Q2 2023 NorthWestern Corporation Earnings Call
2023 second quarter results. My name is Travis Meyer on the corporate development and Investor Relations officer for Northwestern <unk>.
Joining us today to walk you through the results and provide an overall update or Brian Bird, President and Chief Executive Officer, and Crystal Lail, Chief Financial Officer.
All participant lines are currently muted after the presentation. We have allowed time for our Q&A session I will provide instructions for asking questions at that time. However, if you do intend to ask a question and are joining us by computer please cetera zoom identity to your first and last name and firm named so we can call on you by name to let you know when your line is open.
Northwestern's results have been released and the release is available on our website at northwestern energy Dot Com. We also released our 10-Q pre market on Tuesday morning.
Please note that the Companys press release this presentation comments by presenters and responses to your questions may contain forward looking statements as such I'll direct you to the disclosures contained in our SEC filings and our Safe Harbor provisions included on the second slide of this presentation.
Please also note. This presentation includes non-GAAP financial measures. Please see the non-GAAP disclosures definitions and reconciliations also included in the presentation today.
The webcast is being recorded the archived replay of today's webcast will be available for one year beginning at six PM Eastern time today and can be found in the financial results section of our website.
With that I'll hand, the presentation over to northwestern and CEO , Brian Bird. Thanks Travis.
Good morning folks.
I know many of you would've liked just heard from us yesterday.
But the reason we're having the call. This morning is.
Diminished the amount of travel necessary Sunday, our board meeting on Tuesday, and so we decided to have the call here.
Here on Wednesday morning.
To start on.
Regarding the second quarter, we are very very busy on the regulatory front as you are well aware, we recently filed a south Dakota electric rate review.
And obviously we're waiting.
For a decision on our multi party settlement in the Montana rate review and so hopefully we'll hear from them that real soon.
Regarding Yellowstone County, generating station a lot has happened.
Since the first quarter. So during the second quarter, we had a tremendous amount of support from the governor and the legislature in Montana, which helped us resume construction.
The facility and we're ramping up that construction as we speak.
We have invested over $200 million of the estimated $275 million in the project itself.
We continue to operate in strong and growing service territories as seen by a very very low unemployment some of the lowest unemployment in the country and as a result, we're also seeing very good customer growth, which didn't necessarily help us here in the second quarter was going to help us on a going forward basis.
Our business and lastly on this page I think it's important to point out.
And this is one of the great things about northwestern.
Workforce, we have here and the culture, we have here and I think certainly being acknowledged.
By Newsweek as one of America's Great workplaces in 2023 pretty cool.
Announcement for US, there's only 11 utilities acknowledged and the only one.
In the Smid cap space was northwestern energy that of course came on the heels of 2022 are also being acknowledged as a great places to work. So we just it's a great tribute to our employees and we're very excited about that acknowledgment and with that I'm going to hand, it over to crystal.
Thank you Brian I'll begin my comments on slide four here and just conclude.
Include Brian comment on working with a great team I think the Newsweek acknowledgment of the work we do here in the great people, we have worked with some pretty fantastic thing.
And then I will turn myself to your second quarter performance and before getting into a bit of detail. We've added a couple of slides to hopefully give you a bit of color as to how we're thinking about the quarter and while Brian acknowledged their results a little bit lower than we had hoped for in the quarter, but in line with our expectations and how we think about the year.
So to give you a little bit of color here Q2 results lower on a GAAP basis by $10 7 million or <unk> 22 cents of EPS versus the prior year second quarter. So how do we think about that 22 centers spread we were impacted by shoulder season weather and you. All know Q2 is our lightest quarter.
Order from an earnings perspective, and you can see a bit of variability there depending upon weather. So far this year Q2, 2003 that was <unk> <unk> of unfavorable weather, but I would note last year, we had more favorable weather for us that was for last year in Q2 of 'twenty. Two so when you compare those two that's a <unk>.
And our earnings due to weather.
Period over period first second quarter. In addition, youre all familiar with but our equity issuances. So there's about <unk> <unk> of drag with relation to shares outstanding impacting results for again Q2 'twenty three versus 22. In addition, as we had talked to you at the end of Q1, we had just concluded hearings in our Montana rate worthy.
<unk> reached the settlement there so we provided a bit more <unk>.
The detail I would say as you all know we do not have guidance out for 'twenty, three and well update you on our expectations fully until we see an outcome from the Montana Commission, but what we have done here is quantify the impact of the Montana settlement to both our Q1 and Q2 'twenty three earnings if it were approved as is with no adjusted.
Once again this is meant to give you a bit of an indication of what we see is the impact of that settlement to our financial statements.
In 'twenty three and this would include impacted both the revenue line and tax implications.
And would contribute about 15 cents to our Q2 earnings based off our estimate again, if the settlement were approved as is the slide four provides you a bit of that color again, comparing quarter two versus 23 versus 'twenty to 'twenty two cents. There there is definitely variability and weather and how that.
Our performance I'll dig into that in a little bit.
Further detail on slides coming up but you think about that 7% about three tenths of equity drag and if we were able to record the impacts of that settlement contributing another 15 to maybe see a more comparable number as to how we think about that then on slide five.
Again, you're all familiar with our Q1 results, we had favorable weather than in some solid results, Brian talked about the customer growth that we continue to see underlying that so you would see the impact of the settlement.
Again, Q1 would have been 20 that would bring that to 35 cents total on a year to date basis and you can see on a non-GAAP basis versus the numbers that you would see year to date at this point of $1 40, you adjust that we'd be $1 75, and halfway through the year and so that gives you some indication as to how we're thinking about our earnings.
Both on AR as we conclude a half year basis and from a 23 perspective, so with that I would take you to slide six and dig a bit more detail into the detail of the quarter results. So from a net income basis $19 1 million.
And net income as compared with $29 8 million in Q2 of 'twenty, two that's a $10 $7 million reduction and on an earnings per share basis, 32 cents compared to 54 cents that the 22 cent difference again, that's the color I just gave you a bit explain and bridging that difference of 22 cents from last year's work.
Norman.
Slide seven breaks that down you can see we had favorable utility margin overall of what actually falls to the bottom line for us and that was driven by a favorable on the electric side offset by unfavorable on the natural gas side and I have a slide upcoming that'll give you a bit more detail on that and then you can see a continued push outs.
What I would call that the cost of running the business, so operating costs interest and depreciation leading us to the 32 cents.
Earnings contribution from our second quarter basis.
Slide eight.
A bit more detail of the margin performance and I would always highlight the positives right. So first positive interim rates and the criticality of the Montana Commission's decision and with regard to that and again those interim rates are just over $31 million.
Our settlement overall of about 81 million. So you can see the impact there. Thank.
In Q2 of that contribution I also mentioned our property tax tracker and that's not something we've talked about a lot, but I think most of you know from a bill comparability perspective in Montana, we collect property taxes or AD valorem taxes for the state and that's about 15% of our customer Bill and.
In Q2, we typically negotiate our evaluation with the department of revenue a variety of factors in that but we saw a decrease in that valuation versus the prior year, we haven't.
Tracker in place, it's not full tracker because it contains a haircut and typically that haircut is one minus the tax rate would have been detrimental to us. This year, we happen to have a positive from that and negotiating a lower valuation. So you can see $3 3 million versus last year in Q2 are positive there and the margin line and then <unk>.
The next item here, showing favorability a $3 million favorable again versus Q2 of last year and PJM has not been my favorite thing to talk about in the past. So I do have to take a moment and highlight the positive there. What we saw is certainly consistent with the shoulder season weather impacting us volumetric Lee and loads.
Flip side of that is we also saw a more moderate pricing and then more importantly, the impact of that interim rate base being much closer to what is the final base, we've agreed to in a reasonable amount.
To have the 10% sharing around so that's four cents of favorability for us when comparing to 'twenty two.
And not that I want to relate it but for 22 full year impact I'll remind you that we had 10 cents of drag from that peak out mechanism. So when we're thinking about 'twenty three.
<unk> prices moderate importantly, that's a huge impact on our customers and their bill and the amount that that 10 cents as compared to but also how we think about drag in our earnings to see favorability here in Q2 and to think about what that impact was last year. This is certainly one of the things I'll say is a positive for Q2 and how we think about that they are moving more to the right side of the bridge.
Here you see detriment is primarily related to weather I would highlight both the electric transmission and retail electric and gas volumes all impacted by weather when we think about our transmission business the ability to move power across our lines elsewhere, a cool wet spring certainly we saw less demand for that.
Having been in Missoula, Montana yesterday, I can tell you that weather has changed it was quite warm and our service territory, but that certainly drives demand on the transmission side and we have a little bit of a rate change there as well versus last year and that formula rate and then you can see the lower electric retail volumes, both electric and natural gas and I would tell you that.
Underlying the customer growth there, but in a shoulder season, you can also see the impact to what ultimately ends up being margin I'd also mentioned, we have irrigation loads.
And that's something that with a cold wet spring, we didn't see come through and so impact there and also a little bit of softness in the industrial side, we do have some bitcoin miners on our.
System, when we fall a little bit lower loads. There. So overall again a bit of favorable on the utility margin that falls to the bottom line, but a lot of moving pieces in there for the quarter.
I'll move onto slide nine and talk about our operating administrative and general costs and again, I think us and everyone else is impacted by pressures of these lines.
Our.
Focused on maintaining a sustainable level of operating cost and I think managing a lot of the business in a very reasonable way you see the largest impact here is really to compensation and benefits of our people that cost of labor impacts us and everyone else and it's something we certainly expected for 2023 and you can see that as the most significant driver in our.
Pop up versus 2022.
Slide 10, again I highlighted at the beginning but this is a reconciliation of non-GAAP for hopefully you to get a picture of what the weather piece that we adjust out again or whether model isn't perfect. You'll see that there's a cooling degree days and heating degree days both in a shoulder season like this but while it may not be perfect. It is consistent.
And we try to give you our best view into our estimate of weather impacts to us you'll see in 2023 32 cents on a GAAP basis adjusting out unfavorable weather of <unk> gets us to 35 cents and then what I mentioned earlier in bridging that gap.
GAAP and Q2 of 'twenty, two we have for a favorable weather that we backed out.
Now moving on to Slide 11, I'll just mentioned our cash flows and financing plans again the impact of interim rates has been significant to us on both the base rates that we wont earn on and also adjustment to that P. Chem mechanism you can see some favorable cash flows here. We had also previously announced our plans for $75 million.
Equity using our ATM remaining availability there in 2023, we did start that program up in Q2 and issued approximately $10 8 million and we do expect to issue the remainder in 2023.
With that I'll move to slide 12, and again reiterate that while you're all awaiting a full update from us and we do expect to do that we are awaiting the commission's decision and it is a very significant outcome for us so with that we won't be providing a broader update at this point, but while Q2 results are certainly impacted by weather.
Or otherwise consistent with our expectations and we await the Montana Commission's decision.
To provide that update but as you can see what the cost of our business that settlement is critically important to us in the sense of being able to cover the cost to serve our customers and we feel good about what we placed in front of the commission.
And we will be checking in with you. After we received that update and with that I will turn it to Brian Alright. Thanks Crystal on Slide 13, we talked about the Montana rate review.
Spent a tremendous amount of time talking about.
This already in earlier calls.
Obviously, no settlement has been reached and we're waiting on an outcome from the commission on that so but the only thing I'd want to say about the settlement itself is just to remind folks that all parties to the settlement.
The only parties that provided any testimony in revenue requirements. So those intervenors intervenors, who were opposed to the settlement didn't even provide testimony on revenue requirement, so something that I'm sure. The commission's concern as they make their.
<unk> Secondly, just anticipated next steps all the briefing has been done and as we wait for the decision here during the third quarter.
And I could argue that could be in August .
As any time in the third quarter. So we are waiting patiently.
Great outcome there.
Move on to slide 14, really talking about the South Dakota rate review.
So first rate review was filed since 2015, so much like Montana, it's overdue in terms to come in and get recovery of the significant amount of investment we've been making at all of our jurisdictions and in South Dakota is $267 million has been invested during that time period. I think many of you know just over $80 million of that is associated.
Bob will answer plant.
That was filled so thats, a big part of it but a lot of T&D investments been made as well in a matter of fact, 99%.
Requested increase.
And all that.
About $30 million approximately 99% of the increase associated by that investment we did a really nice job in their jurisdictions to manage our costs and so it's really a function of getting a return on the return on our investments we've been making.
Speaking of investments on page 15 from a capital investment perspective.
Five year history here again pretty impressive 16% CAGR of that investment over that time period of $2 1 billion.
Tremendous amount of investments still necessary in our system. The next five years looks to be $2 4 billion. In two thirds of that is continues to be investment we need to make in our T&D business. You've heard me talk about capacity challenges at this company certainly on the supply side, there will be capacity investments, we don't know what those are beyond yellow.
Tony.
But those will be coming as well those are not included obviously in that $2 4 billion.
But.
Of that about two thirds again <unk> tremendous amount of investment there that rate base growth is going to be approximately four 5% over that five year period.
And with that.
Just in concluding I think in fairness too.
Our customers too we shouldnt be waiting this long from a rate case perspective, we want to see increases that are more in line with inflation and then try and manage those cost increases to be less than inflation.
Matter of fact, we need to be also fair to our investors and come in for more timely recovery of our investments we're making.
And obviously returns associated with those investments so you'll see us obviously manage these.
Great reviews that we're currently in but being more.
More attentive to what our actual returns are versus our authorized returns and likely be more frequent violation. So with that I will turn it over to Travis to handle any Q&A XO, Brian . Thank you.
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We will take our first question from Shar <unk>.
Good afternoon.
Mike should be or your lines will be open all right Hey, guys can you hear me Hey, Shar. Good morning. Good morning, Good morning, Brian I, just wanted to kind of just dive into this a little bit more and I think you've kind of modestly.
You sort of did touch on it a little bit, but I guess why is the Montana case getting delayed how sort of the work sessions been going.
Is there any indication just so investors can get a little bit of relief here that may be a final order could deviate.
From this settlement you entered two with the cases primary intervenors, so maybe just a little bit more color on the process that'd be great.
Yes, I would say is I wouldn't I would argue that we're really not seeing.
Any delay.
Delay associated this is Scott.
As.
Usual to see this kind of timing and I think we will see something relatively soon.
Don't know when the schedule is actually going to be for a decision, but I do expect to try to be relatively soon I think that as you saw on the hearing itself.
<unk>, a fantastic job President brothers fantastic job of running.
Hearing itself and I just think we.
We've seen very very good.
Response from the commission in terms of on other issues and I expect it will find.
This will hear something relatively soon.
And I think regarding the settlement itself.
Think as I pointed out on the call here.
The settlement the parties that all agreed on this agreed all the revenue requirement matters, we covered many different topics. We've struck a very good balance amongst the parties I think its very compelling at the commission that doesn't mean that Chad try to do things I certainly.
What's happened in the past, but I anticipate in light of the very good somos, putting forward, what's going to be difficult for them to make any adjustments.
And then just lastly, maybe a little bit more of a question of crystal, but as youre kind of thinking about the timing around issuing guidance.
Could south Dakota rate case impact I guess, what guidance can be issued meaning maybe only a roll forward of the capital plan versus touching on the EPS growth rate I guess, how do we think about South Dakota in the next year.
Sure. Thanks, Charles on the South Dakota side, I would just tell you in and we didn't put a timeline and here I don't think maybe traffic will correct me here, but there is a statutory six months. Once you file that is basically a waiting period for interim rates. So when you think about impact to 'twenty three we filed that in mid June .
It really is interim rates would apply would be mid December so it's really not a 'twenty three items and how we think about that that the 24 item and will not impact our timing of giving 'twenty three guidance.
Obviously, the biggest impact to us as we think about settlement of over 81 million of revenues versus $31 million of interim rates is that Montana decision. We're very focused on south Dakota, as well, but that will really be at 24 items and the biggest thing on giving guidance as Brian mentioned in your question briefing on the legal side.
The attorneys that tableau awkward that took them through the end of June early July The commission has work to do to put together a final order.
We know they're working on that once we see an outcome and then if we need to see that final order for any clarity that mode.
The timing of us coming out with guidance, but we know you're all.
All anxiously awaiting to hear from us, but the south Dakota rate, which won't.
Delayed that guidance issuance, okay, perfect and then Brian just last one for me as well.
Do you have a clear line of sight I think Yellowstone is there sort of anything else that you can see could derail it or should we just assume that it's been derisked.
No I was just as we pointed out the third quarter of 2004, we are back to <unk>.
Staffing if you will again when you've asked everyone to leave and now you are asking when you come back we're getting there and I think the timing has been delayed a little bit but anticipated to still the third quarter. So we feel good about getting the plant on it. He knows we saw the percentage of spend so the amount of work between now and then.
Finishing work as you would say, but I think we feel very good about the processing, primarily having that resource pulse.
Hopefully in time for peak weather in the summer, but definitely meeting it before the winter season at the end of 'twenty four.
Alright, perfect guys. Thanks for taking my questions.
Alright.
Thanks sure. Thanks shortly.
Okay.
Okay, We will take our next question.
From the line of Jeremy Tonet at Jpmorgan.
Hi, This is robin on for Jeremy can you hear me, yes, we can area.
Hey, So you mentioned your goal to maintain sustainable operating costs was negative 6% year over year headwind from increased labor and benefit costs, driven more by one time items or more structural expenses and based on the current Montana rate case settlement any color on 2023 O&M expenses.
O&M growth trends more broadly.
So I would take your question in two parts and a sense of is it structural or onetime items, it's definitely structural.
And I would since they don't have 'twenty three guidance.
You back to my 22 bridge, where we laid out that we needed to get to a more sustainable level of operating cost and while we manage the rest of the business that we benchmark benchmark ourselves on an electric OE LNG perspective, with our smid cap peers and even some larger cap both on a rep per revenue and per customer.
Basis, we are very low and so we know that we have to have a reasonable amount of operating cost and the reason I lead in with that as we capture those costs through 'twenty two.
I am a known and measurable adjustment perspective, and the Montana rate review.
You see here is structural increases in our base cost of labor.
The biggest driver and we do see that as something that will continue to focus on recovering our cost.
We go and I think.
There's probably not any one lesson lets call that didn't get a pay raise in the last couple of years and keep all the labor markets and the tightness. There. That's what this represents from a year end perspective, we haven't given you that kind of guidance more clearly on the operating cost, but I would tell you that we were.
Would expect a little bit of moderation there versus what you see in the percentage increase on a strict quarter over quarter basis that those costs are definitely structural firm of labor and benefits perspective.
The cost to do business and labor.
Okay.
Okay, great. Thanks, and then on a year to date basis Youre estimating what your pro forma EPS is about $1 75, assuming the Montana rate case gets approved.
Do you think it's I realize you haven't provided guidance, but just speaking high level would it be reasonable to assume.
Similar shaping similar cadence in the back half for around $3.50 for the year or just any high level guidance their thoughts.
While we are not giving guidance.
The comment I would probably make is that's probably reasonable map.
Okay, great. Thank you.
Alright, Thank you Robyn.
We will take our next call from Paul Fremont at Ladenburg Thalmann.
Thank you very much.
First my first question would be.
On.
The Supreme Court Constitutional challenge for Yellowstone can you give us any update on where that stands and where that stands and whether hearings have been scheduled there.
I think from our perspective.
We feel good about the decision that the Supreme Court and made.
On Yellowstone and that was certainly helpful. But we're already hit as a result of I believe it resulted in the state that we received and so it was helpful. In that regard I would just say that we're continuing to move forward coal strip.
We have our.
Permit that we need and could there be future challenges on the plant certainly we anticipate continuing to move forward. So the plant I think you saw the support that we.
We have in the state for the plant and the need for our customers and will continue to force through and make that happen.
And then Paul.
Follow up there the there's been no movement in the schedule that Montana Supreme Court filings, but once we have something we'll update on that but no no change in that sense of when that might get back at it.
Great and then in terms of the timing of our guidance.
Would that occur on the third quarter call or would there be like.
A special call after the Montana Commission acts.
That's a great question and it will probably depend on exactly the direction. The Montana Commission goes so I can't give you certainty, but certainly if we do decide to do something before Q3 call.
We will make you all aware of it.
And then last question for me.
With.
The South Dakota rate case filing.
Is that going to impact potentially.
<unk>, given we're delaying guidance.
For 2004 or is that not going to affect that.
Paul just that I earlier I made the comment there statutory six months on that filing of before you can receive interim rates. We are working with them at the South Dakota Commission. We've received data requests there with regard to impacting either 'twenty three or 'twenty four guidance it won't impact our timing of 'twenty.
Three guidance with regard to 'twenty four guidance, we certainly hope we can work with the commission and resolve that market in a timely fashion and whichever way. We go it may either assume.
No outcome, there or something in the lines, but I don't think it will impact our guidance timing for 2024, but it would contain certain assumptions that we have not reached outcome in that market.
Great.
Questions for me. Thank you so much thanks.
Thanks, Paul.
Alright. The next question will take us from Sophie Karp of Keybanc.
Oh, Hey, guys. Good morning, Thank you for taking my question.
So.
First maybe on the settlement.
Who will cause here I was just curious if we should be thinking about any specific.
In our talent and adjustments or.
Any discrete items with my company is that settlement in the quarter, when you and fever.
So if the crystal here right. There are the thing I would just highlight for you I think you're all aware that we are Steve interim rates October one of 'twenty two.
So.
Pending the outcome of the settlement the impact will be a retroactive. So the thing I would just mentioned that there will be what I would call out of period impact from that that we would record some adjustment related to 2022 result, and so that's the item I would highlight is there is likely impacts of that settlement that are related to out of period items.
Certainly when we record that and we will highlight and separate what is 23 and ongoing structural versus what might be related to prior periods.
Got it so that would basically be the difference between interim rates and the rates the.
Authorized in the final settlement for an order.
Yeah, Theres a variety of things in there and certainly that the discrete difference between interim and final as a piece of that.
Got it got it.
Thank you and then my other question was.
About the weather right, so the mild rather mild shoulder she isn't so great.
The negative impacts from on volumes and margins I was curious if you could comment on how the third quarter is shaping up so far.
And if these are you know enough weather in the.
Summer months, so for potentially maybe negates some of that negative impact from the second quarter and the full year results.
But one thing we would say and I think everyone can appreciate this on the call the.
The U S. As a whole continues to see extremely <unk>.
<unk> Crystal had mentioned earlier, we were in the 2019.
In Montana yesterday, we continue to be hot throughout our service territory and so.
July certainly is going to look good from a load perspective.
But other than that really can't really speak to how things will play out.
Alright, thank its own cooking.
Thanks Sylvia.
We'll take our next question from the line of Jonathan Reeder at Wells Fargo.
Hey can you hear me Okay now.
Beth.
Hey, Thanks for taking my questions Hey, good morning.
Just wanted to know Brian how should we be thinking about the potential implications of <unk>.
Montana IRB I mean, I know the conclusion that more resources are going to be needed in the early 2000, <unk>, it's pretty consistent with how you've talked about it in the past.
Once you have the additions of Yellowstone and the additional culture of ownership.
I know the RFP noted that the earliest in RFP would be potentially issued is mid 2024, so kind of what needs to transpire between now and then for you to move forward with an.
ERP and seeking more resources.
Yes, I think one thing Jonathan we need to also deal with us.
<unk> proposed rules here.
Our certainly could impact our coal coal fired fleet and so we need to seriously take a look at that we need to work with <unk>.
The EPA and others in the industry to fully understand how that impacts our business, but more importantly help get to a point, where we can continue to operate those coal fire plants to help US bridge. If you will to cleaner resources. So I think the timing.
Associated with that RFP is appropriate where it is.
Sits today, but we're also going to have to probably accelerated some of our plans as a result of continued pressures.
From the EPA.
Okay, but in terms of like moving forward with like an RFP would you be waiting to see like I know the commission doesn't kind of rule on the RFP, but I think they do make comments like you'd be waiting to see what those comments are or is it.
Lately all internal this analysis around EPA ruling back and stuff like that.
We will after the rate reviews decision, we will continue to have a dialogue with the commission make sure. They are aware of these challenges we have given them a bit of a heads up when the rules came out there.
They're certainly concerned about it so there'll be a dialogue and obviously from that will compare to the plan in terms of how we address the RP.
Okay great.
And then kind of go into one of your comments in your remarks, just given the Montana historical test year and mindful of the recently filed South Dakota rate case, how close do you think you can onto the authorized levels. When we look out to 'twenty four.
Beyond perhaps kind of asked another way, how many basis points of structural regulatory lag kind of exist for you guys.
Yeah.
Sounds like a great Crystal question.
Jonathan you're asking that our internal dialogue here.
CEO wed like to pressure the CFO on that exact topic, but I'll give you my yeah.
Last year I think we were in the seven and a half.
Of an earned ROE from 96, five obviously, we have to improve upon that this rate case will move up.
What I would say.
So Jeff and I think I've said publicly before is around 100 bps is my guess it will take another rate case, and we're thinking about that ought to continue to work on and I think Bryan started the call with thing our focus our regulatory execution is getting closer to our earned ROE with a more reasonable amount of lagging there.
Given it's a historic.
Period, So I would tell you that this will take.
Taking a huge step forward it wont get us all the way and we're focused on again given the amount of investment critical investment that's needed for infrastructure.
Making sure that we will be in for more frequent rate cases to address that so I would tell you. After this one I would suspect we'll be around student assuming the settlement is approved as is.
I caveat that I'll say to everything.
Around 100 reps the black.
The only thing I'd add there Jonathan.
Just.
Having only 75%.
Of our deemed written rate base thats eligible to be earned upon it's just that's just way to what we can afford to put ourselves in that situation going forward basis is not until business would have.
Three quarters of their investment recovered they want to be closer to 100% of that and so obviously, we just need to be more frequent to make sure that we're getting.
More frequent filers to make sure we can recover that investment.
Yes agree.
The case in South Dakota.
It seems like a pretty pretty large case.
Surprise folks when your final date or had you kind of communicated the.
The magnitude of the case covering everything.
I think you know.
The commission is very supportive of the box plans are.
Plant and matter of fact, the commissioners were there.
The opening day understood that we would be coming in shortly after that large investment and I think they know about the T&D investment associated that came with it so I can't.
We react until there.
Headline number at all but I certainly know they're aware of the investment we've been making to support our customers in the state.
Okay, Great and I appreciate you taking the time to answer my questions and.
Good luck on the Montana outcome as the South Dakota process progresses.
Thank you thank you Kevin.
Yeah.
Alright, we will take our next call from what I believe is the line of Paul Zimbardo at Bofa.
All of that you just see a telephone number.
Yeah.
Okay.
Yes, it's Paul Zimbardo can you hear me, okay perfect call yet we can area.
Great Great. Thank you all very much.
Just to follow up on that $1 75 annualized question, just what does that assume for the second half of the year on a cost perspective, because if I have it right I think earnings tend to be a little bit first half weighted so just curious what is assumed on the cost side prospectively.
So Paul you are fabulous at asking a guidance question and yet another way so the $1 75, I would say it's a fire.
Once a year for that one is the quantification of the settlement if approved out there to our first quarter results.
Haven't given all of the guidance things that youre exactly asking about which is the shaping of the back half of the year. So I would tell you we will give you more quarter or more color on that once we see an outcome from the Montana Commission.
No further details on that at this point, Chris Atlanta, or one data point Travis you can always author that more than one day before I assume it like as Paul I would just reminding crystal did mention this earlier, but just as you're thinking about that the even if youre looking back at 2022 that PJM pressure, we add the power market.
Blow out a bit in the third quarter, we had a $4 million of drag just on the PJM sharing alone in the third quarter. Another $1 3 million in the fourth quarter. So there is a lot of pressure in the fourth quarter of last year. In addition, the property tax in the fourth quarter that we ended up showing up once we got our mill rates. So.
If you're if you're bridging from last year to this year. There is I would point to more more tailwind than headwind.
And I think what Travis is nicely pointed out is the known and knowable.
And.
You all heard me at the end of the year, where we came in just south of our guidance and things that push it outside of that range was definitely that P. Chem impact of a 10% total for last year. So when you think about.
Then again, assuming the market rate case outcome. It gives us that full base you can already see the impact of power prices coming off combined with a reasonable amount of base <unk>.
<unk> costs, it's certainly something that I think I would like to say, we will not be headwinds for us. This year like it was the last couple of years.
That's a great point that triumph is following up on there.
Okay excellent now message received loud and clear no. Thank you for that.
And I know you got asked a little bit about it but just in terms of the weather in the quarter and what you showed on the actual versus adjusted.
Pretty large declines in electric gas.
Even after you adjust out the weather do you think some of that could be the breakdown of a shoulder period weather normalization and at APAC kind of this volatility in the past so any color perspective, if you could provide there would be helpful.
So Paul what I would tell you is that having worked closely with the prior CFO and his frustration in time Q2, other model impacts and how we get better at that here. We are talking about in our Q2 and our weather model. In fact, I will tell you. It is absolutely consistent and we want to present to you an approach that is always consistent.
But I would certainly not counted as perfect and particularly in a shoulder season. When you look at like amount of both cooling and heating degree days and what the model does with that way.
We present to you what it sets out but it may not fully capture what is weather impacts to us, but again it would be consistent but something that you guys can think about as youre looking at the numbers.
Okay and it sounds like the bias is towards the understating of the weather drag effectively.
I would certainly say that that that is a reasonable conclusion.
Okay great.
Great and then the last one if I have it right you're planning that given the five year capital refresh slashed roll forward with the next update.
Theres any flavor on the base transmission distribution needs any way to quantify it even in terms of miles or some kind of heuristic. So we can calibrate there would be helpful. Thanks again.
It's a great clarification, so I would I would clarify what we expect to update once we hear from the Montana Commission that would certainly be 'twenty three guidance.
Earnings perspective, and how we're thinking about that earnings perspective, rolling forward from a capital plan perspective, we did roll that forward to EI last year and consistent with our underlying planning processes and board approval, we would I would not expect a major capital refresh went if we gave that guidance earlier the capital refresh.
We would do annually and that kind of November December timeframe, and so I would separate the two of them.
The only other comment I would give there is.
Sure.
Structural T&D investment there, there's a lot of work to be done on the system.
Plenty to capture there, but again I wouldn't expect us to update that until.
More along the November timeframe for that longer term capital look.
Okay. Thank you I appreciate it.
Thanks, Paul Thanks, Paul.
Next question in the queue is Ida Wozniak from Siebert Williams, shake or it could be Chris owning a formula too.
Yeah, that's a good question.
Either it's units, Chris or I have a terrible cold.
Both.
First question for Brian .
You mentioned that it's on.
On a typical schedule for Montana or this is normal.
Lots of things are normal in Montana I suppose.
But it's a pretty long process for a settlement to be approved sort of on a national basis four five months.
There are ways to improve upon the process in any way too.
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Settlement reviews, not take four or five months.
It's a fair question, Chris I think crystal have made a good point earlier, though that the briefing schedule.
Brings your well into June and so as we sit here a month by the time that the commission staff can kind of put together a summary of everything and provide advice to the commission. It doesn't appear that unreasonable if they could reduce the briefing schedule again, it's around a settlement.
That I think would be helpful, but I think crystal summed it up well the lawyers get the last word.
That's my that would be my recommendation have a settlement why do we need to have all of that.
As being associated with it that would be my only thing but again.
I think the the hearing and even in this time period that we're waiting has been reasonable compared to some delays we have seen historically.
Correct.
The only thing I would add to that is the timeliness of interim rates, we received while the commission.
It's out this process.
Having received interim rates effective October 1st last year is really critical to them.
I need to take a bit more time to fully get.
Order drafted the impact to us is less significant and at that point, we had never received interim rates back quickly from the commission. So we certainly appreciate it.
Alright.
Also Brian you talked about the customer growth.
Given where our customer growth is sort of the.
I'd call it the acceleration and de Carbonization in general.
No.
Are you thinking that sort of the.
Tenor of your Capex today is adequate for what Youre seeing in terms of.
Adjustments to load growth and customer growth or do you see.
Potential for adjustments to just the T&D component, obviously you talked about.
Needing some additional capacity later, but do you feel like you're on the proper tenor or is there upside to that.
My perspective, Chris and I think there's a lot of discussion in this country about gas usage and thinking about long term investment that we continue to see great demand in our gas business as well and that of course is concerning from a capacity standpoint and from a transmission perspective.
So electric transmission capacity is certainly much more important today, so I do geo upward pressure associated with addressing those needs.
I have concerns there and obviously on the generation front my my concern there is pushing us to make decisions.
In generation.
Modes at the same time, we are trying to do something from a cleaner perspective, we're being pushed to do something sooner, we're doing something sooner and addressing capacity and long duration capacity, we're going to be doing something that emits carbon.
So I'm trying to understand why.
I understand the push to do things quickly, but with technology, where it sits today, we need a more reasonable period of time to address our capacity needs not 2027, we need more like 2037.
To adequately do what.
The nation wants us to do to have cleaner generation, but I think everyone. On this call knows it's going to be extremely difficult to do that the next five years.
So.
Chris I would just say.
There is a tremendous amount of investment we this company needs to do to address our capacity in each period.
Okay.
And one for Crystal.
You already gave us a really good start on the pro forma numbers.
Ask you to give us a guidance number but when you do give guidance.
Given that you've already sort of given us a look at the first and second quarter will you give us sort of your view of the seasonality of the remaining stub.
Sure, Chris I think that's a reasonable amber and I just from an overall seasonality for us I would tell you that.
I think about it while we're not giving guidance is the we our winter and summer, peaking that were dual peaking utility. However, the amount of peak. There is as you guys know stays very cold December January February kind of think three months of sustained low would impact versus when we see our summer peak those are typically are.
Order amount of time. So you know Q4, and Q1 are really important to earnings Q3, as well, but a little less impactful of our summer peak and particularly if we don't have the PCM driving but usually offset some of that favorability. So that's the seasonality color I would give you as to how I think about it and then I'll be mindful of that and when we do give guidance.
As to how we're thinking about how that plays out throughout the year.
Hey, great. Thanks, a lot.
Thanks, Chris.
Okay.
And with that we have exhausted the queue. So I'll turn it back to Brian <unk> for any closing remarks went up as a great questions and I appreciate books.
Thanking us for taking your questions, but more importantly, we appreciate you asking them.
And again, we really appreciate the support all of you have provided to the company.
Thank you.
Thanks again for joining us that brings the webcast to a close you may now disconnect.
Yeah.
Paul.
The recording has stopped.