Q1 2020 Earnings Call
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Thank you for your patience Black Hills Corporation earnings Conference call will begin shortly again, thank you for standing by.
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20 earnings Conference call. My name is Daniel and I will be your coordinator for today.
This time, all participants are in listen only mode.
Following the prepared remarks, there will be a question answer session.
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Mr. Jerome Nichols director of Investor Relations, a Black Hills Corporation. Please proceed sir.
Thank you Daniel Good morning, everyone welcome to Black Hills Corporation's first quarter Twentytwenty earnings Conference call you can find materials for our call. This morning at our website at Www Black Hills, Corp. Dot com under the Investor Relations heading.
Meeting our quarterly earnings discussion today, our Lin Evans, President and Chief Executive Officer.
And rich Kinzley, senior Vice President and Chief Financial Officer.
During our earnings discussion today some of the comments, we'd make may contain forward looking statements as defined by the Securities and Exchange Commission and there are a number of uncertainties inherent and such comments.
Well, we believed that our expectations and beliefs are based on reasonable assumptions actual results may differ materially.
We direct you to work earnings release slide to be Investor presentation on our website.
And our most recent form 10-K and form 10-Q filed with the Securities Exchange Commission for list as some of the factors that could cause future results to differ materially from our expectations.
I will now turn the call over to been Evans.
Thank you Jerome good morning, everyone. Thank you for joining us. This morning, I anticipate what's been quite a bit of time. This morning, addressing our view of cold 19 in the pandemic and its impact upon our business. So let me start pleased by acknowledging that are highest priority as a safety and health of our coworkers are customers are.
Business partners and the communities that we proudly serve our most important assets our unique black hills culture, and our people Sadly. This pandemic is affecting scores of people and some really I guess I would describe as unimaginable ways a truly hope that each of you and your families are healthy and safe and our sympathies go.
Well to all who are impacted either physically and mentally and financially by this pandemic. Our hearts are certainly with each of you and I know there will be what we call. The post virus I, especially want to call out the extraordinary dedication and the effort by our first responders in the medical professionals, who run the front lines and caring for those inflicted by this right.
Yes.
I'm, particularly proud of our teams response, we're maintaining safe and reliable delivery of the essential energy our customers depend on upon especially in times like these.
Our team quickly implemented a comprehensive set of well thought out actions in response to the pandemic, ensuring we are doing everything we can do to help mitigate the spread of the virus simultaneously.
We're very fortunate to have no confirmed cases, among the Black Hills team. We have had a few coworkers who were treated as if they had the virus a few months ago. After having traveled earlier in the year and I'm pleased to say they have recovered.
Also our service territory has generally reported much fewer positive cases of the virus then the more populated urban areas around the country.
We remain highly engaged and focus on reducing the spread of the virus, some especially amongst or coworkers and our customers.
Being true to our values as a company and as individuals we are assisting customers with financial hardship by suspending disconnections in providing payment assistance and we have also donated to relief efforts in our communities with a particular focus on helping the hungry.
We are closely monitoring the situation and we are fully engaged with our local authorities.
Health professionals and other industry groups to help guide our continuing response and our business operations as we migrate through this virus.
We've also implemented or changed various protocols or processes and programs to help ensure we maintain.
Our ability to deliver safe and reliable energy. For example, we are currently sequestering in place some of our mission critical coworkers and we are prepared to sequester additional coworkers should conditions warrant doing so in the future.
Thank these folks are representing our values and stepping up.
By doing so they're helping us mixture, we provide our customers with a critical energy they need to navigate this pandemic and rebuild our local economies.
From a financial perspective, we were well positioned before cobot 19 emerged and we have strong liquidity to successfully operate our business and fund our capital deployment program.
We're also retaining flexibility in our financing plan to take advantage of marketing conditions and favorable opportunities arise in the near future.
And of course, we continue to closely monitor key financial drivers that might impact our sources and uses of capital such as customer usage, obviously cash flows contractor availability and lead times for key materials for our projects moving to slide six and I'll provide an overview of the first quarter.
Actually proud of our team and how they acted early in decisively in response to the pandemic and provided solid operational and financial execution.
Although colder than 19 affected how we serve our customers it has minimal impact to our earnings and our capital deployment for the first quarter rich is going to discuss our forward expectations shortly.
We're in a strong liquidity and financial position, we issued 100 million of equity on February 27th of fulfilling our equity needs for the year and after taking into account the mild weather impacts during the first quarter, we delivered solid quarterly earnings.
Our progress continuing on both near term and long term strategic initiatives, we finalized the consolidation of for natural gas utilities in Wyoming under a new single state wide rate structure effective March 1st.
That was an outstanding result reflects positively on our operations and regulatory teams.
And the constructive Wyoming regulatory environment that we enjoyed there.
I really appreciate their willingness to work through the short term pain and complexity of regulatory consolidation to allow us to continued to improve customer service and improve the pension deficiencies for all of our stakeholders. We also continue to advance our renewable energy solutions for customers and all three of our electric utility territories.
Moving to slide seven it provides more detail and our first quarter I'll start with the gas utilities.
We continued efforts to consolidate natural gas utilities within Colorado, Nebraska in Wyoming as I mentioned earlier in Nebraska, we completed the legal consolidation of to utilities on January 1st.
And we continue to prepare for a rate review filing mid year to consolidate customer rates and recover investments for customers in that state.
We are having a constructive dialogue with our nebraska's with that Nebraska staff regarding the timing of the filing and we're considering the ongoing pandemic and that decision.
In Colorado The Commission recently held and open meeting on the Colorado gaze gas rate review to consider the administrative law judges recommended decision and the exceptions that were filed in response to that recommended decision.
Unfortunately, the Lj recommended denial of regulatory consolidation and our requested rider for safety related investments.
They also adopted adjustments that would result in a rate decrease.
The commission accepted in nearly all of the yield eight l. James recommendations, except for a return on equity, which the commission reduced from 9.5% to 9.2% of course, we are disappointed in the Commission's decision and we're waiting for the final order would receive that then we'll determine what our next steps may be in color.
Though.
Moving to the electric utilities in power generation last August our Wyoming electric utility and our power generation segment.
While the joint application with FERC asking for approval of a new power purchase agreement on February 21, FERC ordered public hearings for the that application and it also ordered settlement discussions.
The hearing is now currently held at advanced pending the outcome of the ongoing settlement the gushed discussions amongst the parties.
Construction continues on schedule for our 52 and a half megawatt Cory deal wind project near Cheyenne.
The project is on track to deliver energy under our renewable ready program for subscription customers in both South Dakota in Wyoming by the end of this year, we've been monitoring the supply chain for this project and of course for other projects very closely and we are currently confident and completing the project on time and on.
Budgets.
We're also working to expand our renewable energy generation mix in Colorado through our renewable advantage program.
We requested bids for up to 200 megawatts of renewable energy to serve our Colorado electric customers.
We are currently evaluating those bids with the help of an independent evaluator and we're on track to submit those recommendations to the commission next month in June.
The final item I'd like to note on this page is done on April 10th while we were well into the pandemic.
S&P global ratings affirmed our triple B corporate credit rating again, I think this reaffirms our objective of maintaining a solid capital structure and our solid investment credit grade ratings now I'll turn it over to rich or financial update rich.
Very good thanks, Lynn and good morning, everyone.
I'll start on slide nine [noise] as Glenn noted, we delivered solid first quarter financial performance that met our expectations.
First quarter EPS as adjusted was $1.59 compared to $1.73. In Q1, 2019 weather was the big driver affecting year over year results as last year's first quarter was much colder than normal in this year's first quarter was milder than normal.
For Q1, 2020, we estimate whether unfavorably impacted EPS by four cents compared to normal and by 15 cents compared to Q1 2019.
Covert 19 had limited impact on our financial results for Q1.
Despite unfavorable weather or start to 2020 with solid however, given the combined impact of mild first quarter weather and anticipated impacts from the pandemic over the remainder of the year, we revised our 2020 earnings guidance range to $3.45 to $3.65 per share on an adjusted basis.
A decrease of a dime on each and from our prior guidance I'll discuss our earnings guidance assumptions and anticipated pandemic impacts in more detail on slide 16 through 18.
On slide 10, we reconcile GAAP earnings to earnings as adjusted or non-GAAP measure, we do this to isolate special items and communicate earnings that we believe better represented ongoing performance. This slide displays the last five quarters and demonstrates the seasonality of our earnings.
In the first quarter 2020 recorded a noncash pretax impairment of $6.9 million or eight cents per share after tax related to an investment in a privately held oil and gas company in the third quarter of 2019, we recorded an impairment related to the same investments. These impairments were both triggered by the.
A significant decline in natural gas futures price in a deterioration in earnings performance of the third Party company. Our remaining book value in this investment of 1.5 million is our only direct exposure to oil and gas industry.
The impairments in 2019, and 2020 or not indicative of our ongoing performance and accordingly reflect them on an as adjusted basis.
Slide 11 is a waterfall chart illustrating the primary drivers of our earnings results from Q1 2019 to Q1 2020.
Amounts on this charter net of taxes I'll add more detailed by segment on slide 12, but at a high level, our electric utilities gross margin was flat to the prior year. Despite unfavorable weather impacts gross margin or gas utilities benefited from new rates and customer growth, which was largely offset by unfavorable year over year weather.
Our non regulated margin was slightly lower than the prior year, driven primarily by lower tons sold at our mining segment.
Total NIM increased by less than 2%, reflecting solid cost management.
Depreciation increased as a result of additional plant in service from our customer focus capital investment program.
Interest expense was relatively flat.
Other income expense was favorable to the prior year driven by reduced expense for our nonqualified benefit plan due to stock market declines.
On Slide 12 segment operating income results for the first quarter compared to the prior year I'll make a few comments here and you can find additional details on Q1 year over year changes in gross margin in operating expenses in our earnings release and in our 10-Q that we will file later today.
And our electric utilities operating income for Q1, 2020 decreased by 5.3 million compared to Q1 2019.
Gross margins were flat compared to the prior year, reflecting higher rider margins in mark to market gains on wholesale energy contracts offset by unfavorable weather in lower off system power marketing sales.
Heating degree days at our electric utilities were 4% below normal for the quarter and 11% lower than Q1 2019.
Operating expenses increased 5.4 million over Q1 last year due to higher employee costs expenses related to the municipal innovation efforts in Pueblo higher generation expenses due to outage timing and higher depreciation expense.
And our gas utilities operating income for Q1 2020 was flat to Q1 2019 gross margins increased by 1.6 million benefiting from new rates customer growth in our service territories and higher mark to market gains on commodity contracts.
These benefits were largely offset by unfavorable weather compared to Q1 last year.
Heating degree days at our gas utilities were 6% below normal for the quarter and 15% lower than Q1 2019.
Operating expenses increased by 2 million driven by higher depreciation.
On the bottom half of slide 12 at our power generation segment operating income decreased $700000 year over year revenue was higher in 2020, primarily due to increased generation from our new wind generation assets added last year.
Operating expenses increased due to higher depreciation and property taxes from the new wind assets.
The primary earnings benefit from these new wind projects comes through reduced income tax expense from federal production tax credits, we receive on these projects.
These tax credits are below the line and not included in the operating income numbers.
Operating income in our mining segment decreased by 1.2 million current your revenue was lower than the prior year due to a 10% decrease in tons sold due to lower demand at the wide eggplant and timing of planned outages compared to the prior year.
Slide 13 shows our financial position through the lens of capital structure credit ratings and financial flexibility. We're in good shape from a debt maturity and liquidity perspective, our credit ratings remain a triple b plus at both Fitch and S&P and visibility to at Moody's with a stable outlook at all three agencies.
We are committed to maintaining our strong and credit investment grade credit ratings.
As Lynn mentioned S&P.
Affirmed our triple B plus rating with a stable outlook on April 10th.
And in February we issued 100 million of equity to help support our 2020 capital investments and strengthen our balance sheet.
While we will monitor cash flows closely during the pandemic, we don't expect to issue anymore equity in 2020.
We don't have any material debt maturities until late 2023 and on March 30, Onest, We had approximately 468 million of liquidity available from cash on hand and capacity on our revolving credit facility.
On April Thirtyth, our liquidity position remained in excess of $460 million.
We may look to issue an index eligible debt offering later this year if market conditions are favorable we would do this issuance to term out or short term debt and support our capital investment program.
And also further enhance our liquidity position, but we have the flexibility to push that issuance into 2021, given our liquidity position.
I'll also note that at March 31st our net debt to capitalization ratio was 57.5% a 210 basis point improvement from year end, we continue to targeted debt to cap total cap ratio in the mid fiftys over the long term.
Slide 14, and 15 showed jobless claims and unemployment rates for the states, our electric and gas utilities operate in and how they compare to the national averages over the past few months.
The graph to illustrate that trends in most of our states are well below national average less part of the pandemic has not impacted our rural service territories is severely as more densely populated regions I'll note that in past major events, such as the financial crisis, a decade ago. Our service territories have typically been more stage.
More and more insulated from major economic swings than the coastlines in major metropolitan areas.
We are cautiously optimistic that will be the case with this crisis and we will continue to closely monitor trends in our territories.
With our stable financial position and regional trends in mind I'll move to slide 16 to discuss earnings guidance on this slide we bridge the NPS impacts from our prior guidance to our revised guidance.
Due to mild first quarter weather combined with cobot 19 expectations for the remainder of the year, we reduced guidance by a dime on each into the range. The revised guidance range includes to four cents of unfavorable weather compared to normal during the first quarter, but it's largely driven by the expected net impact from cobot 19.
Which we are currently estimating to be between five to 10 cents per share.
Slide 17 provides details around our revised earnings guidance assumptions aside from the known negative weather in Q1, our forecasted cobot 19 impacts in eliminating any further equity needs for the remainder of 2020. These assumptions remain consistent with our previously issued.
Stents.
Slide 18 shows our expected covert 19 impacts that are very high level and I'll give a little more color.
We are closely watching our customer usage profiles.
At our electric utilities through the end of April we've seen overall load and usage remain essentially consistent with prior years on a weather normalized basis.
Again, I'll emphasize that in past major events, our territories tend to be less impacted than the coastlines in major metropolitan areas that said, we have modeled some customer usage impact for the balance of the year.
Usage at our three electric utilities has varied during March and April, but generally speaking, we've seen residential loads up 5% to 6%.
In commercial loads down 5% to 10% depending on the service territory.
Industrial usage was down slightly in South Dakota, and Colorado, but actually up in Colorado.
We've been in regular contact with our largest customers over 200 to them in fact, covering both electric and gas and although there are a few who expect to have reduced usage in 2020, we don't forecast a significant impact from our electric industrial customers overall.
The net impact we are modeling for the remainder of the year at our electric utilities assumes reduced usage from commercial customers in a few industrials, we'll have more earnings impact than the pickup we get on the residential side.
And our gas utilities were through the heating season, and expect the impact to be lower through the off peak season of Q2 in Q3 as most of our natural gas load comes in the first and fourth quarters.
Similar to our electric utilities on weather normalized basis, we've seen overall customer usage remain essentially steady through March and April compared to prior years with increases in residential usage in decreases in commercial usage.
We have assumed some overall negative impact through the balance of the year at our gas utilities, but it's minimal compared to our electric utilities.
We're also encouraging extra costs in the near term associated with the pandemic Weve sequestered mission critical employees at two of our generation sites and are ready to do so throughout our electric utilities, if the virus spreads more deeply into our territories.
There are additional cost we are encouraged for personal protective equipment cleaning supplies technology to support work from home protocols and so on.
Well, we've limited delineate while we've seen limited delinquencies to date, we do not expect we do expect delinquencies to increase over the coming months.
We're taking proactive steps to work with our customers to assist them in these challenging times.
Were partially offsetting these pandemic related costs through savings on travel training and certain outside services that were planned for 2020.
We've slowed our hiring and we are closely managing other expenses as we further leverage our cost saving continuous improvement program.
We're tracking covert 19 related on M. items, and we're working closely with regulators and our states to determine appropriate treatment of these costs.
Obviously, it's still early in the crisis and it's difficult to predict the duration of the event in the impact it will have on the local economies and customers and our service territories.
Our assumption is that the combined effect of lost margins and net expenses will impact 2020 pretax operating income by $4 million to $8 million equivalent to five to 10 cents of vps.
While we remain optimistic our territories will be less impacted than other parts of the country, our assumptions surrounding pandemic impacts on our earnings could change either positively or negatively as we navigate the remainder of the year.
Slide 19 illustrates our dividend track record evidence of our disciplined management through other historic economic events. We're on track to deliver 50 consecutive years of increasing dividends in 2020, and we've grown the dividend at a strong rate in recent years with 12 sent annual increases in 2018 and 29.
Team demonstrating our confidence in our future earnings growth potential.
While we may go slightly above 60% payout ratio for 2020, we maintain our long term dividend payout ratio target of 50% to 60% of vps, demonstrating our confidence in our long term earnings growth prospects.
With that I'll turn it back to Lynn.
Thank you rich I'm on slide 21, our operating in business strategies, and our team solid planning allowed us to be ready and we responded I think very well to the pandemic.
Our commitment to our strategy drive success for now and for the long term, while we work through these near term challenges.
We believe our community focused just gives me our customer focused strategy will deliver sustainable long term value growth for both our customers and our shareholders.
We are investing in our customers' needs for safety reliability resiliency growth and an overall positive customer experience.
We are aligning our people our processes, our technologies and the analytics to better and more safely serve our customers.
And based on the system needs across our expansive infrastructure, we expect to deliver long term earnings growth above the utility average.
We also expect to realize incremental growth opportunities from generation and other logic larger projects along the way.
Slide 22 illustrates the strategic diversity of our utility business and the seasonality of our earnings streams.
Our geographic and fuel diversity positions us for a greater stability.
During uncertainty as we work through these headwinds alongside all of our state stakeholders.
As Black Hills has grown we've added value for our customers and shareholders through efficiency of scale and a large geographic territory, providing diversification for opportunities to invest.
Our mix of electric and natural gas businesses also delivers complimentary seasonality for more consistent and predictable total cash flows and earnings.
The value of diversity is especially evident during difficult economic times, which differentiates us from other utilities.
Well, we're certainly not immune from the impacts of this pandemic, our fuel diversity and our geographic diversity, coupled with our system scale provide us greater stability.
Fortunately and while certainly not losing side of the impacts of colder 19 on our nation.
Much of our territory is currently experiencing a relatively low incidence of coded 19 cases.
The lower population density of our service territory and are largely rural jurisdictions allows for many businesses to have remained open or perhaps a reduced levels of operation over the past few months.
Also our diverse mix of residential commercial and industrial demand further tempers total business impact caused by things like Pandemics.
While short term businesses business closures impact near term results the attributes and many of our large customers such as the data centers, we continue to support our growing demand levels through this pandemic.
Slide 23.
Illustrates again, our large infrastructure, our expansive electric and natural gas systems require significant investment to maintain upgrade and modernize to serve our customers. In addition, our geographic presence across eight states also delivered a strong base of growth opportunities.
Our capital investment plan is illustrated on slide 24.
Over the next five years, our 2.7 billion dollar forecast is focused primarily on projects and initiatives that maintain customer safety and reliability and will foster customer growth.
Our forecasted investment far exceeds depreciation, which will result in future earnings growth.
In 2020, we are on track to deploy our planned capital projects.
After managing through the pandemic now for more than two months, we're not currently experiencing disruptions in the availability of contractors or materials.
And lead times for key components and supplies remains remain largely under an uninterrupted.
We are closely monitoring our supply chains, and we can and will adjust if we if necessary, but for now our capital deployment is remarkably on track.
We continue to expect a base of at least $375 million in recurring utility capital, primarily for maintaining safety and integrity across our large utility systems and supporting normal customer growth.
As noted in prior quarters, we take relatively conservative approach to our capital forecast.
We include opportunities we are relatively certain to occur as represented in our base recurring capital investment expectation and then we add capital as we gain more clarity and comfort around incremental projects that will support customer growth.
We anticipate that additional capital opportunities or are likely over the plan period, especially in the outer years.
Moving to slide 25.
Illustrates our capital plan is utility focused with timely recovery of most of these investments.
Note that 94% over a five year capital forecast is in our utilities with 80% of these investments getting timely recovery, which is up from 78% previously.
We've continued to improve transparency and on into our capital forecast this quarter, adding detail with a rider eligible capital care category, which was previously included as part of the minimal lag category.
As you can see rider capital is more than one third of our total five year for forecast and this is driven by our programmatic capital approach, which is focused on customer safety reliability and system integrity.
Moving to slide 26, we are focused on operational excellence and serving our customers. Our team safety performance continues to be better than utility average.
On the right side of this slide we were recently recognized as one of the easiest utilities to do business with scoring the top 20% of utilities under a customer effort index.
This achievement recognized that we are meeting or exceeding customer expectations in the recognition helps confirm our success and our goal to transform the customer experience that we've been working on for the past several years.
Slide 27 illustrates results of executing our customer focus strategy.
While delivering strong long term total shareholder returns.
In slide 28, you'll see our Twentytwenty score card.
We publish our major initiatives scorecard every year to hold ourselves accountable to you our shareholders and to our customers.
We group, our strategic goals into four major categories profitable growth.
Valued service better every day and a great workplace.
So let me recap by saying I think we had a very successful quarter operationally financially and strict strategically except for a mild weather that impacted earnings, especially when we compare the weather we experienced during this quarter to first quarter last year I'm very proud of how our team quickly adapted in responded to the impacts of coated 19.
Our team stepped up and we ensured we continue to serve our customers both safely and reliably.
Importantly, we also maintain our strong financial position and kept our capital investment program on track looking for Weve already seen state and local community start to reopen their economies.
And we'll make sure we have the energy available to support those efforts that concludes our prepared remarks, and we're happy to entertain questions.
Ladies and gentlemen, we are ready to open the lines for your questions. If you wish to ask a question. Please press star followed by one on your touched held telephone.
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Please standby for your first question.
Your first question custom Julien Dumoulin Smith with Bank of America. Please proceed.
Good morning guidance actually Ryan Greenwald on for Joe land.
Good morning, Ryan.
Good morning, Thanks for taking my questions. So maybe if we could start with Colorado, obviously, a lot going on there as we're waiting for the written order from the Colorado gas Gary how are you guys kind of thinking about your options here, whether it be an R.R. or to file another rate case, and then can you provide a bit more granularity around the impact capex and year embedded recovery assumptions.
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In terms of the rate review Ryan we are certainly as we said before waiting for that decision there will be important for us to read the decision as as I review, they Lj decision, which I havent reviewed for a couple of months now.
Was some indication that there were just too many issues that we're trying to resolve that wants with consolidation or rate review and things of that nature. So I think is going to be very important to see the actual written order, how if whether or not the chemist. The commission tries to lay out maybe a path for us if you will so we'll take that.
Into consideration and as you indicated we have several options we have whats called Triple R. in Colorado, I won't get the acronym right, but it's kind of a review as the sent an opportunity to go back to the commission SM to reconsider their decision. That's one option another decision option could be to appeal to a court and then of course as you indicated.
Already riding a third option is perhaps to file another rate review, which we would only do after we've again read the commissions orders the what kind of path they may lie before us.
Talk was of course with you'll see see office, a consumer council and certainly staff in that state as well and then determine what might be best debts going forward with respect to the capital.
We are investing capital that we think is prudent for the customer safety and reliability.
Certainly watch that capital closely but it has capital that we continue to intend to invest in the state of Colorado, which is which is a growing state for us.
Got it and then in terms of your recovery assumption. There are you guys assuming that becomes rider eligible.
This is rich Ryan the [noise].
You know that one of the denials that the Lj made and that was approved is the writer so.
Until we get that mechanism in place it wouldn't moved rider eligible that's true.
Fair enough and then could you just touch on your early expectations in terms of your ability to participate in the renewables and then as well as any early thoughts on the played love up today.
We did receive very solid bids in the renewable advantage our RFP.
Well the bids were relatively I would say low bids. So we expect opportunity to save money on behalf of customers. At this point, we don't anticipate that we view personal.
Participate in it and adding those renewables, but then again, we have not seen the final report.
Got it and then in terms that played well any early thoughts there that you're hearing today.
Yeah early thoughts well today is the day of the final vote. So we have heard that.
Last strong turn out it's a it's a mail in ballot so valid so been mailed in.
We understand very strong interest in it.
We are hopeful for a decision that allows us to continue to sort of those customers as we have for the past 12 years into the foreseeable future. So in the next 24 hours, perhaps maybe 48 will have an answer to that question. So much more to come there.
Got it and then just lastly in terms of Y. Gen timing for reclamation here I know settlement discussions have been going on for a while hairstyle add just in terms of timing and then your latest thoughts on option that you're not able to reach constructive resolution.
Yes. Thank you for that question. We're in negotiations now so I think I should be very cautious what we say we went those negotiations to continue to go well into proceed. So we are involved in those and with all the parties, including a judge assigned by FERC, who is overseeing the settlement discussions where an active parts.
As a patient in that.
So I think thats, probably all I should say, except the fact that we're watching that very closely and we have options on the other side that we may need to pursue if we aren't able to reach a settlement beyond that I, probably shouldnt speak much more to that question.
Great appreciate the time.
Thank you Ryan.
Thank you. Our next question comes from Andrea Shepherd with Credit Suisse. Your line is now open.
Hi, Mike Weinstein or.
Hey, Mike.
Okay.
Talk a little bit about the Nebraska rate filing what that's going to let's say kind of focus on this summer.
That rate filing it will focus primarily on the recovery investments that we have made over the last several years, it's been a number of years since we file the case in Nebraska.
So weve.
Invested quite a bit of capital over the years with respect to their average of support customer growth. It also focuses on consolidating the two utilities into one single utility tariffs and rates is similar to what we have accomplished now in Wyoming and are trying to do in Colorado. So literally the focus there we have said for sub.
Overall quarters that we intend to file that case mid this year, what the with the pandemic. We continue to visit list staff at Nebraska, and I understand those conversations continue to be continue to be productive.
However, we've not made a final decision as to when we would file I would say that as a company and as a team. The filing is largely I understand prepared and so it's a matter of timing when we may file that particular case being sensitive to our customers in Nebraska and what's good for the business as well.
Got it understood and.
Maybe you could talk a little bit but the guidance.
Right now guidance assumes that.
Hi, electric and gas usage will cover after the second quarter.
Here.
What happens if.
The impact on second quarter does not improve.
Continue to have more of an extended period of.
That make response throughout the year end.
How much more but you how much more with guidance do you think.
Good question, Mike and let me respond kind of at a high level NLS rich to talk about our scenario planning as rich indicated in his comments, we've done a lots of scenario planning and in fact, we've spoken to over 200 of our largest customers across our territories gauging different.
In different industries, recognizing and trying to gauge what how they're feeling what they're doing what their response has been.
To the pandemic and other things have been caused by the pandemic like oil local low oil prices now we don't serve the oil and gas industry directly that we serve ethanol plants and things of that nature as an example.
So we've done quite a bit a scenario planning we have.
Am I on the electric side of our business, we watch that essentially daily were 100% am I essentially on electric side. So we get reports essentially daily and what we're seeing there and I think it and as importantly, we're listening to our utility peers across the territories paying attention what they've seen on the coast and then as we get closer to.
Home, what we're all experiencing if you will so we have very early on the pandemic put our team very focused on preparing different scenarios under which we might operate we have we're not epidemiologists as everybody well knows and believe that while we listen to them, we've not tried to per day.
Actually as they're going to be a rebound and things of that nature. We've essentially said, we anticipate and we're we're watching closely the loads, we anticipate that 5% to 10% low decline as we go forward and then what we did is not a kind of have a real early rebound. We think we'll stay kind of lower in this to the second.
And third quarters, what the idea that we may begin to emerge in the fourth quarter. So I would like to an analogy I have use that we've got to take the middle of the fairway a few wells pardon the sports analogy with how we've approached our scenario planning and maybe rich can get a little more detail about that please yeah.
I think Glenn gave a very good overview there one thing just to clarify what he said, 5% to 10% reduction that's on the.
Commercial logo. Thank you, we do expect residential load.
At least partially if not hopefully completely offset that on the upside that's really what we've seen in March and April on the more optimistic side is that overall load really has been pretty flat to prior years on a weather normalized basis.
Now our scenario planning, we looked at a variety of different scenarios I.
I think Lynn Lynn's analogy of middle of the road is probably the best one we do expect some impact as we continue through the second quarter.
Certainly continuing well into the third quarter and then a slow rebounded as we get through the year, that's kind of how we framed it up and our territories.
The authority has got ahead of if you will the curve on the pandemic as we all try to flatten the curve.
And so largely in our territories will not not discounting anyone who has been will certainly not at all but we've had relatively low.
Positive cases for the virus, except for you could argue Arkansas in southern Colorado.
Other states relatively relatively on impacted so it's been more of an economic impact as we have intentionally closed our economies and because of the rural nature a lot of our businesses have been able to continue just set a slower pace. If you will and now with the official reopening it's going to be very interesting over the next week or two to.
What happens within our within our territories, Mike So hopefully that helps you.
Alright fair to say, though that your guidance doesn't include any.
Any reduction in gas.
Yes with whatever issues.
Assuming most mostly recovery.
Yes, I think Thats fair.
Yes, we do and we do anticipate sometimes we do anticipate some minor impact on the gas site in the second third quarter, and probably a little bit in the fourth quarter, but.
You know.
I think the way you said it is fair, it's that where we're coming back by the fourth quarter and by year end.
Okay.
What kind of timing do you have internally, we're achieving the midpoint of 50% to 60%.
Ratio is that.
How many years out.
We haven't disclosed that I.
Think of better way to think about that we obviously, we haven't disclosed anything beyond 2020, yet in terms of earnings guidance. So.
I I won't answer that directly I'll, just reiterate what I said in my script, our our long term earnings growth prospects support that payout ratio.
Okay got it thank you very much.
Thank you thanks, Mike.
Thank you as a reminder, ladies and gentlemen that Star then one task the question.
Your next question comes from Brian Russo with Sidoti Your line is now.
Yes, hi, good morning.
Morning running right.
A lot of my questions have been asked and answered, but but just curious the 14 to 15 million.
Of Ptcs in your guidance, how much of that was.
I was using the first quarter.
Well.
It comes through the.
The actual production of those credits the actual megawatt hours generated that produce those credits occurs evenly through the year, but within 18 tax accounting.
We actually have to recognize those kinds of things proportionally to our pre tax income generated in each quarter. So we really recognized about 44% of those in the first quarter that makes sense.
Earlier this projected production, 44% of the full years expected production tax credits.
Okay, great. Thanks, and then B the five to 10 cents of cope with related headwinds could you break that down at all between whats sales related versus what might be net expense.
We have intentionally not done that I mean, obviously, we have internal models.
That that get us there, but we're intentionally not doing that because we're throwing darts on both loads bad debts and all those kinds of things.
People that we've looked at all the other calls from all the other utilities in our opinion.
No real detailed disclosures our guess is at best.
Just two early in the pandemic. So we've chosen to frame it up in that Bucketed approach.
Got it okay understood and then the debt to cap net debt to cap, obviously, it's come down a little bit I would imagine it's because of the 100 million.
Of equity offering.
Completed in February when we look through the next couple of years how.
How long do you think it's going to take for you to get into that mid or.
Hello.
50% to 60% range.
Yes, we want to get to the mid Fiftys It should take a couple more years.
Obviously, the $100 million equity issuance in the first quarter helped and then and then just the fact that our first quarter is one of our biggest is our biggest earnings quarter contributes to retained earnings.
Beyond the dividend paid out so thats that really drove that 210 basis point reduction, but to answer your question and ticket.
Two three more years to get where we want to be.
Got it and just on the mining segment the 10%.
Decline in first quarter volumes year over year is and I.
I understand the planned out time into planned outages, but what about the biotech flat is that just due to a reduction in demand.
For for a electricity just trying to get a feel for how should we be expecting that kind of volume reduction throughout the year.
Those reductions are primarily related to the fact that there have been so much wind has been.
Constructed in the state of Wyoming, So its dispatched first.
And so the lack of transmission or transmission constraints oftentimes can put the wide back in a position where it's not operating at full capacity. So we'll see how that goes going forward.
A little less at with the it's less of a reflection on the demand for electricity as it is a reflection on the increase of renewables in the state alike.
Got it great. Thank you very much.
Thanks, Brian Thanks, Brian.
Thank you.
No further questions ill return the call backs to Len evidence for closing remarks go ahead Sir.
Thank you Daniel again, thank you to everyone for joining us today on our call. Please continue to stay safe and be well and we'll look forward to actually seeing everyone face to face as soon as we can so thanks very much so much for joining us today.
Thank you for your participation in today's conference. This concludes the presentation you may now disconnect good day.
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