Q1 2020 Earnings Call
Good day and welcome to the northwestern corporations financial results Conference call.
Today's event recorder and at this time I would like to turn the conference over to Northwesterns Investor Relations Officer.
Please go ahead Sir.
Thank you.
Good afternoon, and thanks for joining northwestern corporations financial results conference call and webcast for the quarter ending March 31st 2020.
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Well on our website at northwestern energy Dot Com. We also released our 10-Q three markets. This morning.
Oh, we have joining us barrel, President Chief Executive Officer, Brian Bird Chief Financial Officer.
On the call the best address your question.
Before I turn the call overall, whatever first again. Please note that the company's press release, that's pretty location.
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Again, northwestern energy Dot Com honor our company.
Customer relations presentations, and webcasts away with that I'll hand, it over to Bob Dole or steel.
Thank you Travis. Thank you all for joining us this afternoon I'll touch on a few significant events.
Just a couple of comments, daughter covert responses and turn it over to Brian to go into detail on financial results first net income for the quarter decreased 22.1 billion, that's 30% as compared to the same period last year.
Yes decreased 44 cents or 31% compared to the same period after adjusting for weather non-GAAP adjusted EPS decreased 17 chance for 14% as compared to last year.
Board declared a quarterly dividend at 60 cents per share payable on June Thirtyth, two shareholders of record as of June tricky.
Due to the anticipated impact from coal would like to related disruptions across your territory.
Combined with the first quarter results below our expectations, we are lowering 2025 bps guidance had been.
345 to 360 per share, we're lowering two or 332 or 345, so effectively the old floor becomes the ceiling. Despite the short term stripped back or long term business prospects remain strong.
We were able to complete address.
Maybe liquidity concerns as result of coal good we are continuing with our capital programs on changed Oh, we have no change to our targeted 6% to 9%.
Sure.
Just a few highlights going into the situation like it's it's a real tested the underlying strength for the company on page four.
We highlight some are history. Many of you know those three things I would simply speaks to our we have maintained had exceptional safety record.
For and going into the cool would period.
It was achieved the highest levels of customer satisfaction.
And high levels of service quality by all measurements.
We've continued to execute on our capital plan for the year.
In terms of our covert 19 response we.
Like many.
Companies have business continuity plans.
Uh Huh crisis action structure.
We drilled betraying we plan to prepare covert.
Okay, that's different in that it affects our entire service territory deepening tariff plan or.
Just a location on her system.
So Scott it's different.
In terms of duration, obviously, you have is different in terms of complexity.
Our plan.
Even though not necessarily for an identical situation were effective.
Began monitoring the situation early we formally activated a crisis action team on March 11 that structure has continued to evolve.
Sounds as necessary.
There's been very effective.
Some basic steps that we took first of all everyone who can work remotely is working remotely.
That's freed up space, given our facilities for people who have to be on site to social assistance.
We've had we've stood up our backup electric transmission gas transmission control centers and we have.
All of her field employees working in ponds paying attention to supply chain.
I'd get all of the metrics that you would expect.
Work is getting done from a customer perspective, the only change has really been.
Oh I'm.
Sure. This that involves must be directly.
Interacting in person out with a customer supply like.
Things like that we're communicating externally.
But what are what are people are doing about the need to maintain distance and giving them wave.
We've had no lost time incidents during this period.
I was fingers crossed so far we had had no employees.
Contracted the virus, we have had several.
Several tests are doing obviously are taking taking all precautions. So that's good news one.
I like just as an example.
Here is even though our customer service reps are for the most part now working from home as well.
Great and service like we've been able to maintain.
It's really really top notch I expect you want to talk more about covert during the discussion so with that I will turn over to Brian to walk through.
Our financial situation right.
Thanks, Bob on page six from a summary financial results perspective, as Bob pointed out.
Our net income 50.7 are down 22.1 million or 30%.
For the first quarters, certainly a disappointing quarter.
Hi level when you look at gross margin down 24.5, and compare that to income before taxes around 25.5, just the story for the quarter was very disappointing margin on a year over year basis in fact, no improvement in operating expenses.
We're effectively offset by slightly higher other expense and so net net it was margin.
As a whole moving on to marching on slide seven.
Again down 24.5 on a year over year basis, and again 15 million Abaxis with electric and 9 million, especially with gas, but the actual decrease in gross margin as a whole so sort of volumes electric down 8.7 million.
Well again gas down 8.4 million I'll mention here, whether that the change in the year over year basis. It was 18 million associated with weather. So obviously, that's a big part.
Just two line items the other major contributor to the 22.2 million change in gross margin that impacts net income or other miscellaneous nonrecurring items, which are primarily items associated with tracker adjustments, we have a favorable adjustments and 2019 and on an unfavorable in 2020.
For that particular item, but those three things electric volumes gas volumes on the nonrecurring items make up the substantial change there we did see waste this.
Revenues off primarily so should the closure.
Units, one and two at coal strip and gas production continues to come down but.
That was offset by a rate increase in terms of in fact retail rates in Montana.
We also have items that impact gross margin better offset elsewhere in the net income totaling $2.3 million decrease for total again 24.5 total decrease in gross margin moving onto weather page eight.
As you can see at the top of the page you know substantially warmer Thompson, our largest jurisdiction 23% warmer.
Versus 19, and even 5% warmer berserk historic.
Averages, but she doesn't perhaps at the bottom of the page you can see and 29 teams are extremely cold in February and March and we're actually quite a bit warmer in February this year, so a pretty big swing in a year over year basis and that weren't first quarter contributes approximately 4 billion a pre tax gross margin detriment as compared to normal.
And 18 million pretax detriments compared to the first quarter 2019.
Regarding operating expenses operating expenses were down 2.7 million those that actually impact old DNA, we had a increases in generation cost we had some RP harpy cost and also some higher cost some of our operating facilities.
Some other miscellaneous expenses, so slight change there 1.8 million or we also had some changes in opening in aid or offset elsewhere and net income. That's a decrease of 3.9 million for net decrease of 2.1 million in operating general administrative expenses. We also saw a slight decrease of property taxes, yes.
Slight decrease in depreciation depletion.
For the quarter.
If I move, Florida operating to net income operating income itself was down 21.8 million or 22% interest expense was up slightly due to higher borrowings. The other expense increased to 3.1 million is primarily the offsets I just spoke to an old DNA.
And that promised onto pre tax income I mentioned earlier down 25.5 million the benefit that we saw an income taxes.
Excuse me the 3.4 million decrease and income taxes for the benefit primarily due to lower pre tax income, partially offset by lower amortization that eat it.
And other flow through items.
And speaking of in cash income tax items on page 11 in a reconciliation.
You can see our income tax calculated at the statutory rate.
Down 5.3 million that offset by the he did I mentioned that flow through items down below just as a 3.4 million.
Trees.
Income tax expenses and even for the quarter, though we had a decrease and income tax is one thing I should point out because we had a.
Poor first quarter.
And that as a percentage as ARX <unk> of our total pre tax for the year, we actually were book lower tax credits during the quarter and so that benefit.
I would have been much bigger if in fact, we get a similar proportion of our total pretax income this quarter versus 2019 of course, having a very strong quarter and having a higher proportion to total so we do expect ought to get.
Some better tax outcomes from a credit perspective in coming quarters.
Last thing I'd point out you know from an anti while perspective, we expect them to be available into 2021.
And with alternative energy credits and production tax credits available into 2023 to reduce cash taxes and lastly, our effective tax rate is expected to reach 10% 2023.
The guy and the balance sheet not much to report there a little change caps or cash on hand is associated with coated.
During the quarter, but the ratio of debt to cap.
Improved slightly.
Over the last quarter moving on to cash flow on page 13, we did see a 47 million dollar improvement in cash flow really think of it three things, we had better and collection of supply costs from our tracker.
First quarter versus last year.
2019, we were giving T.C.J. credits to our customers.
And lastly, those two benefits were offset by the lower net income for the quarter.
Moving forward your adjusted non-GAAP earnings.
But we did here on both the first quarter of 2019 and 2020, the only adjustments that impacted net income were whether starting at the bottom on the left side. The page you see diluted EPS of one dollar.
Adding back six cents to get two dollarssix compared to to the far right at the bottom $1.44.
Reducing that for favorable weather by 21 cents to $1.23.
That.
Dollarssix versus dollar 23 into 17 cents detriment are down nearly 14%.
Do you think about both the unfavorable weather up at the top of the page and revenues.
This quarter and you can see the far right the favorable weather in 2019 as I mentioned earlier, there's the 18 million change in a year over year basis.
Lastly, as I walked out kind of through the piano itself gross margins down 6.5 million after you adjust how weather.
And so from that perspective, I mentioned, the nonrecurring I answered big portion of that the second thing I'd point out operating expenses, a though flat still on an adjusted basis up slightly interest expense up slightly getting to a pretax a detriment of 7.5 million on a year over year basis.
And then lastly, the reason I talked about a the on the tax reconciliation a little bit about income tax changes here. It actually shows we have an unfavorable.
On a year over year basis on a non-GAAP adjustments and you can see if you look to the far right in the <unk> income tax line.
There's a there's a tax expense, but when you back out be favorable weather, you actually get yourself into a favorable tax position on a non gap.
Adjusted 19 for income taxes in the reverse happened here this quarter.
Favorable income taxes, and then offset to degree by the adjustment for the unfavorable weather and net net.
Income tax became a negative variances should result in a year over year comparison of 1.1 total again 8.6, a detriment from a net income perspective, comparing the non-GAAP numbers year over year.
Moving on to Slide 15, just real quickly on liquidity with the goal the uncertainty of covertly wanted to increase our normal liquidity minimum threshold of hundred million up to 200 million and the best way to do that was to.
Actually enter into a 364 term long we were able to do that we also recently priced hundred 15 first mortgage bonds, we accelerated that offering expected later on your your into the early part of the year, most phones will chime in and bringing in so we feel very good from a liquidity perspective.
One thing on from an equity perspective, we've mentioned you know recently that we expected your equity either late 2020 or early 2021.
Where we sit today as we anticipate that equity issuance is going to roll into early 2021 at this point in time.
Moving forward diluted earnings per share by pointed out earlier that were reduced our range from 345 to 360 down to 330 to 345.
The primary measures there associated with cold it of course, and a poor first quarter regarding cold. It just to think about how we laid out our thought process, we expected a very difficult second quarter.
Obviously with ER business closures.
Social distancing in place for very tough second quarter easing significant in the third quarter and nearly fully recovered in the fourth quarter. We also adjusted our tax rate to a negative from a from previously a negative 2% to positive 2% down to a negative 5% to zero percent lastly, as Bob pointed out.
And you need investment or think about a long term six to nine a total return GSRP you will mentioned earlier in previous calls if we continue to invest over 400 million, we expect to be in the midpoint of that range. If you think about 2019 is your base.
Going forward, we still see 6% to 9% as our long term total shareholder return range.
Moving onto slide 17.
This was a good depiction of the changes in the guidance and obviously want to answer investors questions, particularly as we reduced guidance here the difference in the middle columns. There between initial guidance in our revised is a 15 cents as you can see I wanted to give you the flavor of what the changes were obviously very good.
Paul first quarter.
You see a nine cents.
Jihad negative impact from a gross margin perspective.
And a six cents a income tax expense and that's why took so much time walking through that with you earlier. So you can see that item about six cents I expect all of that to be reversed from a timing perspective, and I do expect some of that nine cents pulp above.
To be a timing matter as well.
So think of the first quarter.
Is about you know 17 census, it's shown there, but with the timing changes I expect to see a 15 cents change half of that's really associated with the first quarter.
The other half is really associated with cold and effects for the last three quarters of the year and speaking of those changes you can see the ranges. There you know for gross margin perspective, you can assume essentially flat minus three cents deposit three cents, obviously cobot isn't there, but we also have so timing and some growth expected in there and so.
Plan that the midpoint of that of course is flat.
We do increase our our expense excuse me our expense control.
During the year as a result to covert and we're seeing reduced expenses you can imagine those items and I'll speak to them in a moment of things that we're not doing from a business perspective, and lastly, the timing associated attacks those are the biggest changes.
Up to the far right. We explain you know the changes.
Very high level, maybe you can see at 27 cents reduction.
And a margin is it pretty substantial change.
And Ah, but you can see how we clawed back 27 cents. If you will subtract eight cents of incremental opening in a recovery subtract two cents and depreciation improvement.
And subtract another two cents of net change none improvement in income taxes, and you get to a 15 cents.
Changing your guidance as a whole so hopefully that's helpful. I'm sure there'll be more questions last thing I'd say on this page is you know that cost controls that we put in place.
You know 15 cents.
Associated that guidance is in part due the first quarter remainder due to kogut.
20, Twond remainder of 2020 moving onto the margin expectations as a whole.
The bottom of the page we mentioned the updated gross margin guidance for Q2 to Q4, we try to explain in more granular form the thing I laid out at a high level on the initial guidance page, we anticipate in a down three to two plus three for that period, one of the things we would point out.
In fact, a cold and are forecasted to be offset.
Most if not all of our forecasted organic growth we expected in 2020 at the upper left.
We have our kind of our 80 20 rule from a customer count perspective.
I think residential customers being 80% of.
Both our electric and gas business, which is true.
On a revenue perspective that changes issue you can see at the upper part of the chart just to the right.
The customers from a revenue perspective for electric.
Residential slightly less.
Then, 50% and done gas, it's slightly more so on a combined basis think kind of the contribution from residential and commercial about 50, 50, and you can see a very little impact from industrial on Oh, the electric side and nearly none on the gas side, so laying that as a preferred.
Chris or just to understand the business a bit better upper right. It's just our overall concept at what we had impact we thought we have on loads and it's a forecast folks and cold, it's very difficult to comprehend that talking to our energy supply folks and thinking how this would play out we anticipated about a three to one ratio.
Impact from a volume metric perspective on our business. So.
That commercial accounts would go down.
At a rate of down three point and her team down to three to our increase of one in residential lessons for Q2 expect tumors to be down about 12% residential up four and you can see that ratio stays pretty solid through Q3 in Q4, and you can see the substantial recovery I should point out of the.
Hi level again, she too is a one as the quarter that gives the least amount of contribution to net income but in fairness do you want in Q2, combined or about 50% of our contribution so the difficult first quarter in a difficult second quarter will be difficult to overcome with the last two quarters the or.
But with expense control and expected recovery a in third and fourth quarter, we expect to offset a portion of the first quarter.
We talked about earlier little more granular detail by both electric and gas is showing down below and with far right. We show the 20 and 2020 estimate of cold it versus pre told that you could see the impact on residential commercial there.
And same thing from the gas side wanted to give you a lot information a wanted to show there's lot of rigor to our thought process here I think.
Everyone knows no one has a crystal ball in terms of how this plays out but we wanted to work really hard to giving investors look into how we're thinking about this I think easy answer would have been to just to drop guidance altogether. It was arguably the best thing to do is trying to think of how this is going to impact our business and come out with a result from there.
Last thing I'd say on this page regarding decoupling.
First and foremost it is only impacting our Montana electric only business and by the way it's not even in effect until July of this year and so due to the recovery that we expect in the third fourth quarter, we didn't expect decoupling to have too much of an impact.
On the business on the changes here as a whole and lastly, I'd remind folks a in Montana. The decoupling is primarily associated with our residential customers matter of fact less than 10% of our commercial customers are going to we're going to see a benefit from decoupling.
Through the commercial side, so much much more of an impact on the residential side of our business moving on to slide 19 told it from an expense standpoint.
We note at the bottom, we anticipate 2023 cents EPS improvement compared to the prior year.
Non-GAAP basis. This includes nine cents incremental cost controls compared to our initial earnings guidance and by the way. This assumes regulatory recovery increased bad debt expense in our jurisdictions around that point I'd argue that approximately five cents.
Of our thought process here.
Why would we expect to have regulatory recovery increased bad debt expense, we've had discussions.
With our two largest jurisdictions, Montana and South Dakota.
We're also working with the other utilities.
In those jurisdictions about making filings had favorable discussions with the staff at both Montana, and South Dakota, and feel confident that we'll get a outcome from recovery in that regard.
But that is built in into our guidance.
And with that I know there was lot I'm going to pass it back over to Bob.
Okay, just to reiterate call on slide 20, you've seen this before three points I would make a first we do include the South Dakota cogeneration investment at $80 million checking.
As we've talked about we are successfully executing against this year's capital plan, we've been managing supply chain paying attention to things like that work is getting done.
And third we do expect in the out years.
Capital investment or at least this level as you know is weak.
Work through the the.
The planning cycle, we identified the projects that are most important to serve our customers. So we do consider the current level of capital to be sustainable over the coming years looking forward, we talked a little bit about regulatory matters are already we're very pleased with the settlement we were able to reach the electric rate.
Ladies and Montana.
Decoupling or the infrastructure support mechanism is one of the issues on reconsideration do expect a decision from the Montana Commission sometime in the coming weeks like other.
Regulatory bodies around the country or they are meeting through alternative means nothing has been something of a challenge for.
For many as Brian said, a decoupling or something.
We believe very strongly have long term value, we don't think of it.
As a very significant tool to address couldn't covert related concerns here.
Meanwhile, the a parallel FERC transmission rate case is moving ahead. So most of you know that has been and settlement discussions for quite some time.
The settlement discussions are now being handled electronically as well rather than in person.
But they are proceeding the.
South Dakota plan.
He highlighted.
To implementation, we expect the plant to be online by late 2021.
Montana, we have a comparative solicitation for 280 megawatts outstanding.
Still believe me schedule for that can be met we did add a couple of months to the deal closing date and me.
And the RFP interest in recognition of the.
The current covert situation.
Meanwhile, just fundamentally foundation, we are ongoing work and the transmission distribution system to continue to modernize the trust for liability capacity functionality.
He is going forward and despite a cold and everything else. We are moving ahead with plans to join the.
[laughter] assigned adequate resources to that based on her experience on the South Dakota southwest power pool.
Forward to a good outcomes for our customers and the company as we move into the Western imbalanced market.
As you know we had.
I agree with Puget sound or due to acquire their interest in Colstrip unit four.
An attractive resource for our customers.
Even if a transitional resource.
And it would have deferred but not eliminated the need to acquire assets to address our customers.
Capacity exposure very important part of that was the purchase power agreement back to a huge it.
With a.
Hey.
Hi, good price structure, and very significantly Puget agreeing to retain future closure.
And for example pension obligations.
So we considered that proposal to consider that proposal would be very good.
For our customers and also extremely responsible.
In terms of future environmental are there other closure costs, we were not the only people who talk we had negotiated a very very good deal. Most of you were aware of Cowen.
Has now exercise there right of first refusal.
On both the.
Purchase and sale agreement for the assets.
And the parallel.
Purchase power agreement back so the.
Unfortunately part of that but.
Customers are losing some significant value.
The other hand talent action.
A firm we negotiated a very good deal.
For our customers and also does a and b can columns longer term interest telling it also asserted.
Me.
There is no real for available for that then it come on at least acknowledges oh or position.
We are in the process Refiling are filing an amendment to our application, reflecting the ROE for in addition.
The Commission had initially.
Good.
In order.
Filing finding that our initial.
Application under the Montana pre approval statute was deficient in certain ways. We were extremely concerned that the commission had.
Without necessarily having to do so rob the docking.
Substantially beyond.
The.
Corners of the filing in the Montana.
Pre approval statute is quite specific about contents.
The filing areas requirements imposed upon the applicant and then does so.
Okay deadline, beginning with the date the application is deemed complete.
The commission good just several days ago granted our motion for reconsideration.
And as we adopted a.
[noise] procedural schedule that would.
Move towards a hearing this fall.
There could be worth noting will also include a strong language about appropriate inappropriate use of the discovery process Friday to keep the.
Okay.
Okay.
Pro prudently.
So with that we look forward your questions.
Thank you if you ask a question. Please go by pressing star one on your telephone keypad.
We are using a speaker. Please make sure your mute function is turned off tire signal to retire equipment.
Again, Please press star one to ask a question.
Well take our first question Julien Dumoulin Smith with Bank of America.
Good afternoon, guys actually buying remote on scheduling.
Right.
Thank you so that the h. roll those out there was an effect.
[laughter].
So maybe kick off.
Our expectations around rate cases.
Finding and Petzner advocates and given the meaningful cost cuts that are being implemented.
That we do look at a rate cases every every spring, we'll look at or whether a rate cases appropriate and this year, we do not anticipate making any filings.
Are you able to help frame kind of expectations for next year given that the cost cuts that are kind of being implemented right now.
Right and expectations in terms of.
Rate case filing from 2021.
Right.
No they get there too early for that.
Fair enough and then on a decoupling you understand that it's not living designed for the current crisis, but.
In terms of action by the Commission there.
<unk> July implementation kind of your base case, so for expectations.
The most of were less concerned about okay.
Gauge for implementation and more concerned that the condition does.
Move ahead with a with decoupling again, there, it's really design because of infrastructure support mechanism.
And the commission issued a very good order, we hope it stands by that order.
More importantly, as part of that or what are the commission recognized that.
There's no basis for.
And our we adjustments when decoupling as adopted.
There were concerned about the substance and without a clear order much less concerned about it started again.
Hey, Bob and Jessica survey on the phone, it's difficult because Bob and I used to be able to cross the 10, which other than saying it was gonna take answering this question or not just one thing on rate case, I agree with everything Bob said.
Just want to add something though on south to tell that we have talked about sofitel in the past because of the structure of investing capital last year and investing capital and 2021, the thought process of having a 2020 test here and there are no one in Nashville capital side, we've had share thoughts raw mats I want to.
To be able to say that again almost call. Those those plans have not changed as we sit here today.
Fair enough it Brian and I have not been in the same room since early March like February.
[laughter].
Fair enough and then I guess.
Looking at and margin assumptions are you able to get any color on your transmission revenue expectation and I guess any color you trying to provide on that $1.2 million headwind.
In terms of what might it Ben Hogan related bear.
For the quarter, Yeah, I saw some thoughts about transmission impacted by pull that we were not seeing that a certain I haven't seen at the first quarter two things I'd say about.
Transmission side of our business.
Waste as a impact.
We see on transmission.
Really driven by the closure of units one and two so that was already in effect pretty cold in the other impact we did have in the first quarters in that a large industrial customer of ours.
It was having.
Some troubles and stop production in January and they are now back up and running and and certainly still running and sort of cold in time period, so another but saying about industrial for us.
And thought Lacana for sure.
Industrial here in South Dakota thought commercial but not a ton of industrial so a nice thing, though and the state of Montana, most of our industrial customers or industries deemed.
Important tend to continue and production. So we haven't seen a lot of fall hasn't life there.
Fair enough and then just lastly, real quick on E receipts that so I understand your commentary around South Dakota, but in terms of Montana, how should we tend to think about being a relationship between you and you know what I'm quite soon then the tax near for that next rate case.
I'm going to current Bob statement earlier.
Montana, we're gonna have to wait and see where we are in spring of 2021 see what we're going to do there.
Fair enough pretty good design guide.
Exercise.
And our next question will come from a sharper outside with Guggenheim partners.
Hey, Good morning, guys are good afternoon actually.
Just a corner China's quick.
Yeah, a couple of quick questions here your outlook assumes.
Business close years in the second quarter with some sort of a mean reversion business activity in the fourth quarter.
50 outcome is sort of more protracted or the recovery assumptions that you guys have in the slides are lagging by maybe one or two more quarters do you guys have additional levers above the nine cents and own out you found to stay on track.
We have additional levers I guess beyond the nonsense.
Bob I'll I'll grab that one I would tell you. This what we did show ours, we looked at.
Kind of a worst case scenario essentially said what if in fact, we're in this situation in the second quarter for full year.
And our guidance would go down another 15 cents assessment that gives you an idea of the magnitude slaying if in fact, we were locked down for all of.
2020, so we don't have enough levers if you want to go that far to give you some thought process on how youre thinking in terms of.
We did lay it out.
Thank you and fairness and I don't want to downplay the national impacts of cold and right now, but the total number of tastings and our too.
Service territories in Montana, and South Dakota, combined is 468 cases.
Perfect Montana is talking about opening up here in early may and I in a phased approach.
So we assume effectively locked down into and through all of the second quarter and in our assumptions. So and then recovery. So I think and again things can change.
We're certainly well aware that well, but if we're not careful that they can change and that the company is certainly regardless of how quickly things are going to open up.
Our various states, we're going to continue to do what we happened to protect certainly our employees and customers as best we can but.
From our perspective, we feel pretty good about the assumptions and continue to as we continue to Washington State again.
Like the key like that it was just like we monitor a the situation.
Truly week to week and in some cases day to day and are able to to make adjustments.
500 cases, or so in our immediate service territory is obviously five a true too many and precautions everyone is taking.
Are appropriate but.
This points to projections, but writing and ran through are pretty consistent with facts on the ground backs could change.
To be prepared to adjust.
No I didn't mean just were three weeks you know into the second quarter, how does sort of the load picture look like.
Versus what your assumptions are prospectively on slide 18.
April pretty reflective of how your Cogs advising for second third and fourth quarter, and those who moved Doug.
Bob I thought we probably both in responsible side I'll take it down I mean, what are we seeing thus far shoppers on another way.
To answer your question, Yeah, I went yeah.
We we don't have.
Very information on customer by customer base. Since we don't have any of my route and Montana, what we do have though is responsible for well control balancing the staying in Montana, and obviously I am just part of our business what we're seeing their thus far in April was there were lots are down about 2%, but in fairness.
Its been a pretty decent weather month and solve the the thought process.
Internally is that probably equates to more like a 4% drop in loans as a whole.
Saw that that's what we have thus far it's not a perfect match for our business, but relatively from a volume metric perspective, it's the best.
No no good ones are just <unk>.
Loads in the aggregate, obviously, we're paying attention to.
The.
Payment.
Situation and we we start with a very low level of late pay non pay like other.
Utilities, we do.
Uh huh.
Termination and collection is got to program.
So not just this week to reach out to those customers, but from that low base, we are seeing.
[laughter] unusual.
Trend.
This year, obviously associated with with cold here just in payment issues that we need to work with customers there.
But again, our regulators will support us from doing that.
Well just on the top X. I'm, obviously was reiterated but does sort of decelerate through trajectory and and the message is always generally bring that he can backfill.
Does that sort of related slowdowns impact kind of this conservative bend and more importantly can you sort of speak on the flexibility of sort of the girls capital program.
Assuming that backlog economic backdrop is a little bit more projected.
There are any sort of spending programs that could become secondary in nature.
We have big because our capital program is not at this point it really dependent on.
Small number.
Headline project, it's really driven by what are the needs.
The system.
So there is some flexibility in bringing programs forward and back but I wouldn't think of it so much of.
Back filling a whole isn't just doing the work that's appropriate to do.
In the system.
And doing that in the sequence that makes sense. So.
Sure and distribution there were.
Our resources available to to really focus on.
Line sub segments using.
Using data.
Generic GAAP analysis to go in and address reliability issues.
Be proactive in terms of fire management things like that that's an example of a program.
That can be.
Moved moved up depending on available resources, and Brian or do you want to jump in on that one too [laughter] working together in the whole time, Oh, Yeah, I would I would say this.
We have.
As far as I can recall, we've always investing more in the actual in Europe that fit your forecast I'm actually shown.
Five years prior if that makes sense in essence, we do tend to fill that in and we're better at forecasting our current in your budget capital perspective than we are 50, or but we tend to fill that in shire. So I'd say that first.
And I'd say, obviously, we'd like to be successful and Montana generation. They were able to do that we will fill it and likely and then so right. You hope is to me up 400 million of investments throughout this whole time period, and again that Kansas top comforting thing at the midpoint of our 6% to 9% total shareholder return.
So yeah I do think we'll fill that end, but until we've identified the projects and have done a significant model work in terms of laying a lot. We're not going just roll projects in there to make it add up to 400.
Got it and just one last question if I may be the rate case, just the part that was under reconsideration. That's the decoupling pilot, but you know that outcome kind of shifted from first quarter and then now you're expecting sometime in the second quarter. Just obviously highlighted some of that could have been related to cope with.
Is there any is there any potential this can go into further slippage.
I mean the program I think is supposed to go into effect in the beginning of July it's just get a little bit of a sense on timing when theres the potential slips.
Further.
Oh, the order I certainly expect in the next few weeks I think the commission this figure it out.
Hello to.
Run its fits business remotely.
In terms of they start date for the program as I mentioned I'm not as concerned about whether that's.
This July or next January one night, and eager to see as a strong.
Order from the.
Hi Commission affirming.
The company is important.
And affirming its original decision.
Sure I congratulate kicks off.
Our just.
I'm not sure, but it may actually be on the work.
Session next weekend.
Yes, it of no go whether they.
Packed next week or.
A take or decide to take action at some point in the future, but there was a work session scheduled on decoupling. So we can comfortably say it'll be.
Uh huh.
And final outcome next week worrisome thereafter.
Perfect. Thank you yes.
And I'll take my next question from Michael Weinstein with Credit Suisse.
Hi, guys. Thanks for taking my.
And Mike.
Yeah, Brian I'm on page seven you have listed or other miscellaneous onetime items affecting gross margins.
Some of those miscellaneous items with whatever then where they want.
Well I think what we've done is really bad some adjustments.
Trackers.
Yeah I think.
From our perspective, unfortunately, much like margin adjustment that we had last year of all of which from our perspective. This.
Several adjustments and another in all cases, but they were favorable and 19 and unfavorable in 20 and just the swing.
Your basis, that's larger than usual so.
Well I'll leave it that that Michael but they trackers, where those adjustments are typically though.
Yeah, I think the a good.
Concern is meant to concern to analyze it they would you look at that.
$9 million right.
Seeing investors being told to ignore that for next year right. So it was asking going forward.
And that's fair I didn't exist.
I think that's a fair thing the question being Hey, I've got it seems as kind of going forward based I can't say for sure I couldn't tell you this style.
He can't for instance, as a relatively new thing and then the structure went through changes. We also have had changes and how property taxes are handled from a tracker perspective here recently and the in past years sell sell.
Obviously get our arms around that if the other changes to trackers for instance that this could be something that happens again, but I don't for seeing anything in the first one or 2021 as I sit here today.
Okay. Thanks.
So I know about them.
Good morning.
On the stimulus Bill have you guys said anything about what kind of maybe my credit solution you might get for any you know well.
So in recent months yet.
I think.
Meters me at less meters impact this year from a tax credit perspective that summer Patrick pairs for continued to do a lot of worked I hope I'm gone down the path in are gone, Michael but I think we're going to be tax credit perspective, I think that's something very similar.
In terms a level on a on a year over year basis.
And bad debt recovery being considered by the regulators in Montana, what about other expenses.
Is there anything else since they might.
To consider using.
I would I would say here's the thing about that that and I'm talking to other utilities.
That's an easier wanting to talk about as just because of the disconnection.
In the <unk> inability to have control over that as much as mean it used to have as utility perspective, and and that's an easier one thing to.
Dealing with.
Conditions I'd also say.
Pushed too much other expenses that are going up.
If I wasn't commission you could ask what about some other expenses that are going down.
Oh, that's bad debt is one that I think everybody get their arms around pretty well, but we arent and dialogue with other.
Utilities and that some other ideas and so all in one single tenant jurisdictions that we're talking about but we do.
All like to come in with a joint filing.
And it might want to other thinking or questioned on credits the main thing I want to reiterate.
Yeah, it's just the tax rate itself more negative 5% to zero percent. This thing I wasn't anyway.
And one last person you're on Colstrip, you know with talent, taking a piece of it now.
If I remember right you guys kind of contracts you just it makes a certain that gross margin.
Five years.
To help fund.
And the liabilities or does that mean, it seems more liabilities now.
Just on how does that give them.
Actually it would be no there's no not more liability to fund but the.
Profit from fundings in these last few P.A. back.
Would be diminish not necessarily one for for one but that is disappointing to get a week. We thought we were doing.
Still are doing something I didn't really.
Creative and progressive in identifying a revenue source to prefund.
Closing costs, and we still intend to do that unfortunately, there will be at a lower level.
We'll go beep.
Updating our filing.
Sure.
Right away to reflect all of that.
I remember I think it's a good when it's 25 million dollar profit if you were expecting against something so maybe 12 million you know.
It depends on obviously, what what's going on at the mid C, but it would still be of.
[noise] significant contribution.
Yeah, I pick back up just finding smoking around that.
I I'm, sorry to interrupt on that one I just can't be careful the words profit marine years I would argue the net proceeds as a means to fund.
Future remediation costs on our existing ownership on uniform, so hopefully that clarifies that.
Right.
Yes.
No.
Well take our next question from Plano Siebert Williams.
Hey, guys quality.
Hey, Chris.
The guidance does thing.
Reflect seemingly a whole lot of impact from any kind of second.
Like in the fourth quarter.
Are you doing that because you just don't know what to think for you.
You're not as what I would assume that that there's a false flu season, what's your sort of thinking there.
It's a good question, Chris I think as me.
First looked at this there weren't as much discussions a initially about a second way.
And obviously read that is coming up at this point in time.
But I also think from our assumptions, we didn't expect states to start talking about reopening in early may either in light of when we were putting together these assumptions.
Taking that into consideration.
But in fairness, yes things on the ground change we couldn't be wrong in our assumptions.
Okay, Yeah, I was gonna say it it sounds like based on your timetable locally that.
Maybe theoretically your thought process on the second quarter could be a little better than you thought, but you're also not reflecting quite as harsher fourth quarter. So you're comfortable with the year as it is kind of.
Yeah I think.
You know on a particular quarter, we might not mail it I like that I like it thinking about it over the three corners that will be in pretty good shape.
Okay and the other thing I wanted to touch on if you haven't made any capex adjustments is your thought process at this point that labor and in terms of what you plan to spend won't have any productivity effect from covert 19.
Or have you made adjustments and how you plan to execute on your spend.
I'd say.
Three things first.
First both or.
Workforce and contract work force.
Our.
At this point in good shape and I'm.
The.
Health and safety of our employees because it was number one.
And the.
Steps, we've taken so far are designed to.
I'm sure that they continued to be healthy.
Second factor I mentioned is supply chain and their supply chain.
Team is paying a lot of attention to that and there have been some.
Shifts and inventory, but so far.
We're able to to get parts in it and reasonably good shape, a 30 talked about before there was there some ability to [laughter] just plans.
Project the project.
We're going back.
The Big picture.
It all seems to come together at this point.
Okay great.
Right.
I'd add sorry, Chris enough. Your last second question I would only thing I'd add is from our perspective theres some customer facing work that we typically.
What being doing and that's we're doing a less of that and that's an expense item and so I folks are being able to allocate more their time than they normally what capital projects and so that helps in that regard as well.
Okay, great. Thanks required.
Well take our next question from Brian Russo with Sidoti.
Yeah.
Hi, good afternoon.
Thanks, So much loved my questions have been asked and answered, but just so we Montana RSP are we still expect to expect the final bids or what initial goods in may and an outcome in the first quarter of 21 was already.
The latest keeping them.
Environment out there.
Yeah, we've added two months to the bid closing date, but we have not.
Any adjustment to the final decision date inertial play team is comfortable that that's going to give gifts and plenty of time to to do the work that's necessary.
Okay. So the two months' delay.
In the bids that's do you been bag.
Correct, so essentially just adding two months on to the big submission period.
Fronts, but no, but no change and <unk>.
Okay, Great and then I'm going to switch.
And you mentioned the or the total shareholder returns on she chooses to 2019 base year, you should we be used to be adjusted yes, you strip out the favorable weather or is the base now it seems to be seafood favorable weather.
[noise] pop, whether whether it's something we're always find going to chastised by.
Okay got it and then I.
I mean, let's just earlier, but the 15th so net reduction.
Who didnt guidance.
<unk> was six cents was weather related in the first quarter total of nine cents impact the first quarter and the remainder of losing to chew. So we should see you year over year, probably we comparisons in the first and second quarter kind of big pick up and.
The increase year over year.
The remaining two quarters over the year in terms of you have the marching dispersion or earnings to spring.
I'm, sorry for asking a little confused if not for a minute. There you were going with a nine cents that was just in the margin that was already adjusted whether covenants or.
Not sure I, followed your question I apologize.
Well the 15 cents both reduction to your did quite good show low wherever your previous range is now the high end of the open you when do age are there additional costs.
That can be.
Managed chief you know alleviate some of that 50 cents and how much of that the peak sensors already realized in the first quarter.
Okay, I actually interesting I think from our perspective again, I just want to be clear I'm pretty confident post curve it and what we're offering others. We're always trying to just out whether just to make sure that's clear.
The 15 cents change, we already have substantially added incremental cost controls above and beyond what we had in our initial guidance, which had cost controls benefits in it so from our perspective, we think.
With that variance really is associated with the results from the first quarter. We think there's some timing there certain notice some timing on taxes believers timing on margin and we'll get some that something happened. After the first quarter and then the second half were going to have cold it impacts no doubt and you can see there's substantial margin reduction or we're going to offset that.
Back to a good portion with both cost controls and and the timing associated the taxes.
And I'm, hoping that answers. Your question that is kind of the other half. If you will have the 15 cents. So I think we're taking in consideration that the cost control savings to get.
To the 15% change that we're talking about.
Okay. So there's no bias towards the upper end of the revised guidance. It's the biggest cases is good points.
I [laughter], yes, I think that's fair.
Okay got it and then.
Good I'm wondering for 2000 that that was accelerated does that satisfy your debt needs.
You know through 2021 or just through 2020.
Sure I assume you you know you two out of equity needs or maybe early part of 2021, you're already at the low end bodes well for debt to cap.
Yeah, we had we accelerated what we did this year, we always typically have a some first mortgage bonds, depending and hopefully we're doing something large enough in the future. We can I do you ever larger debt offerings that we typically are doing a things from a debt perspective, once a year and so this.
Here, we accelerate we're gonna do.
I think in 2021, we'll do something similar the sizing it out of depend on the capital that we deploy in that 2021.
Got it and then lastly, the five cents a bad debt.
Assumption is that being the midpoint of your guidance or is that and you know are you expensing that and then hopefully you get no commission approval could then defer it how should we look at the.
Well I think in fairness you have to assume is there's parts moving and if I.
Mentioned already that my mouth I might come out as in the midpoint of that range and I have to move five cents, because I didn't get recovery from a jurisdictions I would be in the lower end of my guidance if that makes it.
This is actually quite different jurisdictions.
Okay, great. Thanks for all the additional information that's all.
Thanks, Brian I'm sorry.
Our next.
Shin from Paul Patterson with Glenrock Associates.
Hey, Paul.
They can you hear me himself.
Good afternoon.
But after that.
So I want to work such basis.
Most of the question to answer, but but wanted to touch base with really what the.
I completely agree level to cope with impact that you guys are forecasting is.
And you're expecting some sort of rebounded in the in the third and fourth quarter I guess.
And what I'm wondering is I mean, when we're talking about this are you guys expect you really what do you expect to be in terms of the economic impact associated with coated in terms of your your 2020, <unk> and the long term growth with that you guys.
[laughter].
Yeah, I think in fairness suite we.
We didn't look at the end just curious on our business and take a guess how this particular industry is going to be in path and we had an idea of our customer base of course, but we didn't do a we're not forecasting that GDP change in their various states. We essentially said based on what we know today.
That's our expectations from a low perspective, we do understand that and by cannot for instance seems a lot commercial customers relies on the travel industry and we expect that quite a bit of impact there, but again I think we've put them effectively focused on how will the economy respond in terms of the health aspects of this.
In essence wallet or will we be a.
Shelter in place during your point in time, we'll be opening up a assumption. We were then opening up in the third quarter and.
Yes, that's moving a little quicker I think the Fairpoint was raised earlier in the call that could be impacts going into later the are you still feel good about that but we have not sit down and done and analysis. If you will by our customers themselves and essentially said each one of them what do we expect a change in low this is at a higher level.
Okay. Brian did mentioned earlier, we have some visibility in to particularly our largest customers. Obviously, if if you're a university was effectively close your campus.
You're hoping to reopen for fall semester, I'm not necessarily know you're hoping to on the other hit on some of our largest customers are.
And the health sector.
Or I would natural resources refineries.
And they have continued.
To give me very active.
Well, it's another thing to add.
Oh, sorry, one other thing to add to as.
Now one thing you have to keep in mind I think people I was looking out to the downward side here, our most profitable customers or a they start on megawatt hour basis Depofoam basis.
Our residential customers and what we're anticipating an uptick.
And load there and those are more volume metric customers on this and I'd customers as well so that's something to keep in mind itself.
Okay. So if I understand this correctly do sort of basically talking about so the short term impact associated with stay in place.
What have you with the sort of public policy.
He would reaction to the to the pandemic, but.
I understand you correctly, you guys are not really.
As for the forecast purposes, not making any change your expectation for.
Economic growth for instance, you don't have a a recession or anything like that.
Plans into your.
That outlook is not involved in the six to nine or.
If I could be in other words, when you're looking at this you're looking at this sort of the steady state economically and we're just sort of looking at how load might be impacted by life.
Just what I talked about the coated.
The direct coated response reaction kind of thing as opposed to the potential for.
A substantial economic slowdown.
And in fairness on that point, a bargain cleric too we talk about a recovery on the third card and nearly back to normal in Florida. So we are still showing detriment.
In the third quarter and detriment in the fourth quarter, but some not back to our plan than either of those quarters by any means so just want to be clear on that I think to your point in fairness.
You know thinking about 2021, we've focused on 20 Twond had I think it's difficult to say any impacts of this going forward basis economically that we took manager and entering into a recession of course that could have an impact on our business remained or 20, m. and into future years, we have not gone through that analysis.
Yeah.
Okay Fair enough and then just the the transmission issue. The question that came up but I understand your answer correctly.
The impact on the transmission revenues et cetera was pretty much what your does it for cats in really.
You know how to do with with the closure of the units and and and industrial customer really nothing would cobot is that correct.
Thus far that's correct.
Okay. Thanks, so much guys hang in there.
Thank you thanks Alicia.
And we'll take our next question from Jonathan Reeder with Wells Fargo.
In.
Hey, aside as about a long call. So I try to keep a quick.
Uh huh.
Are you anticipating a block issuance done or like you dribble like you did last time I mean, it sounds more like your weighted towards the block and push him out into Q1.
Wow, the fact that pushed into Q1, it's even given me more time.
Awesome, and [laughter] and side I.
And then really thinking about Q2, three and four and.
We do like ATM is always have and but we are well evaluate asked me get call Center.
Too and we feel we need to weren't dialogues with the rating agencies by the way and that's an important aspects of our timing assumptions that too.
And I think it's been about discussions there so well roll up.
Well I'll play more at report on that kind of future call John.
Okay sounds good and on a bomb habits talen, taking a half of the cobot are going to see for [laughter].
Yeah, she wants to comment on my mind right.
[laughter].
Second half or half of that deal you know impact your ability to control the destiny with respect to buy and you know see for my comments workflows.
Well, we will still have a pretty significant saying that to the degree that.
Alan and our interests are better align and that's a positive obviously they.
Decided that there was.
Value.
Being in four because we'll have much.
Much more ability to control that and.
In addition to that the the state of Montana will have much more ability to control it and fundamentally I think decisions about.
The the destiny of unit four will be driven by.
The economics of the unit or does it meet.
Our.
Customers needs in the in the definitely possible.
And then by by State policy decisions in Montana.
Okay. So that.
So I'm not overly concerned that.
They are taking you know the increase ownership.
Impact your ability to kind of keep it running through one of the 2043 per Todd or the long range plan that you've laid out previously.
What is <unk>.
We we make our we are supply plans are based on a 20 year forecast, but their.
Adjusted every few years depending on.
At that time for there there's flexibility inherent in the planning process the ability to make modifications.
I'm.
Primarily concerned about in terms of talent.
Coming into the transaction.
No one party can dictate to pay.
Closing date that has to be a decision.
By the owners so my my real.
Concern with talent coming into the transaction is value that otherwise would have would've gone to customers and now will not.
Okay that makes sense I just didn't say that's all.
Yes.
It's now huh.
And we'll take our next question from Eric Peterson with Millennium.
Hi, Brian. Thank you for taking my question I'll just a quick.
Thanks, [laughter], he said, 10% bugs commercial customers will be decouple.
So what percent of residential and commercial loans.
Do you expect to be coupled with and when do you assume that's a decoupling starts.
Okay.
We have when we get in and sneaking expected and our analysis.
As this one star in July.
And the I do not have at my fingertips.
Finger tips, the impact of decoupling residential commercial loans for both Q3 in Q4.
The de coupling aspect of it it wasn't material enough.
Because of the substantial recovering from my perspective, or what I can recall.
I'm not sure.
The percentage on margin loan a that comes into effect. If you will firm up 10% of less than 10% of customers commercial I should know that I apologize I don't I would reiterate dog and 100% residential customers in the Montana electric side residential side are in fact, it's I know, it's a 100% alone there.
Okay perfect. Thank you yes.
And we currently have no questions in the queue at this time.
In.
Okay, well with that thank you all very much normally we're looking forward to figure with water another conference and that won't be the case at least for the next few months, but we do appreciate your interest good questions and support for the company.
That does conclude today's conference. Thank you for your participation you may now disconnect.
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No.
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