Q1 2020 Earnings Call
Good day and welcome to the elite first quarter 2020 financial results call today's call is being recorded.
Certain statements contained in this conference call that are not descriptions of historical facts are forward looking statements such as terms to find in the private Securities Litigation Reform Act of about 75.
Because such statements can include risks uncertainties actual results may differ materially from those expressed or implied by such forward looking statements.
Factors that could cause results to differ materially from those expressed or implied by such forward. Looking statements include but are not limited to disgusted filings made by the company.
Within the Securities Exchange Commission.
The other factors that will determine the company's future results are beyond the ability of management to control or predict listeners should not place undue reliance on forward looking statements, which reflect management's views only as of the date hereof.
The company undertakes no obligation to revise or update any forward looking statements or to make any other forward looking statements, whether as a result from new information future events or otherwise.
Opening remarks, and introductions I when I like to turn the conference over to at least President and Chief Executive Officer, Neil One. Please go ahead.
Good morning, everyone and thank you for joining US today with me are a leap senior Vice President and Chief Financial Officer, Bob Adam.
[laughter] older and Chief Accounting Officer, Steve Moore. It also with US This morning, as Frank Fredrickson, Minnesota powers, Vice president of customer experience.
Assigning slide for this morning's call can be found on our website at ALLETE dotcom in the Investor section. So that you can follow along we will call out each slide number as we go through today's presentation.
This morning, ALLETE reported first quarter 2020 earnings of $1.28 cents per share on net income $66.3 million.
Last year's results were $1.37 cents per share on net income $70.5 million.
Recall that results in the first quarter of 2019 included a 19 cents per share gain from the sale of U.S. water services offset by two cents per share of U.S. water services operating results prior to the sale.
In a few minutes Steven Bob will provide more details on these first quarter financial results and our positioning and outlook for 2020, but first I want to share with you. Some of the actions that elite has taken to position the company and address the challenges posed by the cold at 19 pandemic.
Although the current situation is unprecedented and its duration and effects on our economy are uncertain, we actually had successfully navigated previous downturns and other significant challenges over more than a century of operation.
We have a strong experience talented team and as in the past we are fully committed to whether they weathering. This global crisis successfully.
Throughout today's call will provide more details on our strategic positioning for the remainder of the year as it relates to our customers financing in liquidity and capital projects.
Well begin with slide to.
Throughout our organization, we are closely monitoring proactively planning and thoughtfully, but rapidly responding to the various impacts at this global challenge.
Our first priority and this difficult time is to protect the safety and health of our employees our families our customers and our communities across all of a lease operation.
Safety is a universally shared value at a leap and this has been our priority from the very beginning we took action early on as Cobot 19, with just beginning to show up in the United States.
Including suspending all non essential travel and group meeting working remotely whenever possible ensuring supplies a personal protective equipment for our employees.
Acquiring social dispensing and much more.
Like so many the communities we operate in across the country had been affected by Cobot 19. However, we are so fortunate that to date, we've had no current confirmed cases in our workforce.
That being said, we're not complacent and we will continue to take decisive action to ensure safety has this situation Oh.
I'm grateful to our Brazilian talented and dedicated employees as we navigate this difficult time together.
Second we're doing all we can to ensure a leap businesses continue to provide safe and reliable essential energy and water services.
All of Alletes businesses play important roles and providing these services to our customers and we know that our customers and our communities are relying on now more than ever.
We're closely engaged with our industry peers to ensure we are implementing best practices and benefiting from lessons learned during the pandemic as detailed in slide three elite family of businesses operate in many states with different public safety orders.
So we're also closely engaged at the local state and federal levels to ensure we are in compliance with these orders and always with a focus on safety.
With social distancing and other protected procedures in place our employees are ensuring our services are safe and reliable and our construction projects continue all while keeping themselves they're coworkers their families and communities safe.
Third as we've done and in many uncertain times about our long history, we have taken proactive steps to ensure alletes continued financial health and to enable us to execute our differentiated growth strategy over the longer term.
These steps have been critically important as our customers face continuing challenges due to the economic effects of cobot 19.
As you are likely aware there been recent public announcements regarding the temporary idling of production by several with Minnesota Power's largest customers.
Cleveland cliffs, U.S. feel and Arcelormittal announced that they were temporarily idling. Some production due to covert 19 disruption of steel demand in the automotive construction energy and heavy machinery industries.
In addition, our largest paper customers have slowed some of their operation.
Because Minnesota power received to these large customers full production demand nominations in March we do not expect a material financial impact from these recent announcements through August. These customers will again provide demand nominations in early August which will indicate their plans production level.
For the last four months of 2020.
Even Bob will provide additional information all on all of this and the potential impacts on our 2020 outlook in a few minutes.
The financial health of our company is especially important to ensure that we continue to provide the safe and reliable essential energy services, our customers are depending on even as they face. These significant challenges and we have clearly and regularly communicated this importance to our regulators our legislators.
The other interested parties, we are closely engaging with all of our diverse stakeholders to develop creative solutions and we are grateful for their work with us.
A very recent example of these efforts is the proposal, Minnesota power filed with the Minnesota Public Utilities Commission to resolve the current rate case.
Last week the commission unanimously approved the first part of that proposal.
Enabling us to reduce Minnesota powers interim rates effective immediately we appreciate the commission's willingness to consider and act on our request quickly.
As a result, we are able to provide some much needed rate relief to all of Minnesota Power's customers. During these difficult times as we continue to focus on providing the service is so important to our communities home hospitals first responders and businesses.
If approved by the commission the rest of our proposal, which is supported by many parties to the rate case would also help support the financial health at Minnesota power. During this time.
We will provide additional details on all of that and a few minutes.
This proactive engagement is just one example of our fourth priority regular and transparent communication with our employees our customers and all of our stakeholders regarding any challenges, we're facing and the decisions, we're making and actions we're taking to address them.
Finally in this rapidly changing situation, we have reprioritized everything that we're doing to ensure we accomplish these important objective.
Cobot 19 has changed so much about the ways that we do our work safely whether we work in the field or typically in the office, but it hasn't changed our values or the fact that we are proud and honored to serve our customers with excellent.
I'd like to recognize and thank all of our incredible employees throughout elite for their resilient courage expertise and innovation and their steadfast dedication to our customers and our communities, especially during these challenging time.
Our entire elite team is engaged and working hard to stay safe and focused on all of these most important priorities and we will continue to do so as the cobot 19 situation evolved why we position our company for the future.
Now I'll turn it over to Steven Bob for further details on financial results positioning and additional views on our outlook Steve.
Thanks, Bethany and good morning, everyone I would like to remind you that we saw their 10-Q. This morning, and encourage you to referred to it for more details.
For the first quarter of 2020, ALLETE reported earnings of one dollar and 28 cents per share.
Net income of $66.3 million earnings for the same quarter in 2019 were one dollar and 37 cents per share a net income a $70.5 million results for the first quarter. In 2019 included a 19 cents per share gain from the sale of U.S. water services offset by two cents per share.
Our of U.S. water services operating results prior to the sale.
The first quarter results were in line with or expectations, but we did not see material impacts from the cold at 19 pandemic on our financial results.
However, the first quarter results may not be indicative of results that can be expected for the remainder of the year.
The ultimate extent and duration of the cold that 19 pandemic and related impacts on our financial and operational results are largely dependent on the broader economy and government actions, which are beyond our control and cannot be fully quantified at this time.
Based on preliminary April sales data, we saw an increase in residential megawatt hour sales of approximately 10%.
And a decrease in commercial other small industrial and municipal customer sales of approximately 10% from our expectations.
Overall, we would expecting negative earnings per share impact of one to two cents for the month of April.
Our regulated businesses in Minnesota, and Wisconsin have suspended customer disconnections among other protections for certain customers experiencing economic hardship associated with covert 19 as a result, we may see an increase in past due receivables, which could result in additional pad.
<unk> expense. In addition, our regulated businesses may incur incremental costs due to covert 19 related compliance with state or other jurisdictional requirements and other operational expenses in response to the pandemic.
In a March 2020 order the public service Commission of Wisconsin authorized public utilities, which includes superior water light and power to defer covert 19 related incremental expenditures, resulting from compliance with state government or regulatory orders in April Minnesota power.
Along with other regulated electric and natural gas service providers in Minnesota, probably joint petition to request, the Minnesota Public Utilities Commission authorization.
For a deferral of incremental costs and expenses incurred as a result of covert 19.
And record such costs as a regulatory asset subject to recovery in a future proceeding.
A few details from our business segments results for the quarter Alletes regulated operations segment recorded net income of $57.5 million for the first quarter of 2020 compared to $51.5 million in the first quarter of 2019.
Earnings reflected higher net income at Minnesota power, primarily due to the implementation of interim rates on January Onest increased cost recovery rider revenue and year over year timing impacts as a result of adopting a new fuel adjustment clause methodology in 2020.
These increases were partially offset by higher expenses and lower kilowatt hour sales to residential commercial and municipal customers due to warmer weather conditions and the expiration of a contract with a municipal customer in June 2019.
Net income at superior water light and power decrease from last year due to lower sales as a result of warmer weather conditions.
In 2020, a few comments on the Minnesota power rate case proposal.
Please refer to slide four.
On November Onest 2019, Minnesota power filed a rate case request with the Minnesota Public Utilities Commission.
Seeking approximately $66 million in total additional annual revenue.
The major driver of this rate increase request was due to an expiring power market sales contract.
Since then we have worked with key Interveners and proposed creative solutions to address challenges associated with covered 19 pandemic.
Our goal was to resolve the rate case in a way that address logistical limitations of stakeholder participation.
Provided immediate rate relief for our customers.
Supported the financial health of Minnesota power during this crisis.
And on April 20, Threerd, Minnesota power filed a request with the commission that proposed a resolution to settle the rate case.
One of our request was to reduce interim rate percentage of 5.8% to 4.1% effective may onest and on April Thirtyth. The Commission approved this proposal.
Other components of Minnesota Power's proposed resolution include removing the current power marketing margin credit in base rates.
And reflecting actual power marketing margins in the fuel adjustment clause effective may onest.
Refunding to customers interim rates collected through April thirtyth of approximately $12 million.
And delaying any future rate case.
Until at least March Onest 2021.
The commission is expected to the site in early June the remaining provisions of our proposal.
At this time, we are unable to predict whether the commission will ultimately approved these remaining items and as of March 30, Onest 2020, we have not recorded reserves for interim rates.
Returning to the financial results from the rest of our business segments.
ALLETE clean energy recorded first quarter 2020, net income of $11.7 million.
Compared to $5.8 million in 2019.
Net income in 2020 included $2.3 million of additional production tax credits generated in 2020 as compared to 2019.
Higher revenue, resulting from higher wind resources and availability.
And earnings from the Glenn all and wind energy facility, which commenced operations in December 2019.
Net income in 2020 also included additional income tax benefits, which varies quarter to quarter based on an estimated annual effective tax rate.
Our corporate and other businesses, which includes be an eye energy and ALLETE properties recorded a net loss of $2.9 million in 2020 compared to net income of $14.3 million in 2019.
Net income in 2019 included a gain on the sale.
Of U.S. water services of $9.9 million after tax.
Net income in 2020 reflected lower earnings from marketable equity securities held in certain benefit trust and additional income tax expense, which varies quarter to quarter based on an estimated annual effective tax rate.
Alletes financial position is supported by significant balance of cash in a conservative balance sheet, our cash balance was approximately $70 million and our debt to capital ratio was 42% at the end of the first quarter.
I'll now turn it over to Bob to discuss more about our liquidity position and our 2020 guidance and outlook for the rest of the year Bob.
Thanks, Steve and good morning, everyone.
Let me begin by saying how proud I am of the elite team, taking decisive action to ensure the safety of our workforce customers and communities we serve up.
We were well ahead of the surge and cobot 19, and proactively implemented our contingency management plans leveraging significant experience some tools from past downturns.
All of this to ensure we are not only continue to reliably provide critical services to our customers, but also preserve our value proposition for investors.
Overall, despite the challenges of the cobot 19 pandemic or create and we believe our businesses will provide the resilient blend of revenues and cash flows necessary to whether this crisis.
At the same time, the car drivers of our future growth and broader investment thesis, including demand for cleaner energy farms remains solid and we'll continue to differentiate alletes performance over the long run.
Our businesses performed as expected in the first quarter are fundamentally sound and we have ample liquidity to meet our needs, including but not limited to significant growth related investments during the year.
I will share more thoughts on 2020 guidance and our longer term all but in a moment, but first I'd like to make a few comments.
And the state of our finances and liquidity position.
Please refer to slide five.
As you can see our finances are well positioned with a strong balance sheet and sufficient liquidity bolstered by decisive financing actions taken already this year as of May 4th we had over $600 million and cash credit facilities and other outstanding lending available.
Regarding the tax equity financing for our renewable projects. We recently received approximately $68 million and cash from a third party investor as part of our tax equity financing for ALLETE clean Energy's self peak wind energy facility.
We also have approximately $400 million and proposals from tax equity partners.
For our investments and noble's too and ALLETE clean energy is diamond spraying wind project.
We are pleased to secure this critical piece of financing and believe it demonstrates the quality of our renewable projects as being recognized in the marketplace.
A few comments on our 2020 growth investments.
Number of our large renewable energy projects are currently under construction with over $600 million in total spend expected this year.
The novels to project and Energyforward initiative is currently under construction and on plan for completion this year.
As you know in ALLETE subsidiary is a part is partnering with to NASCAR and we'll have an investment in this 250 megawatt wind facility located in southwestern Minnesota.
This facility will provide carbon free wind generation to Minnesota power under long term PS say.
The construction of ALLETE clean Energy's Diamond Spring project located in Oklahoma started in fourth quarter of 2019 and is also advancing right on plan.
At this time the substation is complete and the majority turbines have been installed.
The 300 megawatt wind generation project with a total cost of approximately $450 million is expected to be operational in late 2020, allowing it to qualify for 100% Ptcs.
ALLETE clean energy recently announced at acquired the rights to the cattle wind project in Oklahoma from apex clean energy for approximately 8 million with additional payments required to make to be made a defined milestones like.
Like the Diamond Spring project. This project is targeted to serve large industrial commercial customers and provide a significant expansion into the SPP market.
Further diversifying the company's geographic and customer base.
The full development development of this approximately 300 megawatt wind project would involve the sale of energy to corporate customers under long term power sales agreements.
Despite the challenges covert 19 has created for the broader economy corporate customers have continued to focus on their sustainability commitments and we are continuing to pursue and receive ongoing interest in new projects.
Well, that's unique investment and PTC qualified wind turbines ALLETE clean energy has capacity to add another 350, 400 megawatts and no PTC projects.
I would now refer you to slide six regarding our 2020 guidance and considerations.
Because of the broad economic uncertainties related to covert 19, and the potential financial impact, especially on our regulated business segment.
We are unable to provide a sufficiently reliable update to our 2020 earnings guidance at this time.
As a result, we have decided to temporarily suspend 2020 guidance until we're better able to understand and quantify such effects later in the year.
Targeting an update and our second quarter conference call.
During the first quarter, there were no material cobot 19 financial impacts related to Minnesota power, Minnesota, Power's electric load, which is heavily influenced by large power customer production levels.
Furthermore, in early March we receive large powered load nominations from our taconite customers through August which require them to pay minimum megawatt demand payments under their contracts.
As a result, we don't expect a significant financial impact on our second quarter results, even though some of these customers of announce idling of their facilities. During this timeframe.
Specifically production has been temporarily idled the Cleveland, Chris Northshore mining.
And Arcelor Mittal shipping taconite temporarily and partially idled at U.S. deals men Tech.
Newest deal has indefinitely idle that's keep tech plant, which are served by Minnesota power.
In aggregate these facilities represent approximately 13 million tons of production for the last four months of a year and were assumed to be fully operational and our original 2020 guidance.
Once again, we will know more about our customers plant fourth quarter production levels.
Once the nominate in early August for the last four months of the year.
To the extent that this production does not materialize in the fourth quarter and we see added weakness in the commercial municipal sector of our utilities is distinctly possible our results could fall outside our original guidance range.
To mitigate the negative impacts on our business. We have taken early action on a multitude of fronts, including power marketing sales and own am expense management, along with actions on financing and liquidity I've already discussed.
From a capex standpoint, we have evaluated possible deferrals, but expect any actions there to be immaterial at this juncture.
Slide six presents a number of considerations, including several key metrics that may help you with your modeling assumptions under different scenarios.
Now for some thoughts on our long term outlook as highlighted on slide seven.
Despite the cobot 19 crisis, which may present challenges in 2021, we believe the long term fundamentals of our business remain intact for a number of reasons.
Our business models are regulated or highly recurring in nature.
And the industries, we serve are critical to the economy into the country.
Putting iron steel and non ferrous mining.
We continue to believe that Alletes primary growth engine in the renewable segment will be substantial we'll see substantial demand as SG trends continue beyond economic weakness.
We remain committed to our long term value proposition of 9% to 10%.
Which includes an assumption of dividends, increasing inline with our broader annual earnings growth objective.
At this time, we expect to have the ability to sustain current dividend levels, while maintaining healthy dividend payout ratios.
Even though the timing of cobot 19 recovery may negatively impact some near term growth. We continue to expect to achieve our long term average annual growth objective of 5% to 7% over the five year period.
I will now handed back to Bethany Bethany. Thank you Stephen pod, although Kobin 19 presents unique challenges a lead has thrived through many decades paid our family of businesses is well positioned with a differentiated strategy to provide customers with cleaner energy solution, which we believe.
We will continue to be and strong demand well into the future I couldn't be more proud of our ALLETE team I am confident about the opportunities ahead. Thank you for your interest and your investment in a lease at this time I will ask the operator to open up the line for your question.
Thank you as a reminder, if you'd like to ask a question. Please press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key.
Please standby will we compile the cumulative roster.
Our first question comes from Brian Russo with Sidoti. Your line is now open.
Yeah, Hi, good morning.
Good morning, Brian.
Just on the.
The alternate rate proposal.
[music].
Can you just discuss some of the remaining provisions.
She is expected to review.
By June 1st.
In terms of.
The next time, you could file rate case in terms of sensitivity to large power customer.
Demand et cetera.
Yeah, I can take that good morning, Brian Steve Morris, So the the rate case item.
And we said we would not file a rate case.
Until November Onest of 2021, unless certain conditions present themselves as if.
For example, large power load down 50 megawatts for at least three months.
Then we could move it up to March.
2021, so that that's our proposal and the rest of the proposals obviously was just to take out the power marketing.
Margin credit the sitting in base rates.
Which would be an increase to base rates, but then you run the actual power marketing margins through the fuel adjustment clause thats the major item of our proposal.
And then obviously, we would would refund interim rates.
Collected through April, which is approximately $12 million back to the customers. So those are the those are the remaining items.
There's not significantly more items than that anvil, we expect to here in June on those.
Thanks, and just to clarify so.
Interim rate percentage reduction from 5.8% to 4.1% is that.
Is that net of the recovery of the wholesale power contract.
That expires in April that originally was not included an interim rates.
Yes, so that 4.1 really gets us to a.
A run rate on May Onest as Jeff our proposal is accepted.
Which is the power marketing margins moving from base rates into.
Actual into a fuel adjustment clause.
Okay got it and then also on.
A large power customers.
Steven.
So obviously they were the first idle more sure I believe.
Our plan is.
To resume operations in.
Yes.
Have you heard or is it has us steel publicly stated when they expect.
Minntac.
Andrew or keetac to become.
Operational again.
Yes.
Morning, Brian Frank Fredrickson here.
Take that question and before I give you do that question I might just back up a moment and get up to.
So quick overview of how we're looking at the industry.
Just for for yourself and for others on the call.
Just starting with the from an iron ore perspective, there is few regions in the world as we know that have high quality ore bodies as well as palletizing capability in Minnesota is one of them.
I wanted to share that just in terms of the pellets because in order to make high quality steel and environmentally sound manner pellets are an important key ingredient.
In process.
And.
Secondly, I'd like to share that we're aware that we have proven reserves in the ground in the area that continue to supply for decades.
And third we're Minnesota as a reason that typically produces 35 to 40 million tons per year.
And they have a competitive advantage and bringing these pellets to market and the great Lakes region.
And our customers are some of the largest steel manufacturers in the world.
And they continue to make those substantial investments in technology to make high grade steels.
And they are used to working through recessions like us.
And just last couple of points that are good the shares that we've seen some good actions by the administration the appropriate trade protections in place.
And lastly, this coal that.
19 related.
Pandemic, we've seen supply chain issues that have shown the importance of having.
Domestic manufacturing intact from raw material to finished product.
So with that kind of overview in mind and getting back to your key question.
We have seen announcements now with cliffs' Northshore through August Arcelor, Mittal has announced that having taconite.
Well it is down today, and then we'll be restarting in July.
US steel has announced an indefinite time period for the Keetac facility and they haven't come out with any specific announcements on men tech, although they have announced some layoffs and that they are.
Balancing production at mid tax relative to demand.
Okay and just from from your experience in various cycles, how how long does it take for these taconite customers choose to go from.
Idling the facilities to.
Ramping up to.
Maybe.
Three quarters or.
As a percent of of full production.
Something that can happen quickly or is that something that that takes months.
Thank you for that follow on that.
It is something that can happen quickly and we've seen the customers have taken the time to put the maintenance into their facilities southern ready to restart so when they recall workers that can be restarted.
Within a couple of weeks and back up and I'd also like to share to that as we've tracked this recession versus the past recessions, we've seen some pretty rapid response from our customers, which shows that theyre taking.
Action very swiftly.
Just to compare and contrast to the 2008 nine recession.
We've seen steel capacity utilization.
Right.
Within a month.
The same amount that it took about six months to happen in 2008, nine and assure that because it's an important point to look out for context in terms of what.
Can happen in the restart and they're not.
Putting a very significant amount of inventory out there. So they are april to restart once demand restarts in automotive and appliance markets.
Okay, Great and then just the four or five customers.
At facilities that that you noted in the presentation and your comments.
That's about 80% of total taconite.
Production in Minnesota and already in your service territory.
That.
Ill backup a little bit on terms of the announcements that have happened as.
With that.
Cliffs is announced on their north shore facility, and we have a slide in our investor deck.
I would characterize this they've also announced on Hibbing taconite.
Our Submittals and also on Hibbing, taconite and do a steel keewatin taconite.
What we're aware of for US deals Minntac is more partial.
And Arcelor Mittal Minorca continues to operate as well as cliffs, United Taconite continues to operate.
So nothing that we're looking at.
Upwards of 40%.
Of taconite production.
Being idled in the near term.
And with a number of them being announced it would be restarting later this summer.
Okay, Great and then just a few more quickly.
On the Kauto update are you still awaiting tax equity.
For that as well as.
PPH from.
Commercial industrial customers or those two items in place.
Yes, Brian that's above Adam so so on the tax it tax equity fraud.
We are installing the process of just beginning to look at top players for the capital project again that doesn't go into service until the on the 2021.
And then you know with regard to the the Offtakes, we're working on the final contract.
Our uptake in the Cninety space for the project. So we have two of those.
Offtakes done already in this and that and we're working on the third and that is proceeding well.
Okay, Great and lastly, the tax benefit that was recorded in the first quarter. It looks like leased on the income statement, it's a positive 13.
2.8 million benefit.
You mentioned it there's timing is related to accounting in the PTC users just wondering if that's kind of onetime in nature or that seems out.
Overall throughout this year.
Yeah. So overall net net on our financial statements, there's there's really little impact.
Because of the.
Our effective tax rate if you will it will vary just quarter to quarter, but from what our expectations would be it's it's very minimal impact.
At times, you'll get.
An effective tax rate difference by segments, Minnesota power regulated operations, ALLETE clean energy, which essentially washes out.
Within the corporate and other.
So it matters, if you're looking at segment by segment, but overall it isn't material.
Okay. So it's not materially the full year results, but it's certainly a euro a quarter over quarter.
Significant driver.
In first quarter, Yeah, I wouldn't say, it's totally significant I think it just washes out here. It's it's it's the way we talk about it here it was within the various segments.
But from a year over year first from year over year perspective. It is it's not that material.
Understood. Thank you very much.
Thank you and as a reminder to ask a question you will need to press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key.
Our next question comes from Sarah Akers with Wells Fargo. Your line is now open.
Hi, good morning.
Sarah.
So in terms of the 2020 downside is it a simple is taking that 13 million tons in the last four months apply the force that rule of thumb and we get around 50 cents of EPS risk in a worst case scenario or are there other material uncertainties that complicate that picture.
So Sarah Frank Frank Fredrickson here and.
Try and.
Going to walk you through what what.
Weve shared and what we're looking at and.
As as I mentioned, the some of the previous question there that we we have about 40%.
Taconite production offline right now and they have announced most of that is announced to come back towards the end of the summer however to give you that scenarios.
Round numbers about 40% were to stay off for the past four months of the year, you're looking at about 5 million tons.
Coming out in the past four months and then if you apply that.
Four cents, you're looking at about 20 cents on an EPS basis.
Okay and the other drivers in terms of the rest of your load and potential operating expenses are those all relatively immaterial. It seems like that the April impact was fairly small but want to make sure we're not missing any other risks.
So yeah, so sort of this Bob by one of the interesting things that we've seen I guess in us not necessarily unique to our company as I've talked to some other CFO roles as that.
Yes, we've seen some impact on our commercial.
Operations, our customers I should say, but that was largely offset for example on April by increased demand on the residential as a result of stay at home and some of that so so net net net at least in April were not seeing a big impact on that right now.
More to come but there will be something there is some spin off effect of course.
To the extent that the taconite don't run in the broader economy, if that were to continue to weaken but at least so far so far on that basis up that material.
Got it and based on your conversations with the customers. It sounds like number of them are signaling that they're coming back online later in the summer.
And your operating the business how are you thinking about the risk that these could extend into 2021 and do you see any risk that that your large customers could could go out of business because of this.
Well we're definitely.
You know again, given our given our.
Track record I guess, an experience addressing these kinds of things we.
Ill take a relatively conservative stance on our scenario planning around all of these things. So so we're not.
We're not there's a lot of discussion I think in fact I was just looking at a Wall Street Journal survey of.
GAAP Ceos.
As well as economists and they're in all its 80 80, 85% are of the belief.
That this is going to be a V shaped recovery and things are going to come stormy back even as early as fourth quarter.
I'm not necessarily of that view I think this is going to have some legs tour into 2021.
As a result of that some of the actions. We've taken for example on power sales has have sold some power into 2021.
Reflect that.
So we don't see I don't see curse about permanent dislocation of the of our major customers.
In the in the Taconite segment for the reasons that.
Frank mentioned in terms of just the quality of the or the unique.
The unique situation in a great lakes with regard to where this this.
Or is ultimately used for steel, making in the middle part of the country, which has its its own unique sort of competitive dynamics that I think in large part protects.
Protects that industry. So we're not seeing a permanent we don't see a permanent dislocation bankruptcy a reduction in that load it would be more temporary in nature, but could go into 2020 watt.
Got it and then just a follow up question on the rate case. It seems like there's some good provisions in that rate settlement, but net net does the lower interim rate increase have a negative impact on on 2020 results and if so can you quantify that piece.
Yeah. Good morning, Sarah Steve more so I would say the 4.1 is.
From a may 1st state going forward.
Is not.
The material from our expectations what will be though however is the refund.
That we've proposed of the $12 million after tax assets 16 cents.
That would be the impact on our.
On our earnings this year.
And is that more of a onetime impact in 2020 or is that kind of a set the baseline going forward.
Well, the 4.1 would be the rate going forward.
But the overall impact this year, we would be about.
Two I guess, 2.8% impact overall, so the way we look at at that the refund of $12 million is really a one time refund.
So we'd have less impact and 21, we would have less impact so you're rate would be 4.1 in a rate increase which is roughly the 25 million.
And would you exclude that onetime refunds from adjusted EPS, just thinking about how you're going to report that the as the year goes on.
Yeah, we would because we did not provide reserves any interim rate reserves in our.
The guidance when we certainly weren't contemplating the pandemic and the refund of this at that time, So we had $36 million of interim rates.
And so were we basically giving back that 12 million.
So that was not contemplated we would we would car we would talk about that as a more of a onetime event.
Got it thanks, so much.
Thank you and our next question doesn't Richardson's other with JP Morgan. Your line is now open.
Hi, good morning.
Good morning learning.
Just curious about the.
Potential own them coats.
I guess, both in the context of the reductions we had out of the last rate case as well as what that it may mean for 21, then I guess what are your considerations there with what are your evaluated.
Yes, so Richard this is Bob So you know we.
Again for it for for context again when we.
And in the 2018 2019 period of time.
Following the rate case outcome at that time.
We did a substantial reorganization and what I call. It sort of a historic re scale of our company that went along with that with every arc. So it was about organizational.
Design. It was is changing the way we do our work practices or was it was those those kinds of things and it was about a 20% or 40 million dollar reduction, which obviously was very very.
Extensive so I mentioned that because as we look at on him as a lever we do have a lever, but it's more temporary in nature.
These are.
Cost reductions that are going to be sort of in the form of delayed hiring obviously there is lower travel.
You know given stay at home and some of the things that we're all working through their employee expenses are down lower professional services.
Some of those things so they are not so I would not consider them to be sustainable.
They would be more temporary in nature. They are material to two you know to all of this for sure and.
And as Bethany indicated you know we started on this early.
So it also so the other things are in place or in motion as we speak.
So just to follow up on on that point about.
The temporary in nature of the cards.
It sounds like what you are considering would also not necessarily impact.
21 in terms of club.
I could pull forward or kind of timing items there.
The to the extent that call but.
Those leverage would continue to be pulled obviously against the backdrop of continued.
Over 19 challenges around the country and for US. So so we would definitely be applying those same leveraged into 2021 as necessary.
Got it thank you.
Thank you and I'm showing no further questions in the queue at this time.
I'd like to turn the call back to best known for any closing remarks.
Thank you again for being with US this morning, and for your investment and interest in a leap we wish you safety good health and all the very best.
Ladies and gentlemen, thank you Peter participation on today's conference. This does conclude your programming you may now disconnect.
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