Q2 2020 NorthWestern Corp Earnings Call
[music].
Good day and welcome to the northwestern corporations second quarter 2020 financial results conference call in webcast. Today. So that is being recorded at this time I would like to become a conference over to Northwesterns Investor Relations Officer Travis Meyer. Please go ahead Sir.
Good afternoon.
Western corporations financial results conference call on webcast for the quarter.
2020.
Last year's results.
The they'll want to website at northwestern.
Oh.
Our 10-Q three markets this morning.
Joining us on Cold Air Bobrow prison, Chief Executive Officer, Brian Bird Chief financial.
Sure.
Members of management team.
I guess your questions if needed.
Before I turn the call or Frost.
It's companies press release this presentation comments my presenters responses to your questions major came forward looking statements or not.
That's such a remind university harbor language.
During the course of this presentation there will be forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act.
Forward looking statements on the dress or expected future business and financial performance and often contain words, such as expects or anticipates intends plans believes seeks are well.
This information in the presentation is based on a current expectations, our actual future business and financial performance may differ materially and adversely from our expectations expressed in any forward looking statements. We undertake no obligation revise or publicly update or forward looking statements or this presentation for any reason.
Our expectations and beliefs are based on reasonable assumptions actual results may differ materially factors that may affect the results are listed in certain of our press releases and disclosing the company Swanson came from Q, along with other public filings Okie Dokie sheet.
Today's presentation also includes non-GAAP financial measures. Please refer to the definitions and reconciliations of these measures that are included in our webcast materials.
Following the presentation along those lines to allow those are dialed into the teleconference ask questions. The archive replay of today's webcast will be available for one year beginning at six P.M. eastern and can be found on our website at northwestern energy Dot com under our company Investor Relations presentations and Webcasts like without all handed over to our president and chief.
No.
Oh, Thank you Travis good afternoon, everyone and thank you very much for joining us.
Other from quarter to total on the cover the deck from the Grand Canyon. Yellowstone you did that becomes just yesterday we were.
In the park needed the park damage, making sure there on a contract basis.
Let me share obviously, just your war.
She was old just in a number one national Park.
The park and Gateway communities.
In Montana or crowded.
What's exciting about schering apart is when we do it all the contract basis.
We design our service to meet the customer's expectations in terms of affordability environmental sensitivity and sustainability bad reliability units or location, where we've got the opportunity to.
Pricing for more exciting new distributor technologies.
They were looking out filed so small that important part of.
We are you can be area, we sure second quarter highlights net income for the second quarter decreased 26.2 million compared to same period last year, which was driven primarily by an income tax benefit received 20 lighting.
Our lower gross margin didn't catch a cold. It appears we discussed last quarter and then by higher depreciation expenses. These were offset in part by a decrease from operating dry mill administrative pocketbooks and customer growth diluted.
<unk> decreased 51 cents, that's been position period last year diluted non-GAAP EPS decreased eight cents per share after adjusting for our income tax benefit so no there and then warmer weather.
The board of directors declared a quarterly dividend of 60 cents per share per payable September thirtyth two shareholders of record as much a couple of 50.
I will get a chance to come back and talked about customer engagement and employee health and safety. We are as follows our cold involved in the culinary Oh, but we continue to be doing very very well on both fronts and with that I'll kick it over to blame.
Thanks, Bob.
On page four of the presentation as the summary financial results for the second quarter as Bob pointed out I got it comes down 26.2 millions I look at the slides are really three themes jump out at me on gross margin. It was down 6.7 million on year over year basis, all of that negative variance could be just.
Well, we selected by 220 19 favorable impacts second thing I'd see my point out is the reduction in old DNA expansions that we had during the quarter more than offset the increases in property taxes, depreciation and interest expense and the 13.
Is there any 21.5 million negative variance.
Income taxes is all attributed to a 29 gene favorable impact of course on a year over year basis. So taking those things one consideration we feel we actually had a very good quarter inline with our expectations from the coldest perspective, so with that I'll turn it to the following page on gross margin.
Gross margin was off 6.7 million or about 3% as I pointed out all of that really attributed to our electric business.
Got the farmer drivers of the 8.2 million of change in gross margin actually impacts net income the very first two items, Montana electric supply cost recovery.
That item is after some favorable legislation we received a we were able to treat a RP capitalize a different than we had a favorable adjustment in 2019 associated with that that's four point Fourmillion and then this year or QF gain was 3.3 million less none MCU up game, we had in 29 gene.
Those two items together, our eight point or excuse me 7.7 of the full point to change in gross margin I guess another item that would get you fully to the point to is lower electric transmission really as a result on a year over year impacts of the closure of units one and two.
At Colstrip, so all in all again big impact associated with those 2019 favorable.
Items impacting the 8.2 million below that who do show changes in gross margins, that's offset elsewhere within the piano for a net decrease in gross margin of 6.7 million also on page five to the fall right.
We do have a red box speaking to covert you notice I didn't say anything about.
Electric or gas retail volumes, the reason being as they were essentially flat.
Flat parks or customer growth and favorable weather were effectively offset to a great extent by three to 4 million dollar negative impact on revenues associated with cold it.
As expected commercial and industrial volumes were down and residential volumes, partially offset that again from a margin perspective relatively flat.
Moving forward on whether it is a shoulder quarter for us.
As expected didn't have much of a weather impact we had a 500000 dollar favorable.
The tax benefit when compared to normal and an 800000 print type stuff, that's compared to Q2 2019.
At the map on the bottom left.
Side of the page six on April we did have colder temperatures and I'll start eating in our Montana gas business.
In June we had a warmer weather in south to tell them, which helped to substitute electric business. Those two things are the parmer drivers for our favorable weather during the quarter.
Moving on to operating expenses on page seven.
They are down to 2.6 million or really 2%.
Year over year basis, the biggest driver courses told you DNA.
Expensive I'll speak to that in a minute property taxes are up slightly as a result.
Hi, good validation for our Montana property taxes, and depreciation expenses up 3.8 million opt at $3.8 million increased 2.3 million is associated with a 2019 favorable impact.
Associated with the settlement of our rate case, where we bought an incremental benefit.
Appreciation expense as part of that rate case settlement.
Jumping to the items that impact and watching it at a that's the biggest of the 9.7 million decrease NLG nine of items impacting net income was a reduction in employee benefits, we had lower medical we had lower incentive costs loved out there were also highlighting those costs are.
Reduce that had an impact or increase had an impact, especially the cold and I'll speak to that in a minute. Some point benefits decreased 3.7 million, we have 2.6 million of lower generation maintenance at Ddgs and some of our self tilda.
Generation facilities.
We had lower labor cost. Some so she is that how we changed our work around cobot soundless attributed to a allocation of more labor to capital.
We had lower hazard triesman anticipating having lower hazard trees based upon the good progress we made and 29 team in that regard and then lower travel and training about 1.2 million to be expected with what's going on with coal that those are those benefits were partially offset by 3.1 million dollar increase and uncollectable accounts.
During the quarter and we had some other impacts as well totaling 9.7 million items.
Impacted net income below that of course, there are some minor changes and LG and aid that are also elsewhere in the piano friend net decrease of 9.1 million a in old DNA for the quarter. So far right again, we show the cold it related impacts a 3.1 million increasing uncollectible.
Now a couch offset by 2.8 million of lower coated related expenses and.
Think of floor medical.
Lower labor and travel and training for about 2.8 million, we'll give you a full CNL on cold and here later in the presentation.
Moving forward just operating income at the top of the page all 4 million.
Quarter over quarter basis.
Moving down to a pretax.
Down about 4.7 million, primarily that changes driven by an increase in interest expense almost all of that attributed to cold and need to have incremental borrowings to improve our liquidity during the quarter.
Well all pre tax income 21.5 million dollar increase in income tax again.
Almost all of that all of that really attributed to the 23 million dollar.
Favorable item in 29 to that was taken that leads us to the again the 26.
Million dollar decrease on a quarter over quarter basis and net income.
With that I'll stop there for a second I'd just point out when you take into consideration.
7.7 million hubs.
Negative impact this year on margin associated with the 2019.
Trouble impact items like the 2.3 million a favorable items associated with depreciation in 2019, that's 10 million on a pretax basis. After tax just round numbers like 7 million after tax.
I see it with that obviously 23 million of after tax benefit in 2019, that's a $30 million slow.
After tax basis and sold it for the quarter just removing those 29 king all of the 2019 items I discussed we would have had $4 million favorable.
These add to that will show a piano on a minute approximately 3 million on an after tax detriment that we have recently been torn taunting associated with told that you back that out we wouldn't that be Oh 7 million, possibly the corridor. So obviously from a headline perspective, it doesn't look like a great quarter.
But from our perspective, we feel good knowing what we know regarding colder than we're going forward.
Moving to page slide on income taxes, I talked about 21.5 million increase again associated with the recognition of unrecognized tax benefit in 19, partially offset by lower pretax income and slightly better flow through pairs probably year to date.
Quarterly basis balance sheet not much to talk about on page 10.
We did have an increase in being able to 100 million. Good increase in short term debt 100 million, that's probably the biggest changes.
Since the end of the year 2019, and you can see a debt to capital perspective to the bottom of page very little change relative to 2% debt to cap on cash flow on page 11.
Cash from operations, approximately 75 million better on a year over year basis, really three things drove that improvement and collections on supply costs. This year.
In 2019, we were giving response to customers associate with T.C.J.. We're also giving some transmission interconnection refunds in 2019, those three items were partially offset by lower net income this year to again, approximately 75 million dollar improvement there.
Thank you our adjusted non-GAAP earnings on page 12 see at the bottom of the page diluted EPS of 43 cents on a GAAP basis really taking out a penny for favorable weather this quarter got us to 42 cents that compared to a non-GAAP number of 50 cents.
Last year.
Not case, we had unfavorable weather, but penny and added back the tax benefit and that was received in 2019. So again.
HM detriment a year over year basis.
The main thing I'd point out also on this page is pre tax income.
Non-GAAP to non-GAAP basis is down slightly from our gap, primarily as result of the $800000 swing and favorable weather.
And then but I also said and that income improves significantly when they removed.
The tax benefit now that income there is shown as formulations less.
And again.
Reached eight cents EPS based on moving forward page 13 diluted earnings per share reaffirming.
Our previous device earnings guidance, all 3030 cents to $3.45 per diluted share. We do note our assumptions obviously one of the big assumptions can happen I mean versus our expectations on cold it.
And not only an impact on our margins, but also ability to recover.
Collectibles uncollected account expense from commissions, where we've made filings obviously normal weather and the share count at 50.9 million and attacks range or minus 5% Israel.
Lastly on this page I'd point out we do have a continued to have our 6% to 9% total return that's on a long term walk from our perspective.
And of course, that's gonna be drive through a combination of earnings growth and dividend yield.
Moving onto your just to change in our bridge. So she the revised guidance and thinking through cold it.
You can see read $1.48.
For the first two quarters of your well need $1.80 to $1.97 to achieve the $3.30 to 345.
Range that we discussed that means we'll need to an improvement on a year over year basis, 13 to 29 cents and where that benefit primarily come from its going to continue to come from.
Oh, DNA expense and it's going to tell from tax timing and one thing I'd point out as we had 14 cents improvement I know gene expense in the second quarter alone and so we do expect it to covert continues we'll have a relatively easy time machining that eight to 11 cents if not better in that regard so.
I worked extremely hard to stay on top of that we also know that we have a tax timing swing those two things again will help us.
Chief our earnings guidance in Q3 in Q4, what really changed in the forecast a since the second quarter. We did get our final property tax assessments. However, an increase in property taxes and certainly in this in the latter half of the here, but we increased.
Gross margin for property tax recovery, especially that after the second half of your those are the two primary changes.
Since last time, we made this adjustment.
Moving onto the next page on page 15, real quickly just pointing out that from our perspective decline in gross margin of three to 4 million inline with our expectations are at the top of the page the far right. We do show what our forecast most for Q2 little how things actually played out a little bit.
But on industrial and commercial little bit worse on residential but all in all pretty much where we expected do show that maintaining our expectations for Q3 in Q4.
A show that at a high level in the upper right and then in more detail basis for both our electric and gas business.
Her directly below and moving forward to expenses on page 16, again expenses came in line with our expectations during the second quarter.
We do show at the upper right a full TNL associated with that when you take into consideration that three to 4 million reduction gross margin that talked about earlier, you think about expenses.
Think about a lot.
Increase in operating expenses of 300000, and then at 700000 noninterest expense so a million dollars impact on togut on the expense side. So that gives us a pretax detriment of four to 5 million and an after tax at three to 3.7 associated with coal that or six to seven cents.
One other thing I should point on this page you mentioned a press release capital spending.
Still anticipated approximately 400 million, we're seeing very little impacts on the supply chain very little impact on staffing levels. We are getting a work done we've actually spent more capital year to date. This year than we had all of last year. So on a great track to keep moving forward, there and with that I'll hand, it back over to Bob.
Thank you Brian next year just to reinforce.
Discussion for the last few minutes in terms of margin.
And expense recall that we cannot relatively early at the end of the first quarter and certainly relatively early.
Global World and the ability to.
To come in.
Really quite closely to where where we expected to be at that time, so many of them and get it says an awful lot.
Turning that the to the capital forecast.
Health warning of course.
Over on the what on the left so we're comfortable with about 1.8 billion of total capital over the next five years.
Financing I was a combination of cash from operations.
And there was available in the 2021 first mortgage bonds equity issuances.
And based on what we know now what we expect now in any additional equity would be late this year or the next year and would be a really focused on maintaining current.
Credit ratings Oh, yeah.
If it can capital beyond flip identified in the.
That are too the right or would affect those capital projection.
Keith and thinking about our core capital work, though so first of all just exactly as Brian said.
Yeah.
Hey, Crazy or.
With potential workforce interruptions potential supply chain interruptions and with.
A lot of work with are distributed across the company Nikesh concentrated in one or two good project for an awful lot of a project management can be done.
We're very comfortable that we will be a meeting or 400 million dollar of expectation for this year and we're equally comfortable or the.
Continuing over the next five years too.
Yes.
The 400 million dollar.
Levels, we've talked about before.
Let me show every identified.
Projects to continue the sure about customers.
Hello.
We get more visibility into the out years, which would trade very very comfortable.
We'll continue to invest it before the million dollar.
Level and very importantly course this does not.
Include investment necessary to identify that.
Generation capacity challenges.
Montana, and we are unique and being a 40.
Customers are unique and not having a good way and being exposed.
To the market, 46% peak holiday Montana.
This is an important investment.
Hi, Graham to continue this year that customers can be broken out.
Territory, and we're very comfortable.
All that controlling either from everyone else a this year, we've been able to execute and we're comfortable legal or continue to be able to execute.
Looking forward.
It was a lot of activity on the regulatory front.
The Montana Commission approved the fixed cost recovery mechanism or decoupling you talked about this last quarter of course.
Good luck.
Very very important over the long term defective.
Most of the effective July one.
As we discussed last quarter, we did a request that the b.
Haitian do you deferred until July one next year.
For cold and related.
Concern for the commission.
We get that bought it made sense delayed implementation by year, if it didn't request construct or that we.
Provide it kind of a shadow accounting for the commission.
Really understand what the impact of the CRM.
And if it had been implemented July of this year.
In June of course the.
Well received an order from the before it gets up there.
And I've transmission filing, but either way.
Setting a procedural schedule ER and hopefully that appointing at administrative law judge settlement negotiations continue to be on doing despite the challenges should pull but obviously there.
You're not not meeting in person.
And then we would expect a compliance filing with the Montana Commission whenever the for Kuwait pace.
That.
Does conclude.
You know conserving or colstrip application.
A telephone did the shirt, yes, right of first refusal so you're in the process and modifying that application.
To help.
I'd be 92, and a half megawatts acquisition from Puget Sound Energy and then the corresponding.
Purchase power agreement to sell power back to Puget Sound energy the.
Pretty food and.
Propose to.
Be set aside to presidential quadrant calls for her current ownership.
Our goal scripts or even perhaps a compelling proposition from a customer.
Perspective.
And also from that that company and food and environmental perspective.
On the South Dakota front.
We're underway again, despite the Oh global challenges.
Yes, 60 megawatt or.
For example, the value that there.
You know your dollars a flexible capacity.
Located in your own this study will be activity cure.
As a matter of days and actually the online by late.
2021 or just.
Parents Medical you filed now a new.
South Dakota, a higher food just in the last couple of weeks for great feedback from both the Uh Huh.
And condition received word from the commission chair that or.
57, Babes suddenly document.
The best plane and he had ever assuming.
And then they appreciate that.
I've learned is consistent with the blind we're currently implementing a in focus on.
New in our fleet and being able to.
Provider customers reliability, because the full benefits participating in the southwest.
Oh pool.
Montana of course, we.
Issued.
All source solicitation for up to weather.
You May go up some flexible capacity that went out in February we're using a third party administrator you're of course participating.
With our shelf and.
For the saying the the outcome was that.
The project of course at this point or.
Identity blinding trains and cruises.
He is sponsoring the project.
So.
That's about all we can say, they're going to other than we.
Participated in the project.
During the results.
We're also on track to join the restaurant energy and balanced market truthful.
2021, and this could better certainly provide benefits for hormone cannot go see moves and much more efficient.
Litigation.
Both supply and transmission assets.
As we've talked about you have to.
You have to bring your own Tory or through the fan bugs, we need resources in order to participate.
<unk> worth, noting there that last week, the Montana Commission pad.
Okay great.
Discussion of regional resource adequacy flanker foundry, who was the president of the northwest power pool.
The new presented are describing the the.
The immediate concern is that the entire region has in terms of being able to meet our customers need the need for coordinated approach is to do there than we had.
Hello or.
Neither on regional issues and built supplying transmission side, she goes well and again region is.
Jason I'm very very critical situation and within the region.
40 versus 46% exposed.
Those customers truly truly or.
The most at risk so.
With that.
For the question.
If he would like to ask a question. Please take note by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure your mute function. It's turned off to law you signaled to reach our equipment.
Again, not a star one to ask a question.
Well go ahead and take our first question from sharper ends up with Guggenheim partners.
Hey, good afternoon, and this is actually Coty Clark on for Charles Thanks for taking my question.
Hi.
Hey, So you guys got it down so you won't give her mother and expected impact over 90, and a new cut another somewhat challenging quarter with the virus.
Obviously, we're still in.
The approval to that her uncollectable accounts cost from their commission, but wondering if you're still confident in the midpoint of guidance are you tracking more towards the lower under the range.
Yeah, I'd like to front, we don't ever try to give anybody where we are in the range.
Oh I would just say this we feel good about where we sit today.
Obviously, we need to get recovery from the commission, that's an important part of our.
Our range at the levels a hole.
But actually Q2 I came right in line with our expectations. We do expect that things are going to improve overtime and Q3 in Q4 from covert related perspective that was in our guidance range. Initially, but we also expect it to kind of.
Philosophy gas a little bit on old DNA savings in the second half of the you're either and a if in fact things continue to stay difficult because it covered on the margin side will be that much more to enter it on the urging expense and so we feel very confident in our earnings guidance as we sit here today.
Uh huh.
And second you given any more thoughts on upsizing, the current Montana or <unk>.
Good and power and I started this vote for.
No it's somewhat relies on the independent evaluation, but just wondering barrel.
Thoughts there.
Oh, that's certainly something that we will take a look out for exactly the reason that he's there and if it depends on food and what what comes in but boats and I'm sure you have a pretty big hole to fill on behalf of for customers and.
Shame on us if we don't do that so that certainly is a possibility.
Alright, Thanks, that's all I have.
That's it.
Thanks coating.
Well take our next question from Michael Weinstein with Credit Suisse.
Hi, good afternoon guys.
And I.
Hey.
You shouldn't be Oh Gee in a expense.
Of cuts of eight to 11 cents and you're expecting in the second half a year that depends on what does that depend on exactly.
Mentioned cobot, continuing cobot expense cuts continuing or.
Things are travel we get it is something we I'm sorry, I guess, we thought about Q3 in Q4, we expected things to overtime Smolder version.
Near normal by the end of the here right and so if we had expectation I know DNA cuts for the full year, we wouldn't be backing off that a little bit as well. So you know noticed I pointed out earlier, we had 14 cents of improvement on a year over year basis on the Okine line just in the second quarter alone and obviously the range for Q3.
In Q4 is less than that and so if in fact my point was if in fact, we don't seasons in margin improvement, which we do expect it we will get that that we will no need to do more on the old DNA side, but feel confident weekly.
Gotcha.
And also could you characterize what the opportunity may be in South Dakota in terms of versus the current Capex plus.
Well I mean, it's probably early to say too much beyond the fact that there there are additional.
Opportunities within the context about South Dakota up where she knows what does your significant.
I would share that we had historically shown over South Dakota.
What we were going to do over time and initially if you think back if there's a number of units spread across the South Dakota, then we talked about.
60 megawatts in here on and possibly something in Aberdeen, and South Dakota, and so I think at that point time, we talked about a total opportunity of 90 megawatts and being at 60 today. It would be an incremental 30 and hopefully we can get after that sooner rather than later.
Okay fair enough and.
Regarding the equity issuance you know, what's the thinking on how the timing might come out I know you said it can be that later this year. Maybe early 2021 is it more likely to be a 2021 timeframe or is there. Some reason why it might be earlier.
Mike I think of it this way I think it's a 2021 item a will continue at dialogues with rating agencies. It's for some reason.
Concerns or range, there, we could do something sooner than that but right now we're planning that as a 21 item.
Great. Thank you very much.
Well take our next question from Julien Dumoulin Smith with Bank of America.
Hey, good <unk> you can hear me.
Yep.
Okay. Thank you Oh.
First let me just start with the balance here.
Background here, what's driving the 11 that gross margin uptick in your expectation.
Right and I want to work that I know you talk through some of the gross margin dynamics are ready, but perhaps at a higher level, what's driving that uptick in the back half year and then.
Second dearly and I know you lose a little bit of ready one other levers.
Oh, Yes, 50, which that you don't don't materialize cobot exactly for cobot or otherwise.
Yeah, I think if you focus on page 14 and in terms the bridge.
One of the biggest reasons for the increase in gross margin in the second half of the years. We're property taxes are going up and we get the recovery to 75% of that that's up about 70% of that so that's the biggest driver a from a margin perspective.
We are from our perspective, we're seeing well expect to see better irrigation, we're going obviously, a customer growth and I mentioned earlier that we expect that some in the first quarter reduction some until timing associated in the second half two years. So again, but looking just at this page you can see that the primary benefit nine.
Sensor that gross margin is associated property taxes, so you really need.
To date sets of remainder and we feel very good about that.
And I think to your question Julien levers I think I would just focus on you know I can like in the comment about the 14 cents in Q2.
We did better from an expense standpoint, and Oh, we do show backing off I, just think that if we continue to stay on top of expenses because it killed. It we can do better than we show there if in fact, we we need to.
Yeah.
Awesome. Thank you and then on the RFP in Montana, I know you've alluded that.
<unk>.
No you're kind of event in terms of Interbody. The winter is there any.
Beautiful <unk> that we should look too in the back half year.
I would say no.
Okay aren't fair fair enough that's.
Oh, I'll I'll leave it there isn't.
Thank you.
Hey, Hey, Bob what one thing I think we shared last call as if in fact, the one thing we did say is that we've ever found out we're not.
Participating or not and the final routes, we're gonna unless you know that as soon as weekend.
And if that panicked or something.
Information incrementally that can be shared which here.
Well take our next question from Chris Ellinghaus with Siebert Williams Shane.
Oh cargo lifting.
Are you guys.
Hey, Chris.
I'm not sure. If this is for you you Bob or not but what is it the kids to you.
Confidence and incremental third to fourth quarter improvement or you know.
Believers that the possibilities of the flu season being more aggressive and what we're going to see in the second or third quarter I'm thrilled to see what it was like in say March or April what is your certain general view.
For <unk>.
Outlook for the fourth quarter.
What I would say is as a company UK covert extremely extremely seriously and adopted managers to keep our employees safe and healthy as possible.
All before the states took action and we expect.
But those measures are going to continue in place certainly well into the fall.
That said we also.
No a great great deal more.
About a safe safe practices.
But wearing masks social there's going to are extremely.
He effective way or hurt key Oh on that front line.
The states, we serve how I'm curious the lowest.
I don't know employment roots in the nation.
Nebraska the lowest.
On Canada, six lowest and South Dakota, the 11 lowest in South Dakota. What's notable is there was never.
Government world or to to shut down.
And actually the virus and lead production rate in South Dakota.
Despite that is really quite quite low so the virus certainly continues we take it just curiously as possible.
We have supported.
The action that stayed so they can around a massive states these businesses and kicking around masks.
But we see.
Consistent with that a tremendous amount.
Of activity coming back.
In our service territory I.
On a daily basis for example.
But we're all very multiple examples of people.
From powder state buying property sight unseen four out of a bad the fail place or in some cases before it's even though in the merger so awful lot of activity.
In our in our service territory, what all that can be safe, but it certainly is encouraging to see that.
Doesn't doesn't in any way to minimize the real hardship in phase or the folks who are.
We're still out of work committing to work with them, but on balance.
What we see is a is or region that is.
Coming back and.
Arguably.
Oh, well beyond the end of this year.
Could end up being doing much much stronger as people look around and ask where are they want to be.
Hey, Bob I'm, just a lot two quick things on top of that your data points, Bob talked about activity being up we have new connections are up in five of our largest six cities in Montana.
People are buying homes in our service territory. So I wouldn't have guessed that second thing I'd point out in our two states, our two largest stage, Montana and South Dakota. The total number of colder cases in those two states combined is about approximately 2200.
And so our car parts of our comp.
Parts of this country and our service territory doing extremely well come from relative to the rest of the country's yes, do we expect over to be tough in the third and fourth quarter. It should be but our expectations are will be able to manage through that if in fact, it is through what we've been doing thus far and cost control.
Okay.
Eric.
Your offsets to the to the bad debt expense the labor in the medical costs are you starting to see behaviors changed a little bit where that benefit to been easing off more of late.
I would answer to that it's now through what we've seen sort of second quarter and what I've seen into.
A lot I'd say, no I'd say, it's pretty consistent.
Okay.
And.
Sure.
If those behaviors stay similar would you expect that to continue into the later part of the year as well if the economy is you know so economies improving locally would not.
There'd be more customer contact and for a more utilization of medical services that would change that direction a little bit.
First I think I think that's a possibility.
We commonly or using the words levers here.
Again, if in fact, we seen cove and being more sustained through this time period, we're going to are probably going to continue see medical cost staying low we're going to probably see or labor costs, staying lower as a result to lower than we're projecting.
Okay. We're.
Got it Didnt show deep into you that those kinds of changes are really going to be on the margin.
Okay extra color guys appreciate it.
Well take our next question from Brian Russo with Sidoti.
Hi, good afternoon.
Right.
Okay.
Auto accounting picture is required to do.
And you have shown remote beauty into July.
Well it's on.
What we did in fact names.
Not use lamenting view of CRM.
On July 1st.
No no no.
No thoughts there.
Okay.
The terms of referrals.
Counting and procedural schedule, what's next but you should be looking looking for.
Testing or whatever.
Our two items first in South Dakota looking for a stuff.
Recommendation.
And then in Montana, looking to see whether or not.
Oh pardon filed testimony that could be either consumer council or large customer group.
Timing or a testimony to it as filed with you on July 31st.
Okay.
Got it and you mentioned.
The short list.
The Montana or when when might that be.
Good.
Easy analysis is.
Going on now we'll start to see more information about project.
And again I would.
I'm really focused on one the first quarter Brian's qualification to that isn't because a good when they feel like we're not in the running we'll let you know.
Okay, so screen running.
Let us know I guess is the way to.
Think about it as well.
There's a double negative buried in there but yeah.
So just.
If you don't mind just clarification she was the bad debt we collectibles.
Juice 30 years.
And.
What might we expect throughout the year or two both will be we seek recovery X dollars mountain just wanted to get a sense.
Magnitude that could possibly be.
Threats.
Yeah, I did mention increases threemillion or for the quarter I know what sets from what's in rates is approximately 2 million.
And so we need to continue anything above what's in rates during the year. That's what we're gonna have to have been be put in a re gas and for the year. So we'll see how things play out the Q3 in Q4 and as long as we still have and more turn on disk disconnects were not payment.
We expect to have that bad debt continue to increase.
Okay, and just remind you usually see individually.
Western filing can you shoot the cool recovery or it's just like we've seen in other states where the generics.
Finally.
We're on various in state pure utilities filed for the same type books structure just covering it.
Really yes to both in South Dakota, there's a filing by the industry and do you have felt good I'm, saying I thought or fail.
Within that filing various companies are requesting a different kind Jim I believe you said you know we're not with posting.
A make whole we're requesting an accounting order for.
So bad debt.
Montana.
It's a stand alone.
By winning addressing bad debt and also a pension contributions.
There is a parallel filing by and give you as well that's a much broader.
And that kind of because he said.
Hey, Bob.
<unk>.
Glad I won't go ahead.
Hey, Brian I do want to point out My fact checkers here a point of something out to me what's in rates is actually 1.1 million. So the increase thus far.
In the second quarter is 2 million I think I said that wrong.
[laughter] past.
What.
No what percentage or.
Dollar amount.
Oh and and as she <unk>. This year are sustainable obviously travel et cetera.
<unk> revert back to be on.
Going forward.
Any idea.
Good.
Level cost cuts can be sustainable.
2020 beyond.
Bob I'll, I'll grab that well, but yeah, why don't I shut up.
Question on them and then lateral whatever too.
Certainly.
<unk> expenses are going to change there will be more probably will be more medical expenses, but.
The old travel looks like it did before.
Probably now for the there's certainly some elements that will be carried forward, but remember.
Well you benchmark Oh again.
Any of our pre merger even against larger companies on the customer spends per employee.
I live in.
Montana property taxes, we call. It is already just a body shows when there's anyone out there.
Bob that was great I only thing I'd add to that is spot on is that this budget season is a little bit different.
And the sensors that we have to think about cove. It and there are things that are different than that we wouldn't want to capture those benefits and where we're focused on that.
Here right. After this earnings call effectively that's something we have to be focused on thinking about how this is going to affect 21. When we can do to take advantage of covis help us going forward.
Okay, great. Thanks, guys.
Well take our next question from Jonathan Reeder with Wells Fargo.
Good afternoon gentlemen.
Other on doing.
Good thanks.
Hi, good I'm, just kind of piggybacking on the last topic and for some reason, Montana and South Dakota don't granular request.
The pro accounting do you still estimated it's going to be a like a five cents EPS. It all year. If you aren't yet you know 2 million thus far.
Yeah, there were still impacting five cents I think some of that is we do expect and hope to expect to have reinstated ability to disconnect customers before we get into the heating season.
And and so we're already making having just discussions around that in South Dakota, very soon and in Montana little bit later on but it's something I think it's important that basket handled and that should help offset.
Some of that obviously increases we've seen thus far in the second quarter, two kind of slow that a rate if you will.
Okay, Great and then Bobby in your comments regarding the uncomfortable with the point 400 million up capex annually going forward.
You say that would be before adding any potential Montana generation additions are like in other words, Montana generation would be incremental to that 400 million per year.
Yes.
No the the capital at or is built up the.
Projects that are identified and when that neither a continuity about page as always.
The out years or will improve things are which are specific capital plans to serve our customers become more them.
Okay. Thanks for clarifying that number or last one just kind of curious what your thoughts are on you know that Mpsvs comments filed in late June regarding your Montana electric supply plan and how if at all that impacts the ongoing generation RFP and you know bringing.
And selection criteria.
Hi.
Good to my mind, the key thing was that.
Mission acknowledges the exposure that our customers face.
And and take it seriously so we thought.
There appears to have.
The comment was on on balance of <unk>, very very positive and probably different in telling them other than the case, if it's just a couple of years ago.
And again they are the conversations.
At the Commission had NIPT president of the northwest power pool, or the flash really good indicator real appreciation for the situation that customers are Montana face.
Okay. So their concerns expressed around I guess, maybe the inputs or you know assumptions you guys were making here and you don't errors and recycling around that.
That doesn't normally concern you.
Overarching theme that they recognize your short and everything like vaccine just kinda seem like it took some bad or a thought that I guess it had to be bathroom gas to Oh no.
This is the potential but you know other types of resources.
Maybe meet the needs effectively as well.
The way I looked at the plan.
The key is the plan identified and need.
Subsequently them there were a whole range of scenarios.
Using different resource combination.
I know scenarios, where just stopped but when they made the decision not to identify.
Hey specific quote preferred resource in the plan.
And then commit to that path to pull up essentially all these sources compete.
That's a that's a very different direction now.
Couple of comments that are interesting first of all the analyses underlying South Dakota, Montana plan. It's it's the same model. It's the same kind of work.
The environment than the two stage or in many ways quite different up you've stayed the same kind of analysis, what we've pursued back in South Dakota.
I was just.
We'll support for the plan.
I, certainly think 'cause it or or.
Playing through in Montana.
Over time, we'll continue to address and we're fine.
The Montana plan to.
Speak to the concerns that are questions that were raised by the consultant.
To the commission, which was really the.
Source for from many of the comment so it's an iterative process.
Plan the plan, but even with the RFP of structured in country peers with opportunities for projects to that in.
20 hours 10 hours and five hours, we should see some some real diversity and the viability.
Cost effective viability of various taking all of you just because gonna be.
Again and in what submitted.
Okay, great. Thanks.
Jonathan One thing I'd like just clarification that I think on the capital planning another capital plan were Sean care I paid shifting is our capital plan for your obviously as we go through the process and go through our budgeting process and the outer years. They typically tend to be a bit higher than we had originally planned. So there's an expectation spot points out that we're going to be.
Closer to 400, I'll take rate should be guaranteeing anybody that they will be for hunger out there those older years I would say this though if in fact, we're doing any Montana generation, we're likely to be at at least 400, it's not likely higher.
That's helpful clarification.
No. Thank you.
There appears to be no further questions at this time.
Okay, well. Thank you for joining us. Thank you for the very good questions and discussion, Florida visiting with you probably.
Line over the over the coming up and.
Online or in person that you'd like India.
Thank you everybody.
This concludes today's call if they keep your participation you may now disconnect.
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