Q2 2019 Earnings Call
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Good day and welcome to the Northwestern Corporation second quarter 2019 financial results conference call and webcast.
At this time I would like to turn the conference over to Northwesterns and Investor Relations Officer Travis Meyer. Please go ahead Sir.
Thank you Christina.
Good afternoon, and thank you for joining northwestern corporations financial results conference call and webcast for the quarter ending June Thirtyth 2019, Northwesterns results have been released and the release is available on our website at northwestern energy Dotcom. We also released our 10-Q pre market. This morning.
On the call today with US are Bob Udell, President and Chief Executive Officer, Brian Bird, Chief Financial Officer, and other members of the management team in the room with us to address questions if needed.
Before I turn the call over for US to begin. Please note that the company's press release. This presentation comments by presenters and responses to your questions may contain forward looking statements as such I will remind you ever safe 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 of 1995 forward looking statements often address our expected future business and financial performance and often contain words, such as expects anticipates intends plans believes seeks or will.
This information is presented in this presentation is based upon our 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 to revise or publicly update our forward looking statements or this presentation for any reason.
Although our expectations and beliefs are based upon reasonable assumptions actual results may differ materially. These factors that may affect our results are listed in certain of our press releases and disclosed in the company's Form 10-K , and 10-Q, along with other public filings with the SEC.
Following our presentation, we will open the phone lines to allow those who are dialed into the teleconference ask questions.
The archive replay a replay of today's webcast will be available for one year beginning at six PM Eastern today and can be found on our website at northwestern energy Dotcom under the our company Investor Relations presentations and Webcasts link with that I'll hand, it over to our CEO .
Thank you very much and thank you all for joining US today, we're speaking with you from Bozeman, Montana Bozeman is.
One of the most the Bozeman area pretty Bozeman Big Sky.
No were down towards Yellowstone Park Paradise Valley, one of the most rapidly growing areas anywhere.
Two nights ago, we've had a tremendous community events or board members and community leaders lots of discussion about.
The partnership.
Growth in this area and responsible approach to growth and truly is a great partnership also lots of appreciation for our employees.
Volunteer activities in both which is true across the.
The company in fact on Friday coming back over to cope with a trail.
Tomorrow.
Number four members are going down into Yellowstone Park.
Cruises for that area.
Or whatever.
So with those folks I remind them that the 5 billion people go through Yellowstone every year couldn't have the experience.
It works for the service and our employees provide I'm turning to second quarter highlights on net income for the quarter increased 3.9 million, 8.9% as compared to the same period last year and this increase was mainly due to an income tax benefit in 2019 and a reduction in revenue 18 due to the impact of the tax cuts have jobs act for customer refunds.
These improvements were largely offset by lower gross margin due to the adjustment of the qualifying facility liability and also a mild spring weather along as planned higher operating expenses.
Diluted EPS increased seven cents or 8% as compared to the same period in 2018.
In May we reached a settlement with all parties files comprehensive revenue requirements cost allocation and rate design testimony at our Montana electric rate review.
If the Montana Public Service Commission approved the settlement that will result in an annual increase to electric revenue of approximately six and a half million dollars. That's based upon a 9.65% RSV and rate base and capital structure as we file.
As well as an annual increase or decrease in depreciation expense of approximately $9 million. The board of directors declared a quarterly dividend.
0.5, Centsfive per share payable September thirtyth to shareholders of record as of September 13, and with that off to Brian . Thanks, Bob.
I have to note that the second quarter as though it's a shoulder quarter or are definitely our smallest quarter. During the year. It did have a lot of moving parts.
First point out.
On this page and so the summary financial results for the second quarter.
Our gross margin was down 14.6 million or 6.4%, primarily as a result of a lower Qs benefit on a year over year basis.
Our operating expenses.
Oh, we're up and totaled $5.8 million.
Our 3.6%.
Oh, DNA zinc higher pension higher hazard trees.
Things that we forecasted to be higher in 19.
Versus 18, plus we had scheduled maintenance.
That being offset to a degree by the lower depreciation Bob mentioned earlier.
Those things needed to lower operating income on a year over year basis and pre tax income.
Finally, we did have.
Much lower income taxes, 25.3 million lower income taxes, primarily as a result, the release of unrecognized.
Recorded tax benefit tax benefits, resulting in total net income increased to $3.9 million or 8.9%.
Moving on to more detail on gross margin.
Total gross margin was $215 million.
$14.6 million in the prior year period, as I mentioned earlier down 6.4% nearly all of that decline was in the electric segment decreasing gross margins due to the following factors really three drivers the primary drivers if you will.
The QF liability adjustment again, a smaller QF liability adjustment benefit in 2019 versus 2018.
That's partially offset by the tax cuts and jobs that impact if you think of it. This way there were no revenue deferrals associated with TC Jay in 2019.
Versus 20 eighteens deferral.
And the other offset the Montana electric supply cost recovery and thinking that primarily as the result of the elimination of the debt band.
Within the P. Cam and so regarding that benefit for the quarter that and some other items led to a change in gross margin of approximately.
$14 million, we do have some other items that impact gross margin, but are offset within net income as a whole totaling $600 for a total decrease of 14.6.
A million dollars for the quarter.
Moving on.
Hi to weather as Bob mentioned earlier, we did have a mild to Q2.
Oh, you do it's the quarter, where you have both heating degree and cooling degree days.
I have to point out.
Or heating degree day, we had very little heating load.
During the quarter and for all intents and purposes, particularly since Montana has doesn't have the same air conditioning load as you expect a lot of states, we have really effectively had no cooling load whatsoever.
And as a result.
Second quarter shoulder and its always our lowest loads for the year.
To sum, whether we did estimate unfavorable weather in Q2 2019 resulted in a $300000 pre tax detriment.
And that as compared to normal.
And then a 1.1 million pre tax benefit as compared to Q2 2018. So think of 2019 is a little less worse weather.
And then 2018.
Moving on to operating expenses.
Operating expenses were $166.1 million.
Or 5.8 million or 3.6% higher than the prior year period.
And the operating general administrative expenses, they were up 7 million or 9.5% up I'll discuss that a little bit more below.
Property taxes are up slightly primarily due to additional additions to the penny.
And depreciation and depletion were down 2.5 million.
As a result, primarily of the adjustment consistent with the proposed settlement in our Montana Electric case.
A little more detail on the LG and <unk> expenses, we did have a 3 million of the 11.2 million of changing any of that impact net income 3 million of that was generation maintenance expense.
All of that was all planned maintenance that did that occurred at night 2019 that didnt occur in 2018, thus the increase on a year over year basis. As we discussed we're we're certainly spending more hazard trees, and we're spending more and employee benefits primarily pension in that regard and just to remind folks we made it clear from a training perspective that we do expect to have 4 million more pension expense in 2019 versus eating in a full year basis, and four to 6 million more hazard tree expense in 2019 versus 2018.
Those items I mentioned maintenance generation maintenance expense has trees employee benefits are primary drivers of that 11.2, we do also have items.
That change Ogone, but theyre offset elsewhere within the TNL.
Leaving us to the net impact of the $7 million increase in LG M&A.
Moving on to operating income I mentioned, Thats down, it's down 20.4 million or 29.5%.
Below that interest expense up slightly primarily due to higher borrowings.
Other income there's some moving parts. There obviously, we mentioned the slight change due to the deferred comp and pension offset no gionee and those items were partly offset by a few DC.
During the quarter.
And that gets us a pre tax income down 21.4.
Million or 45.6% for the quarter below that though again the income tax benefit the 25.3 and again Thats primarily driven.
By the $23.2 million of unrecognized tax benefits recorded during the quarter and I'll talk about tax reconciliation on the next page and regarding that you see the 25.3.
Million dollars benefit at the bottom of that page on a year over year basis.
The primary drivers of course, we talked about the unrecognized tax benefit of 23.2, but we also did have lower pre tax.
At the top of the page $34.5 million.
Benefit there and those are partly offset by more flow through the production tax credits for the quarter I would acknowledge that those items are relatively close a year over year basis.
On a year to date basis.
Last thing I'd, just say about income taxes.
You may have seen in our.
10-Q that we are expecting a negative seven to negative 12% MTR on a GAAP basis.
For the year and we also reiterate the zero to 5% error on a non-GAAP basis for the year.
Moving forward to the balance sheet.
Let me change the balance sheet on year to date basis, PPD is up approximately 100 million and think of that being offset liabilities and equity about $50 million increase to debt and $50 million increase to shareholders equity.
At the bottom the page we had did have a slight reduction in our debt to cap.
On a year to date basis.
Moving on to the cash flow statement, we did see a significant.
Decrease if you will a cash provided by operating activities.
On a year over year basis, almost all driven by changes in working capital we do a good job to the right to identify what those big drivers are but again approximately 80.
80% of that change and 100 million reduction in working capital 80 million of that is 30 839 million is really a swing from an overcorrection position in 2008 to 2018 to an under collection position in 2019.
We also had.
To refund to customers approximately 20 million.
So see what TJ that was in the beginning of 2019.
So on a six months year to date basis, and then lastly, we have been providing folks that that interconnect to our system that make deposits as they those Qs come in line, we refund those deposits that was approximately 19.
On your day basis, so there wasnt a significant change there. We did also have a higher ppm additions during the quarter and those items were funded by certainly issuance of debt higher than we had in the prior year basis.
Moving forward to adjusted non-GAAP earnings very quickly what were the items.
In the.
For the quarter and 2019, we had slightly unfavorable weather we've talked about that.
Effectively it a penny associated with unfavorable weather, but we did remove 45 cents associated with the unrecognized tax benefits.
And so moving from 94 cents to 50 sets that come with comparative to the prior year period, where we had unfavorable weather and the QF gain.
Where it went from 87 cents to 63 cents. So comparatively 50 cents down from 63 cents on a non-GAAP basis the prior year.
One thing I'd point out primarily for the quarter.
Although results on a non-GAAP basis are down on a year to date basis for a year over year basis excuse me.
We are actually quite pleased with our results on a year to date basis. Those are relatively flat on year over year basis. We do anticipate certainly on your end to manage results provide a total shareowner return expectations that we've communicated to the street I'd also say we've had good progress certainly on the P. can release in great legislative outcome there.
Is that good progress on the rate case, we've been addressing hazard trees and the pension expense and expenses, we certainly needed to go after and I feel really good about the quarter as a whole it certainly where we sit year to date as a whole.
And with that I'll give it back to Bob.
Thanks, Brian and just following up.
On that point, where Brian left off we'll give you a.
Preview of some of the things we're working on that I know you will have questions after that.
Regulatory front of course.
The last two months has been all about the Montana electric rate review.
Where we did reach a settlement with the major interveners and settlements involve increase too.
Revenues of 6.5 million.
Based upon the 9.65% return on equity coupled with a decrease of depreciation expense of 9 million.
Backed by an order from the commission during the fourth quarter.
In May we submitted a filing with the federal energy regulatory Commission for our Montana transmission assets.
In June the FERC issued an order accepting the filing also granting interim.
Rates effective July one of course subject to refund and the establishment settlement procedures.
As well as terminating our related tax cuts and job Act filings referred 'cause it robust settlement process and settlement Judge has been appointed we expect the first settlement conference to take place in early August as Brian mentioned.
On the Legislative front Richard handler.
Very successful legislative session.
In all of our states with particularly in Montana.
And there are real focus was trying to.
During the legislative.
Electric supply tracker back in line with what the legislature is really intended in 2017.
And in fact, the legislature did realize the cost recovery statute to prohibit.
Dead band and to require 100% recovery of qualifying facility purchases as well as a 90% customer 10% shareholder overall sharing of costs above or below and established baseline.
We continue to invest in our transmission and distribution infrastructure I mentioned the.
Growth for see particularly in our Bozeman Division that is certainly a part of it but more generally on both the gas and electric side were.
Adjusting to ensure safety.
Capacity and reliability. In addition on the natural gas side pipeline investments are driven.
By safety compliance requirements, we take those very seriously.
And then finally grid modernization and resilience that includes an advanced distribution management system.
And advanced metering infrastructure on the advanced metering.
We have a deployments underway in South Dakota, and Nebraska, essentially moving from.
North to south.
Based on that we will.
In the coming years shift to a deployment in Montana.
Very very big undertaking jointly between our electric supply and electric transmission.
Teams is moving into the western energy imbalance market you see.
The map.
The western participants on page 13.
Of the deck challenge for us was with that as we've discussed over the months.
So it's on the far eastern edge of the Western interconnect.
The data to make decisions that were.
Appropriated for our customers and for our system, but we do see significant benefits.
To our customers from moving into the into the Western market and then of course ongoing.
Cost control efforts monitoring costs, including labor benefits property tax as Brian mentioned, we've made several important.
Commitments over the last few months that we think are.
Appropriate over over the long term pension and.
Building on our already very robust efforts to deal with the education.
Management.
Turning then to energy supply resources.
Their critical responsibility.
Our South Dakota electric supply plan is well into implementation.
It was published last fall.
Focusing on modernization of fleet to improve reliability flexibility and to maintain.
Compliance with our obligation in the southwest power pool, and Montana, and South Dakota, or non electrically interconnected over the last several years we've moved into.
SPP and we are really seeing benefits there.
But.
In significant part our South Dakota plan is focused on meeting.
The compliance requirements at SPP, but also.
Big able to get the real benefit out of full participation. So the plan identifies.
90 megawatts of existing generation that shouldn't be retired and replaced over the coming decade.
On April 15th we issued a request for proposals for 60 megawatts of flexible capacity.
The Cira South Dakota.
By the end of 2021 responses are due.
This week.
And using a third party will be evaluating proposals with outcomes determined by the end of year.
The Montana electric supply plan a draft was released in March we will be finalizing.
That.
In the third quarter.
So an extensive comprehensive document an awful lot of input or good analysis went into that.
The plan supports the goal of developing resources that will address the changing energy landscape.
In the West Pacific Northwest and specifically in Montana landscape is changing rapidly.
Plenty of energy.
We are.
Severely challenged in terms of meeting capacity needs and that's true.
Throughout the northwest driven in significant part by plant retirements is.
W are Tripoli true in Montana, because we have still a negative 27 or so percent.
Capacity margin for the only.
Tenure to be.
The only electric company.
In the west.
With a negative margin.
And in part that's a result of.
Continued legacy from deregulation divestiture.
In the late Ninetys made lot of progress.
Really communicating the exposure that our customers face.
During peak times and this summer during peak times and litter.
Our.
Analysis that our supply department has undertaken to emphasize that the risk is a price risk and we see that we are.
In the market on behalf of our customers during periods of peak, but increasingly with plant retirements and growth in peak demand.
It is a reliability risk as well. So currently 630 megawatt shore peak, where in the market to procure that.
But even.
With the strong assumptions around.
Growth in efficiency and and alternate delivery models.
We got a conservative estimate as we could be 725 megawatts short.
Really it's very few years 2025.
So we expect to so to.
While the plan in the coming weeks, we will continue to communicate with our customers and decision makers about.
The approach and the planned identified need and the risk.
And then we will move to.
The first of several all source proposals late in this year.
Seeking peak capacity to be available by the end of <unk>.
2022 and I.
Besides.
Again that will be for any resource.
Any kind of resource to meet.
Our customers needs. We expect just as we did in South Dakota, we would use a.
Independent third party to to conduct the RFP.
As a result of the fact that there will be an RFP.
Well it will be it is in South Dakota.
We havent included the associated capital investments in the five year forecast obviously.
These additions could increase our capital spending.
Over that five year horizon.
And turning to the capital forecast, we anticipate 1.6 billion total capital over the five years continue to be funded with a combination of cash flows supported by new wells that will be available now through 2020 as well as long term debt issuances as we say every quarter. It seems significant capital not included in the above projections.
Good or.
Further negative regulatory actions either one.
Could necessitate additional equity issuances the point of the five year.
Capital forecast is.
To continue to meet.
The needs of our customers for.
Safe.
Reliable service adequate capacity to meet their needs today and in the future.
And as always you see.
Overtime.
The identified capital projects really.
Appropriately distributed by jurisdiction.
And by.
Function as well.
With that we will open it up to your questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
And we'll take our first question from Michael Weinstein with.
Credit Suisse.
Hi, guys.
Yeah, Hi, Thanks, sorry, if you shoot.
Covered this before maybe I missed it but.
Coal strip.
Three and four.
I understand you're on your negotiations.
Oil window for coal pricing and I'm, just wondering what the status of that.
When do you think you'll.
Have something like down you'd be able to.
Say that that plant is going to be operating.
I'd say we're in.
A good position in terms of reaching a final coal contract that's based on.
I had a constructive discussions with the other owners.
And also a very constructive approach that.
Management, New management at Westmoreland is pursuing so.
We feel.
Actually quite good about being able to.
Announce a coal contract in the near future.
Got it.
And also on the.
Unrealized tax benefits this quarter are there any other any other.
Situations that are similar to that are awaiting.
Statute of limitations to expire going forward.
Right now if we start 35 million.
Noted, but theres no timetable associated with that if in fact, there's a timetable usually talk about that a year in advance of.
Of anything like that and you know if you see the language, we don't have any language assessment anything in the near future.
Got you.
Okay. Thank you very much.
Thanks, Mike Thanks, Mike.
And we'll take our next question from Julien Dumoulin Smith with Bank of America.
It's really it's actually Ryan Greenwald on for Julian.
[laughter].
Hey, Ryan.
How's it going.
Good.
Thanks for taking our question. So as you guys progress with the plans in South Dakota, and Montana, I know, you're still saying at least 200 million and opportunities, but are you able to provide a little more color on the cadence around potential investments.
No not really and they are the RFP as we've discussed administered by a third party to focuses on meeting the identified needs.
And I think we can say anything more than that at this certainly will.
We will.
Be able to share more details over the coming months.
Fair enough, but would you be eligible to own the whole amount potentially.
I would say we.
We'll have the opportunity to participate.
In the RFP and we expect that we putting forward various all the goals.
Got it and I guess, it sounds a little differently with respect with regards to Montana.
You said that the 725 megawatt <unk> conservative how high could that potentially go.
[noise], where I just know that even want to speculate.
On on that we've got.
Such a big hole to climb out of I think that that needs to be the focus.
And the point I was making was that we were making.
[laughter] assumptions about continued success with things like energy efficiency programs.
Got it.
And then just lastly in terms of the Montana supply plan and anticipate colstrip remain supply source right.
Correct.
What's the contingency plan is a new supply contract can't be reached.
For a new coal contract.
Yes.
At this point were.
Feeling better and better as I mentioned that we will reach a good outcome on the goal contract.
Got it and then if I could just ask one more.
With regards to the tax rate you guys are saying zero to 5% and then gradually increasing to 10 to 11 in 2023.
Is that still kind of the current trajectory or is that change.
Hi, Yeah by 2023 as you said, that's what you said correct.
Hi, Doug.
Around 10% by that time period, yes.
Got it thanks, a lot guys.
And we'll take our next question from Chris Ellinghaus with Williams capital.
Hey, guys good afternoon.
Hi, Chris.
Brian I believe you said that you decreased depreciation and amortization my four and a half million I assume that is inclusive of your sort of pro rata portion for the first quarter as well.
It is from a year to date basis, where we sit from a depreciation perspective.
Okay.
As far as the supply cost recovery for the quarter.
That's not all entirely from the second quarter to include some prior period recovery I assume.
[noise] speaking to the Deadband recovery itself.
I think oh hang on receiving final memories for four and a half million or something like that.
4.6, Yeah, I mean, we look at when we recorded obviously the dead band impact was in the 2018, we looked at the debt band is from a tracker period from.
Seven one of 19 to 630 or 18 to 630 of 19, and so from our perspective last year, we had no adjustments associated pain Cam and a non-GAAP basis. Initially we have no adjustments to.
PJM on a non-GAAP basis.
Okay great.
Bob as far as the RFP goes for Montana, I assume you don't want to talk about with the capacity number is but can you give us any kind of.
Sense of what proportion of that 630 megawatts is that equates to year $200 million capex potential.
Well I would be.
Uncomfortable going there, but I understand what your what you're asking.
Yes, basically trying to figure out how much the how much of that relates to and then the 200 million is just the five year horizon in sort of if I recall the.
Draft.
Supply plan, there's a good.
He comes out right after that five year horizon, if I'm not mistaken is that right.
Yeah. The 200 is associated with the five year and just Chris I just want to make sure we're not talking past each other to 200, we talked about as both kind of Montana and South Dakota, just to be clear yeah. Yeah.
What you gave us the 60 megawatts for South Dakota So.
You could back into the room.
But I think that the supply draft. There was another piece coming in 2025, if I remember correctly.
A bigger piece, you're saying, you're saying from my past perspective, or South Dakota, Montana.
Yeah, I think you're going to see in both both places we're going to have.
A significant amount of investment in Montana, certainly by 2025.
And that full 90 megawatts somebody talk about in South Dakota.
Should be round there shortly thereafter.
Okay.
If it wasn't for your capacity needs and just.
The changing dynamics and in the region.
Would you have any.
I don't know, what's the right way to say it is.
You don't have any reason why additional renewables aren't in your draft plan other than the current specific capacity needs you would be interested in additional renewables win.
You know you set.
Your capacity equivalency requirements in the future.
The plan Doesnt identified any particular resource and to me the word renewable is a little bit slippery as you know in Montana existing hydro isn't to renewable so I'd rather than a label I would focus on.
The attributes of a resource and you could include environmental attributes as you know we are in the.
Montana plan, we have various carbon related scenarios too but.
Obviously in terms of the.
Conventional renewables solar and wind there is a lot.
On her poised to come on our system through that through the queue up process.
And then more broadly in terms of our portfolio in Montana, right now were 70%.
Carbon free.
And a lot of the resources we have.
In the Montana portfolio online in Montana.
Provide little or no.
Benefit to help us meet our peak hydro system, obviously goes.
Okay. Thanks for the details guys appreciate it.
Thank you nice customers.
Well take our next question from.
Do them murky with Avon capital.
Hi, good afternoon.
Hey, Bill.
Foods, a few things here just to make sure I understand.
One given the difference between a interim rate so that was granted and the settlement settlement amount are you reserving the a difference or are you simply booking only the settlement mountain revenues as you're in fashion like you're recognizing depreciation expense that's great. That's reflected in the settlement.
Where were our accounting estimate is at a 6.5 million not to the interim rates the 6.5 stipulated.
With the parties, especially if the rate case.
So were booking to that level not not run rates.
Okay. So then.
So okay. So while there will be a true up on a cash basis on a financial statement basis, you're already reflecting lower settlement amount.
Correct.
Okay.
When you talk about the sources and uses of Uh huh.
Cash for capital Capex, you say, specifically about the heated by Enel wells available into 2020.
What what happens after <unk> when can you remind me the amount of an oil <unk> <unk> that are available right now in 19 and 20 as part of sources that will.
That will.
Not be available on a go forward basis.
Oh, well I'll get you that number in a second the deal but yeah, we do plan to eat through our animal also at that point in time is noted and we continue to try to manage our taxes as best we can to minimize our taxes, but.
I'll get you that number in a moment.
Okay.
Well, let's see him he talked about the Oh legislative session and the.
Successes, there, especially with the QF, a recovery and to be a 90 10 on the power cost. If we look forward in the second half of this year.
If you're recovering full out.
You up recovery is there a benefit or was there a benefit that you'll see over the second half because you didnt recover last year when we see.
Variances.
Could you repeat that question first of all I answer your NOL question, that's 257 million Thats left but could you repeat that last question.
The last question was is.
Now that you're able to fully recover QF Oh.
Incurred costs, if we look forward to Threeq and Fourq, you, if you're recovering 100%.
Was there a benefit to you for <unk>.
Comparisons because there was an amount perhaps than last year's Q3, Q4, Q that you didn't recover that will that will aid students second half.
And I don't anticipate that would be a material benefit that you can show a year over year basis.
Okay.
And Oh do when you said you know what else were 257 million well.
I guess, what I'm really trying to get a sense of is.
If I go forward from say 2020 to 2021.
In terms of Ah.
<unk> cash flow effect in terms of the reduction of cash flow.
Yeah, I can't I'm, not I can't give you that idea in terms of what that impact would be in 2021 at this point in time.
Slide implies that basically goes to zero and then going forward is zero.
Yeah, we still have some ptcs and AMTI benefits, but I'm I'm not comfortable giving exact dollar amount at this point in time.
Okay.
And you know I guess in terms of the inexpensive so 200 million over the next five years.
That basically <unk>, that's fully just cover the pending South Dakota, RF P.M.D. or soon to be.
Initiated RFP in Montana, It's just those two those two items.
It would be it would be are the first to our pay that you'd see one from South Dakota and one for Montana.
And in terms of that capital is it reasonable to think that the proportionality of South Dakota relative to Montana similar to what we see in the capital program, which is generally tend to 15%. So if we're thinking of in excess of 200 million that in theory, a 10% to 15% of that.
Realistically would be considered like a south Dakota.
I think a I would say were given a pretty much pretty good guidance already on the 200 million has yes, I would just tell you obviously on a going forward basis, the opportunity set in Montana significantly higher than itself.
And there are two reasons, obviously, the Montana jurisdiction as larger, but secondly, the whole world and it's just how much deeper.
Oh, no I understand especially that this is only phase one I I get that I'm, what I'm really trying to make sure I kind of baseline is.
The 200 million related to what exactly it's I'm, just I guess in a way to kind of going back to a clarification I think Chris was requesting in relation to the the total shortages versus what this first you know a period would it would attempt to address.
Would you like given you as much guidance as I cant on that 200 million.
Okay.
All right. Okay. Thank you very much.
And just as a reminder, if you'd like to ask a question. Please press star one at this time I got its star one to ask a question.
And we'll take our next question from Jonathan Reeder with Wells Fargo.
Hey, How's it going.
Uh huh.
Hey, just one question for me either Montana supply resource plan. It seems like it keeps kind of wondering when you're actually filing can you kind of outline what's going on you know why it has gotten kind of push back and if there's anything we should read into that you know whether good or bad Oh gosh, no what I would say is we.
I heard a draft plan, we posted that for public comment we've received Uh huh.
Very robust comment or supply folks are.
Analyzing those and so the plan is.
Nearly nearly ready to hit the streets, so I don't know.
Not at all concerned about delay.
What I would say going back to the 2015 plan and you know there was a lot of noise at the end of that plan.
And ultimately we were able to implement.
The RFP a that we went out with after that plan.
And that's a shame deca subsequent events.
The real capacity.
Needs that would that have been exposed both summer and winter.
Hi, just demonstrated how how critical goal.
It is to move ahead and it's a shame.
From a customer's perspective that we weren't able to move ahead on the RFP following up on the 2015, but I really do feel very very good about where we are with this year's plan.
Okay. When you do have a final plan Bob I mean, do you feel there will be kind of a consensus.
Throughout much of the snake Weve, what their needs are and how how to move forward like by bringing the party comment from you know working with really what.
What we've done is a plan that really is focused on identifying the need and we have various scenarios that are modeled to refer to those before but ultimately.
Any.
Project of any kind of that.
Is.
[noise] able to.
Help us meet our customers needs well have the opportunity to bid and evaluated by a third party.
And certainly there will be.
There are strong views.
About.
What resources are best able to meet the need but at this point I certainly hope that experience even over the last two years.
So at least thoughtful people to agree on what the need is I'll highlight just a couple of things there within the northwest region. There are now multiple studies, including by very reputable really environmentally oriented firms such as east free identifying the current and growing capacity needs Randy hurry forward VPA administrator wrote another paper.
Hi, just describing how the region has been leaning on the investments made the resources build kind of going back to the 19 fifties that actually includes supply resources, but also truly transmission resources.
Oh, The Montana Commission has spent time now looking at some of those reports there is a great.
A joint presentation by East free and our transmission Department and our supply department talking about the capacity needs just last month.
Sherman Johnson of the Commission a wrote an op Ed that was carried around the Montana newspapers that said, Montana needs Baseload power and that's.
Real change in tone.
And I think a recognition by the commission certainly recognition by other policymakers around the state.
If we have a need and again plenty to discuss and debate over how best to meet that need, but I can't imagine anyone looking at the situation not recognizing we have a reliability need reliability risks and a price risk. If we don't move ahead to address the capacity need.
Thanks trying to answer and then bought anymore kind of activity around resurrecting kind of culture of longer term.
I guess that need for me.
Power or bad at all kind of let's get a settlement approved and all that and then maybe go back and revisit it.
Oh.
[noise] Colstrip is a valuable resource within a diverse portfolio the.
Hi concept it was considered in the legislature and actually had a lot of support of was it. Good concept would have produced an immediate net savings for our customers would have taken down an increment.
[laughter] far far far from the majority, but an increment.
Oh the exposure we had.
I would have addressed the transmission.
Risks that we face as well.
And really whatever use that resource is a bridge to resources that are emerging now that that are currently.
In many cases, not very attractive from a cost performance. So.
It's a resource in a business that was.
Compelling when the legislature was in session, it's still compelling now.
Okay, but I'm not sure he focused right now it really is on to the earlier question.
Getting the plan filed and moving ahead.
Okay, great. Thanks.
Thank you.
Well take a follow up question from the dilemma.
Hi, good.
When you get the plan when you put out the proposal and late 19 for Montana.
How long will be a turnaround beep for a that the actual a conclusion is is is reached.
Well.
Let's say that the plan is released and filed in the next month or so.
You want to go out for an RFP.
Later, this year and and move ahead on that.
And.
There's no reason to believe that.
That RFP would.
You have to be interrupted the way the RFP coming out of the following plans as we move from there to selection.
Hope to see you a good outcome in terms of resource choice.
So we would know the outcome of that say mid 2020.
I would say that that seems reasonable if we don't.
We don't know what happens between between now and then but that's I think.
Hey, a reasonable guess yeah I think the main thing there is a the timing associated with land that will make an outcome. There clear thing is we have to have that capacity and by the end of 2022. So it's important for us to to get going we need resources in order to participate in the imbalance market.
Okay, and Oh, so called there you know at least there are times, where various policymakers regulators et cetera have raised questions about the desirability of the utility to own assets as opposed to a split contracting from third parties to meet these needs I'm wondering how that how does that type of thought may have evolved and ARYMO ER and whether you're able to compete equally on an equal comparable footing with any third party as part of this process such that Theres no that type of historical.
Now buys for lack of a better term.
It is not relevant.
Yes, there are rules for her contracted resources and for own resources and they are complementary if you take a look at.
How.
Deep we are in the market had periods of peak and what is happening in that market, it's pretty tough to.
Make the argument that we ought to be more exposed to the market than we already are and are they.
Honestly.
People are lean too heavily too heavily on.
Hey market solution to.
Meeting our peak needs.
Are not very in touch with recent history in Montana, and as you know that.
The defining.
Act in their history was deregulation divestiture of supply, leaving us exposed to the market.
The responsibility we have to our customers is to plan long term lease costs lease risk and the least cost out you really as what we organize around.
I mean in this RFP, but whatever the physical capacity is that ends up being determined.
To your point in terms of relying on the market up.
If it's new physical resources that actually are added to the system.
Is there and is there a advantage or an imperative that you own it as opposed to.
Third party building, it and basically contract even you contract with them.
[laughter] third parties will be on an equal footing with any proposal there Nick.
And the third party.
Administrator to the process will ensure that.
Okay all right. Thank you.
Thank you.
It appears there are no further questions at this time.
Great well. Thank you very much for that very good discussion and your interest and support that we'll be seeing many of you over the coming months.
Today's call. Thank you for your participation you may now disconnect.