or do the first few days.
March and we certainly don't see any reason why.
The transaction wouldn't be reviewed and approved by the end of year, which we think is important.
Being able to implement.
The elements of the proposal start achieving those benefits.
For our customers.
And as you know.
We are uniquely exposed to.
Prices in the western power market.
46% reserve margin deficit.
Peak.
Concerns about meeting peak requirements are now it primary focus in western United States, and even sharper focus in the Pacific Northwest and had acute focus in our Montana operation again, because in part.
The legacy of supply.
Regulation. So this is very important.
Yeah, a drastic about a quarter of our customers exposure.
Two.
Craig on onto the South Dakota, and then the Montana Electric plans first South Dakota, it's been a straightforward hit an efficient process. We published our plan in the fall at 28 team really focused on modernizing our fleet to address for liability flexibility and particularly to.
Maintain our compliance with southwest power pool requirements and to be able to participate on behalf of our customers as effectively as possible in.
In SPP, so we identified.
90 megawatts of existing generation that should be a retired and replaced over the next 10 years, because we were running out of duct tape.
Then on April 15, or 29 team, we issued a request for proposals for 60 megawatts of flexible capacity resources.
To begin serving or South Dakota customers by the end 2021.
Very robust process again administered by a third party lots of interest.
In the in the process a good variety of submissions as a result other competitive process.
We do expect to construct and own.
Natural gas fired or cyclical.
Super Good internal combustion engines are rice units at a brownfield site Ah, Yes era.
And then depended on manufacturer selection, we anticipate between 5500 60 megawatts of new capacity should be on line by late 2021.
Total investment of about $80 million and this election proposal is subject to execution of construction content contracts and then obtaining the applicable environmental and construction permits.
It's about South Dakota, we're very excited to see that that move forward.
Turning to the Montana plan.
There are the focus was on developing resources that will address the really dramatically changing energy landscape.
In Montana and in the west to meet our customers' needs in a reliable and affordable fashion.
Reference just a moment ago, we are severely exposed at peak.
Now were about 630 megawatts short of our peak needs and that's in a market in which traditional resources are shuttering and original market that isn't for providers or planners are increasingly concerned.
About a loss of low profitability.
In the not terribly distant future.
Right now we're at a market.
For our customers and being at market at peak with a skinny a set of resources is not a very good place to be for up for our customers.
We forecast that our portfolio will be about 725 megawatt short.
In just five years, considering expiring contract contracts and then just a very modest increase in customer demand. So.
This month, we've issued a competitive all source RFP for up to 280 megawatts, a flexible peaking capacity to be available for commercial operation in early 2023.
The note indicates a because the RFP is open to all types of resources provider that they can meet our needs for peak and flexible capacity.
There will be an independent evaluator to administer a and then to evaluate proposals and the successful project where projects.
I should be selected by the first quarter of next year, then we expect to kind of wash rinse and repeat and Renault subsequent process in a future year.
Turning to some other matters on the regulatory front as you know in December.
The Commission issued a final order most importantly.
Approving the electric rate case settlement and our Montana case effective April.
First 29 team and that would result in an annual increase to electric revenue of about 6.5 million based on a 9.65% are are we and the capital structure. As we had proposed and then a $9.3 million decrease in depreciation expenses.
Several parties have filed petitions for reconsideration of various parts of the order.
Particularly to a request for reconsideration by the Montana Consumer Council concerning.
The.
Coupling or infrastructure funding mechanism that had been proposed by natural resource defense counsel and that we very strongly supported we expect if their request for reconsideration will be acted on.
In the first quarter a parallel in may of last year, we submitted a filing to FERC.
For our Montana transmission assets in June FERC issued an order except in the filing granting interim rates effective July onest CRE subject to refund and then establishing a settlement procedures and terminating our related tax cuts in jobs Act filings a settlement judge has been appointed.
And then settlement negotiations conferences.
Our active we expect to submit a compliance filing with the Montana Commission based upon eventual resolution of the FERC case with an adjustment and proposed credit.
Back to our Montana retail rates.
We're continuing to invest in our transmission and distribution infrastructure and this has been sometimes the sport is not as visible but is incredibly important fulfilling our responsibilities to our to our customers.
That includes continuing work on a comprehensive staged approach to infrastructure Aggressing safety capacity reliability.
Really modernizing the system, we've been talking about that are progress along those lines actually since I've been at northwestern.
On the natural gas side pipeline investments integrity verification pipeline and hazardous materials on and on a lot of good work there and then grid modernization continues to be focus we'd like to talk about deploying that have the speed of value.
Learning what are what works and then making decisions that are sensible for our system and for our customers one of the.
Need things actually just over the last couple of weeks, we've been on a multiyear process too.
Creates a distribution operation control center and that started with a geocoding elements in the field acquiring spectrum attaching communications to a two devices in the field that went live just in the last couple of weeks in the.
Days after after go live we had wins in Montana.
Stay on top of.
Loan peak at Big Sky, The hit 155 miles an hour we had several hundred.
Outages it was truly.
The most challenging shakedown crews that the distribution operations that are could have had they are folks and customer care, particularly our people in the field. All this did an extraordinary job.
The functionality of the deals he is going to continue to improve increase or the next several years as we.
We continue to turn on more technology and make investments there, but a couple of minutes on that just because it's an example of how.
Investments that we consider to be very important but that can be invisible to our customers ultimately really make a huge huge difference.
As you know we're planning to enter the western energy imbalance market in April of 2021.
Based on her experience in the southwest power pool out of South Dakota that will produce some real benefits for our Montana customers will allow more efficient abusive intermittent resources.
Greater power grid reliability.
But then circling back to the Montana RFP, we have to have resources to to be able to participate in.
In that market.
As we've talked about before we continue to monitor costs, including labor benefits property tax valuation.
[noise] consider ourselves subjectively to be one of the most efficient companies in our peer group and really even post up well on most measures against companies larger than US last thing I'll draw your attention to is our capital investment forecast and what you see here over a five year.
Period is 1.8 billion of total capital.
We anticipate financing this with a combination of cash flows from operations.
Aided by a noel's through 2021 first mortgage bonds equity issuance. It was based on but we know now any equity issuance would be late 2020 early 2021 and would be size to maintain and predict and protect our current credit ratings the.
Terrific and potential significant capital investments that are not in these projections.
Or negative regulatory actions could necessitate.
Additional equity I, just a couple of things too.
Highlights.
Based on the results of the South Dakota RFP. This does include $80 million of incremental investment for South Dakota generation 2020 and 2021.
But does not include any investment identified for generation capacity in Montana, and those those depending on the results of an RFP or could be in excess of 200 million over the next five years, one thing I would highlight.
Chris say before.
As we work through any five year period, we identify more.
Projects that are important to to serve our customers and indeed, if you just look at the period 2020 through 2023.
In this bar graph, there about actually $222 million of investment more than you would've seen last year. That's a result on the.
Additional 80 million in generation in South Dakota also an important Montana electric transmission initiative.
Some additional funding in Montana am I.
Gas transmission work in Montana.
We're kind of building a substation ongoing upgrades to the hydro system and then like so many other utilities.
The investments in the S&P S. Four Helena project, so the point being that.
As you work through the five years again, you identify the work that's most valuable imports into continuing to be able to serve our customers.
With that.
We're open for questions.
Thank you if he would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure your mute function is turned off.
Your signal to reach our equipment again press star one to ask a question well pause for just a moment Toronto, everyone an opportunity to signal for questions.
Well take our first question from Mike Weinstein with credit Suisse.
Hi, Bob Brian.
Hey, Mike.
[noise] could you talk little bit more about why you know the Oh why the RFP I guess final decision will be in the first quarter of 2021.
What do they.
What's the extra I guess time required for that.
Hi, it's it's going to be a very thorough process, where through the prequalification process. There will probably be several stages evaluation. So we feel we believe in our supply folks. Most importantly believe that's a realistic and fruit and schedule. Yeah expectation is that by this call next year we'd.
Beginning.
You an outcome.
Gotcha and.
Has there been any other changes to the process, though is the same process just any more time with it.
Well we're.
Following up the process outlined in legislation passed last year in Montana, so that.
Does it include several steps of it otherwise we wouldn't it.
Legislation actually isn't going to place but for example.
There we filed the RSP with the commission before releasing it for submission. So that's one.
Extra step that does come in mind that drove that saturated that we'll be taking effect this year.
Right and a it means it is the delay coming from you guys. Your initiate you're you're saying that you need more time, it's not that somebody else is saying they need more time like that.
Legislature with a commission itself.
I would not okay did use the word delayed at all.
So they are reasonable schedule to work through it.
We might have had an aggressive on the front end in terms of fully understanding the time prudent but.
Working with the independent party, a revised our time period.
Got it.
Hey, I was wondering if you could maybe talk a little bit more about the energy and balanced market I think Bob you mentioned that you know that additional assets are required you know to join that.
And you know you're planning on joining in next year is there.
Is there any timeline that you have for additional assets that might need to be built.
Are we talking about here that it any significant investments that everywhere.
Those are those would be up the assets that come out of the RFP.
Okay. So you need to see that before the before you can join.
But no we're actively.
Going through the steps to join right now it's a very.
Significant undertaking to to get in place older systems hardware or software people to be able to participate in the market and that's a joint undertake any of our transmission department to enter our supply department.
And I tried to Shannon yeah.
Hi, Mike I'd, just add capacity that we plan to build through 2025, certainly meets our needs from any I am perspective, we are others, obviously through PPH, depending how the outcome of our pace, but anything we don't have.
During the time that were any I'm up until into 2025, we'll have to enter into contracts in order to cheap.
Got it and are there any transmission assets.
Filter many additional upgrades there.
Not specifically for this I mentioned, we do have a couple of transmission project underway.
Hi, Thank you.
Thank you thanks, Mike well take our next question from Julien Dumoulin Smith with Bank of America.
Hey, Dave how are Ya.
Hi, Bob do you hear me good analyzer, Hey.
Absolutely can hear from yet so just following up on unaware Mike was taking this is that going to go timing of equity here you specifically talk about this outside 200 million. You also put in the slides here 2020, 2021 are you waiting to get some clarity about that process before kind of the this.
I didn't depend heavily on equity needs and also when you talk about everybody here is that a definitive block equity or are you thinking about like an ATM process or something like that.
I I put yeah to answer your first question you know Bob walk through that 222 million of incremental capital from the last time, we talk from the slide and.
When I talked about it on the last call I was specifically talking to the 80 million not the full 222 and talked about having a need latter half of 2020 or into 2021, that's still the case its been in it but again, we just need to size that that debt. According to.
Needs and from a rating agency perspective, again FFO to debt perspective. So that's really answering your first question. Your second question you know we views day teams in the past like them, that's certainly a possibility, but we'll evaluate other options as well.
Right. So basically the whatever comes out of this current prices in Montana that would be incremental later on as you say in the slides, but that's not going to dictate the timing, whether 20 or too early 21, right except for dots. If that's a that's a fair point drilling I think we'll need some.
Some equity prior to an outcome I think in in terms of certainly building out anything if we're fortunate to be successful in Montana that would be certainly beyond the end of 2020 early 2021 time period, so that might be hopefully that's an incremental amount of equity were raising it sometime in the future beyond.
Got it excellent then Brian did you say you expect moved to the middle of the 6% to 9% TSR range, and then to the extent to which I heard that right can you clarify how you think about like a base year or anything like that that sorry, I don't mean, it read more into it then if necessary, but I also heard at side.
Just wanted to make sure I heard it right here.
I appreciate you give me an opportune clarified again <unk>. The main thing here is we in 20 2020 and 2021 were at we're now at about 400 million of capital investment. If we're able to sustain that type of increase if you will have to 400 of every year.
I think you'd see our EPS growth rate.
Improve again, assuming reasonable a recovery and thus each C S plus a dividend yield moving us more to the center of that 6% to 9% range.
That makes an excellent.
Yeah good job.
<unk>.
No. Thank you I appreciate that important sorry quick last little detail here and maybe this is the Bob question. When you think about colstrip and the various owners how do you think about consolidating up further your ownership in that plants.
Beyond what's contemplated today.
Fraud, but up through the yeah through the RFP, we're looking for a flexible dispatchable capacity that would complement oh or other resources, including the.
PSC portion.
Of coal strip, so I think what we're looking for again is.
Something that would in terms of serving our retail customers something that would be.
Complementary with a big emphasis on flexibility dispatch ability, particularly on an intra Howard basis, and then beyond that will just pulled to see was proposed in the RFP.
Okay, and said differently, you don't have a need for baseload coal like gold strike.
Oh, I'm comfortable with with what we've acquired and beyond that we'll just see what what comes in and they are in the RFP, but our focus is flexibility this batch ability.
And risk man absolutely yeah.
Totally thank you very much of the clarification.
Thank you [noise].
Well take our next question from Shire Perretta with Guggenheim Partners.
Hey, guys.
Charlie you don't.
Oh, good not too bad <unk>, let me just follow up on Juliens question.
I guess, the putting in a different way. If you are presented with a similar structure. As you May proceed with Puget would you would you take on additional interest in coal strip.
No it, especially as the partners kind of Decarbonize.
What I would can hear me again is we're focused on resources that are complementary to the resources. We have now in terms of ability to be flexible.
Ah operate on an intra hour basis.
And then manage to diversify risk as well.
And as if you can.
Read into that like.
Okay got it and then you know obviously you did the you've got the coal strip deal you you issued the RFP for additional generation any sense on sort of the timing and the composition of the next RFP as you think about the duration of your your peaking needs.
No I think we'll work through.
This RFP see what comes out.
The other I'm focused on implementing that and then based on conditions at that time, which will be obviously different.
In terms of size of the need the economics, the technology that that's available.
But given the exposure that our customers.
Right now.
I don't think weaken or we can wait terribly long first thing is to get through this process.
Over the results are.
Get those resources guy engaged to serve our customers.
Got it and then lastly, I'm. That's helpful is you know you just sort of highlighted the complain around the F. CRM pilot program is is there any just remind us if there's a statutory deadline I know you expect a decision but is there a statutory deadline for Montana P.S.C. to issue a decision on the petitions and.
And Brian This is maybe a little bit for you you know, even if you sort of get you get a scenario, where there's a 25 basis point reduction in the earnings and the and they are we is there sort of in earnings impact given the fact that you do you want to earn in Montana.
Yeah first of all I think just to clarify that we spoke about earlier I think just a the M.C.C. certainly party that.
As for reconsideration, a associated with the CRM and and the 25 basis point everyone else.
Since everyone else, but most parties that certainly comment on that certainly support moving forward that without any impact how are we and we hope that that's where the commission will come down again in.
In that regard so I'm pretty confident we'll get there, but we'll see I think [noise].
The other thing I'd say is it would be an impact worst to our earnings and regardless, if we're earning or under earning I think it's going to have an impact. If in fact were Ding Ding anyway, I don't know how are we perspective, and so I just leave it at that.
Got it started out is that.
Suppose all.
I thought was maybe the best.
Decoupling or fist fixed cost proposal I see in anywhere.
He was going to Brimley forward looking stuff by the by the Montana Commission I picks up.
Testimony.
Really eviscerated any kind of an argument for anoro we.
Adjustment, but then beyond that said if you really think this is something to look out.
That's.
Something that can be evaluated as part of the subsequent studies. So I certainly hope to the commission sticks to its guns and.
There were a number of very good.
Responsive pleadings from other interveners opposing the.
Request for reconsideration.
Got it thanks, guys that that was helpful.
I think one thing here in terms of the timing I think we're going to need again and outcome pretty soon on that because we're supposed to implement.
That program by July one and so we hope to hear something relatively soon on that.
Just one more little a footnote following on to implementation of the order up there was also a good action by the commission approving what we're referring to as our green pricing a stipulation, so bobby tropical or vice president for.
Customer care and but not.
Quite or a good group of stakeholders are actively working on.
Approaches to develop green products are customers actually.
I want to buy and we think that's a very responsive to what we're hearing from both large and small customers and from some of our cities.
Well take our next question from Jonathan Reeder with Wells Fargo.
Hey, good afternoon, gentlemen, just kind of following up on that comment there Bob and you know your prepared remarks.
You kinda sounded like in the RFP based on some of the desire for you know kind of green products.
That we might expect.
Renewables or to may be clear, that's first ARPU, you mean that kind of fair.
A very honestly.
We don't know what will come out the other end and what little.
Ultimately.
Be expected given the number of parties.
Who are who were a bit again I expect we'll see some some real diversity in proposals.
And as we've we think about.
Our resource needs, we think about it or really as a pyramid the base long duration Dispatchable resources, and then building up the pyramid Dispatchable resources, a shorter duration, so that potentially creates an opportunity.
[music].
Two or acquire some diverse resources through.
Through the process, but the foundational need is going to.
Really be long duration Dispatchable resources.
Okay. That's helpful and then Brian just to confirm the I phone that ratio that you guys still talking about 15%.
Well, we target, 15% I think the clearing is really 14%, we'd like to have some cushion interact with FFO to debt.
Okay, and then lastly, you know the higher Union Capex and that now in your budget. How does that impact are you came from rate case filing as well you know any rate affordability concerns.
For your customers.
Great question, Jonathan I think you know twofold will obviously it as that span and that was that 223 million that Bob talked about that spread across those four years I would say that say it could move things accelerate things a little quicker has said in the past that we expect to.
To be filed a bit more frequently certainly than we have in the past and we'll let you know.
In April in terms of our timeline if they if you were at least for 2020, if there's any filings I think the other thing too is we expect during this time period, particularly when we get into you I am a that's gonna help or reduce any bill headwind and anytime we think about our long range plans, we're trying to.
Increases the customers at less than inflation. The one thing I'd add to that is of the 222.
<unk> million a part of it in South Dakota part of its Montana part of its electric part of its gas so on any one business segment.
The increased capital is just that much more modest.
Yeah, No went by you guys do kind of spread across pretty well.
Okay. Thanks, so much that's all for me.
Thanks, John.
Well take our next question from that do that and her team with Avon capital.
Good afternoon.
Good afternoon.
[noise], Oh I see in terms of Ah Ah.
The pending RFP or in Montana.
Do you have is there any in the past youve, it's been difficult for you to be able to come up with cellphone proposals that.
Managed to be able to you know effectively compete or be able to cross the finish line with the Montana, BNP and D. Independent evaluator getting tough coda, you were able to the brownfield site to have a unique situation, where it actually didn't work that way.
In this current RFP do you have any.
Particular, you know new opportunities are advantages that could produce perhaps a better outcome or the likelihood of a have a cellphone option more so than maybe has been then has been in the past.
Could you.
Point me to the RFP, you're referring to.
I was talking about it I'm I'm drawing a blank.
Oh, the ones in past, where you've put wanted to have your cellphone options and you haven't been able to.
Get the PSC or whoever to validate you know having your cellphone options in Montana.
I truly can't think of it example, what I I wonder if what you're referring to coming out of the 2015 plan, we undertook an RFP and we would druid because of noise at the commission really unrelated if you recall that was when.
Commissioner at the time I came up with.
Reasonable idea that you off contracts ought to be limited to 15 years, but that are under a notion of symmetry resources coming out of the RFP, whether owned by us or anybody else also ought to be limited to a 15 year period. So as a result of.
That.
Separate action by the Commission, we ultimately ended up with dragging their feet, because we'd requested 20 or proposals I wonder if could that be what you're thinking up.
Oh, yeah, perhaps that's the case I guess, maybe a maybe ask a little differently than well you know given your [laughter] South Dakota.
Are there do you feel like in this new processing or things that you have advantages and in terms of what you'll be will propose that made you know a perhaps increase the probability of you know being successful at least in terms of participation. In addition does the colstrip acquisition you know.
For a dollar you know actually perhaps influence at all you know <unk> you know the cellphone.
You know viewpoint, given you know you're not could be will find to me too much more capacity for dollar.
Oh, I certainly agree with that statement I think we we will.
Participate in the RFP, obviously, we think we are.
Good.
Building, an operating resources music, there real customer benefits.
To having us do that so we're going to participate.
But the.
Ah proposals from all parties will be.
Evaluated on a neutral basis by a third party really through a blind process in terms of relationship too.
Colstrip by the relationship I would.
C is that we did.
At least differ about a quarter of our.
Customers exposure through that very cost effective.
Transaction, we think that was the right thing to do for our customers and also we think that was a pretty progressive move.
In terms of thinking about eventual a closing costs and.
Creating a situation where the ultimate.
Decision about disposition of unit four is going to be based either on the economics at that unit or on a public policy decision in Montana, not not somewhere on the coast, but I I beyond that I really don't see a relationship between coal strip.
And and their feet, Brian do you say you know I I think we obviously know the service Terry surface territory that we operate in and have built resources and asked for pre approved on received approval on resources, we put into our portfolio in the past and we plan to compete.
That's all I guess I'd add Bob.
Okay, and I want to make sure I clarify one thing is is a trillion and asked the question in terms of huh.
You know when you're running on me try and just as probably 400, if you're to stay in a 400 million dollar.
Capital expenditure level.
Well, we're talking about the midpoint of six nine given that you're in a 3% healed and the inferences. It's got the 400 million dollar cap if I didn't 400 million dollar capex run rate, but that would imply about a 4.5% <unk> earnings a cake or as part of it's part of that is your six to nine.
[laughter] fair is that fair franchise that is the approximate math you if you use that 3% flat dividend yield correct.
And I think the reason for sharing that is.
Historically, we have said in the past.
In light of the lower growth in investment and some of the outcomes. We had been receiving a we expected to be on the lower end of that 6% to 9% range. The that we were certainly please in terms of being able to invest capital.
Including 80 million that we're investing in South Dakota.
Bob pointed out projects that we could throughout our service territories, both electric and gas certainly to our customers benefit but that higher level of investment allow us to move up with with within that range.
And also to clarify also the quick question given the timing you laid out toward some early 2021, which also lines up with the outcome of the RFP process in Montana.
There are any reason not to simply wait to find out what that outcome is in terms of figuring out whether it be an ATM program or maybe.
Whatever the sizing is in that type of thing I suppose.
And with the agencies <unk> do you feel like eight you'd have time to you know a perpetuate that if you have an idea of what the outcome. It.
Yeah, I think it's a fair question I think obviously, where the benefits of ATM program you couldn't size that Ah. If in fact, you, let's say you weighted into the first quarter, new new an outcome from that you can certainly size that and utilize that over time, it's certainly something to think about we just wanted to make sure. We gave people on the impression of the timing.
And round in equity raise and tell us something certainly think about Purdue.
Okay and I'm just in terms, if we were running at a 400 million dollar Capex program.
You know given your cash flow profiled in order to keep a maintain a a balanced capital structure should we be thinking out that point in time that you know something in the hundred 200 million dollar kind of area is will be required to maintain the capital structure.
I would do like you I think people all run their various models that I think they probably have in their miles an episode of debt calculation for us. That's what we're really trying to get you to do is from your perspective in a modeling perspective for you to size that equity were not going to provide you. What we believe that is at this point in time.
Alright, thank you.
Once again, if he would like to ask a question. Please press star one well take our next question from Brian reset with Citi.
Hi, good afternoon.
Hey, Brian.
Just on a slide 38, the rate base and authorized returns just reminds us your thought process here.
You're currently earning on.
3.4 billion over eight days, what's your actual.
Estimated rate base, if you kind of true it up outside Oh, you know the historical test years.
3.8 billion is is that the way to look at so that built a little though for roughly 400 million will be need to be recovered in future rate cases.
That's correct or 3.8 isn't that for a future rate case perspective, if at all happened on a particular date today, we would be earning on the 3.873 currently earning on a 3.4 today.
Okay, So and the timing of these upcoming rate cases is to be determined and like you said, maybe after your first quarter call in April.
That's when we gave you an indication what we plan to do in 2020.
And in South Dakota for recovery of the Peaker plants.
Are you going to pursue the general rate case route or a file for a tracking mechanism.
Ah, yes, we're going to pursue that the rate case round I think the timing of that im a little bit.
German whether on we can get a known and measurable adjustments. So the timing of that will also.
Require us to have some conversation with the commission and regardless of all we're making an investment in that.
And we and we said we don't ever rankings, we certainly would any of you did see during that during that time.
Okay. So I would just be like a one off rate case, where would you seek recovery of Ah you know the difference between 600.
6.6 million and 557.3 million, which was also the rise back in December of 15, plus the 80 million for the peak or is that how to I think it would be remedy all in it would be all in and potentially if it was.
Primarily as you can see from the schedule you're looking at its primarily on the electric side, where we'd have that need and obviously the generation units in electric side. So if we have a rate case for myself to electric perspective, we're not just going to do the 80 million.
Of investment into plants, it's gonna be for all of our South Dakota Electric business.
Got it and then just to clarify were remind us the the peaker plants, South Dakota being built built in her on South Dakota was that is that at an existing generation.
Facility or is it just got some sort of industrial site that has.
Easier access to transmission.
And as our site.
Your site, Okay correct.
Thank you very much.
Thanks, no more questions in the queue at this time.
Okay, great. Thank you all very much for your interest and support will see quite a few of you over the next two months and hopefully be visiting with all of you in April take care.
This concludes todays call. Thank you for your participation you may now disconnect.