NorthWestern Energy Group Inc (NWE) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Northwestern Energy's Second Quarter 2012 Financial Results Call. As a reminder, today's call is being recorded. At this time for opening remarks and introductions, it is my pleasure to turn the call over to Mr. Dan Rausch. Please go ahead, sir.

Thank you. Good afternoon and welcome to Northwestern Corporation's financial results conference call and webcast for the quarter ended June 30th, 2012. Northwestern's results have been released and that release is available on our website at www.northwesternenergy.com. We also filed our 10-Q after the market closed yesterday.

Joining us on the call today are Bob Rowe, the President and CEO; Brian Bird, Chief Financial Officer; Kendall Kliewer, Controller; and Heather Grahame, General Counsel.

This presentation contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based upon our current expectations and speak only as of this date. Our actual results may differ materially and adversely from those expressed in our forward-looking statements as a result of various factors and uncertainties included those listed in our Annual Report on Form 10-K, our recent and forthcoming 10-Qs, recent 8-Ks and other filings with the SEC. We undertake no obligation to revise or publicly update our forward-looking statements for any reason.

Following our presentation those of us joining by teleconference will be able to ask questions. A replay of today's call will be available beginning at 5.00 PM Eastern Time today through August 23rd, 2012. To access that replay dial 888-203-1112 and then access code 375-9413. A replay of today's webcast will also be available on our website for about the next month.

I will now turn it over to President and CEO, Bob Rowe.

Thank you, Dan. We are joining you all this afternoon from our Billings, Montana division office. And Billings is one of the most dynamic areas in our service territory. We have completed our two days of Board meetings, an employee meeting this morning, and then a great community meeting last night --a good conversation with community leaders and some of our important customers here.

Our earnings in the second quarter of 2012 were $0.31 a share. That is right in line with our expectations. We continue to focus on investments to serve our customers while working with our employees to control costs. This has allowed us to maintain our financial results despite an unseasonably mild spring in our service territory.

During the quarter, we continued construction on the Spion Kop Wind Project in Montana. Also in the area of electric supply, we continued construction on 60 megawatt peeking facility in Aberdeen, South Dakota, which we expect to achieve commercial operation before the 2013 summer season. To help us fund our growth projects, we have issued $23 million from our equity drivel program, and we also priced $90 million in first mortgage bonds at 4.15% and $60 million first mortgage bonds at 4.30%. We plan to issue the bonds later during the third quarter of 2012.

On the operations side, we are happy to report that Dave Gates Generating Station is back up and running as intended, and we will talk about that more later. Last but not least, yesterday the Board of Directors declared a common stock dividend of $0.37 per share payable on September 30th, to common shareholders of record as of September 14th, 2012.

Now our Chief Financial Officer, Brian Bird, will discuss our second quarter 2012 financial results in much more detail. Brian?

Thanks, Bob. As Bob said, we reported net income of $11.4 million or $0.31 per fully diluted share for the quarter ended June 30, 2012,compared with consolidated net income of $11 million or $0.30 per fully dilutedshare for the quarter ended on June 30, 2011.

So for the most part, we were flat year-over-year. However, our pre-tax earnings improved by $3.5 million compared with the quarter ended June 30, 2011.

However, income tax for the three months ended June 30, 2012 was $2.6 million, as compared with an income tax benefit of $0.5 million in the same period of 2011. The $3.1 million increase in income tax expenses is primarily due to the absence of a benefit during the second quarter of 2011 which was -- which released $1.6 million in state net operating loss or NOLs carryforward reserves, and also $1.3 million attributable to higher taxable income in 2012.

Digging a bit into the details; our gross margin increased by $6.8 million during the quarter ending 2012, compared with the same period of 2011. The primary drivers were an increase in demand-side management, lost revenues recovered in our supply track and on those demand-side management loss revenues as our company sponsored energy savings measures, and these are primarily more efficient residential and commercial lighting. When these measures are implemented, we are allowed recovery of DSM or demand-side management lost revenues.

During the second quarter of 2012, we recognized approximately $6.6 million of DSM lost revenues as compared to the approximately $2.1 million during the second quarter of 2011. The 2012 amount includes $3.3 million in DSM lost revenues for the July 2010 through June 2011 tracker period, which we recognized as revenue when we received MPSE approval in April of 2012.

In addition to the demand-side management lost revenues, we also had an increase in Montana property tax tracker revenues as a result of planned additions, and higher assessed property valuations and also an increase on transmission capacity revenues related to higher demand to transmit energy for others. These items were offset by a decrease in natural gas volume as driven by warmer spring weather, which reduced our natural gas revenues.

On the expense side, Operating, General and Administrative expenses decreased by $2.4 million during the quarter ending 2012 compared with the first quarter of 2011 --second quarter of 2011. Excuse me. This was primarily driven by lower bad debt expenses, timing related to proactive line maintenances compared with the same period of 2011, and lower plants operating costs at Colstrip Unit 4.

Our operating and other taxes increased by $5.3 million compared with the same period of 2011, due to higher assessed property valuation and plant additions. The higher assessed property valuations are primarily due to lower capitalization rates used by the Montana Department of Revenue.

Depreciation expense increased by $1.3 million over 2011 as a result of increasing investment in our business. Interest expense for the second quarter of 2012 declined by about $700,000 compared to the second quarter of 2011, due primarily to lower interest rates on debt outstanding and higher capitalization of AFUDC.

Income tax increased by $3.1 million for the quarter ending 2012, with an effective tax rate of 18.3% for the quarter, compared to a negative 4.9% tax return in Q2 2011.

As I said earlier, the income tax reduction is primarily due to during the second quarter of 2011, we released $1.6 million in state net operating loss carry forward reserves, and we didn't have that benefit in 2012. In addition to that, we also had higher taxable income. As a result, we expect overall tax rate for the full year of 2012 to be between 16% and 18%.

To sum up the quarter, there were primarily three drivers. First, we recorded more lost revenues related to our demand-side management programs than we did during the second quarter last year. Secondly, we had lower operating general and administrative costs than we did in the second quarter of 2011, and third, those favorable variances were offset by warmer spring weather, affecting all of our service territories. Both the negative impact of the warmer weather and favorable effect of the lost revenue recovery catch-up decision are items we would reverse from our non-GAAP earnings calculation for the second quarter.

Our fully diluted EPS in the first quarter of 2012 was $0.31 per share. After adding back what we calculate to be a $0.05 per share for the $3.2 million effect of warmer than normal spring weather, and then deducting $0.05 a share for the $3.3 million positive effect on income from the catch-up of the DSM revenues from prior tracker period of July 2010 to June 2011,we get back to calculate a non-GAAP fully diluted EPS for the second quarter of 2012 to be right back at $0.31 per share.

Now I will talk about earnings outlook for 2012. For the full year of 2012, we are reaffirming our fully diluted earnings per share to be in the range of $2.35to $2.50 per fully diluted share.

Our primary assumptions included in the 2012 guidance are consolidated income tax rate of approximately 16% to 18%, pre-tax income; secondly, the DGGS outage costs are fully recovered; third, that we have no impairment on the $23.5 million in preliminary survey investigative costs related to our proposed MSTI transmission project; fourth, that no scheduled maintenance at Colstrip Unit 4 and Big Stone plants occur;fifth, fully diluted average shares outstanding of 37.1 million; and last, we expect normal weather in the Company's electric and natural gas service territories for the remainder of 2012.

Now let's move to the balance sheet as of June 30, 2012. Cash and cash equivalents were $8.1 million compared with $5.9 million at December 30th, 2011. And the company had $162 million available from its revolving credit facility on June 30, 2012. And total debt at June 30, 2012 was approximately $1 billion. The company has a long-term debt to total capitalization ratio of 53.5% at June 30, 2012.

And during the second quarter we registered with the Securities and Exchange Commission for the sale of up to $100 million of our common stock and entered into an equity distribution agreement with UBS Securities. Under this agreement, we sold 687,285 shares at an average price of $35.40 during the second quarter. Our current plan is to issue up to $50 million during 2012 or approximately $25 million more for remainder of the year to support our growth projects.

As Bob mentioned earlier, we priced $90 million of first mortgage bonds at 4.15% and $60 million of first mortgage bonds at 4.3% and plan to issue the bonds in the third quarter of this year. As we have consistently stated, we plan to stay within our 50% to 55% debt-to-total capital ratio.

And with that, let me now turn it back over to Bob. And by the way, Bob, happy birthday.

Thank you and I'm hoping everyone on the call will sing afterwe're through talking. And again thank you for joining us this afternoon.

As we previously mentioned that the -- during our first quarter call, the Montana Public Service Commission has approved the Spion Kop project to be included in rate base in serving our customers. This is an $86 million wind project which will provide 25 year levelized costs to customers at approximately $54 of megawatt hour. It's under construction,with an expected completion date to be included in our rate base in October of this year. As of June 30th, we have capitalized about $4 million of costs associated with the project.

Concerning natural gas reserves, we filed with the Montana Commission to place our Battle Creek property into rates, and we expect the Commission will process that filing by the end of this year. Because that asset is already being recovered through a tracker, there would be no increase in rates should the BSC allow Battle Creek into rates at our requested 10% ROE and 52% debt to total capital ratio. In the meantime, we plan to continue to explore investments in proven natural gas reserves for inclusion in rate base and dedicated to serve our customers.

While we did not previously anticipate any general rate filings in 2012, we do continue to evaluate each of our utility costs of services which will in turn determine the schedule for such filings.

Now I will provide you an update on some of our strategic initiatives as we continue to invest in and grow our business. First in our distribution system, over the past several quarters, we have been discussing with you our implementation of our distribution system infrastructure plan, or DSIP. During the second quarter, our capital expenditures for DSIP were approximately $8 million. In addition, we are projecting approximately $72 million in incremental DSIP expenses and about $253 million of DSIP capital expenses over a five year time span, beginning in 2013. Based on our current forecast, along with the Montana Commission's approval of the accounting order that allowed us to track expenses, we do believe that DSIP related expenses and capital expenditures will be recovered in base rates through annual or biannual general rate cases.

Moving on to our base-load electric supply in Montana -- as most of you know, we have taken a significant portion of our electric supply from power purchase agreements that will expire by the end of 2014. Over time as it makes economic sense, we would like to transition much of the power purchase agreement supply into rate base supply again dedicated to serve our customers and providing reasonable and stable rates over the long-term to our customers. And accordingly, we are evaluating opportunities to either buy or build electric supply over the next several years. As we stated in our biannual integrated resource plan filed with the Montana Commission late is last year, we plan to analyze the viability of building a base-load natural gas plant in Montana to serve our electric customers.

Now I'll address supply investments for our South Dakota service territory. On October 14th of 2011, we had a groundbreaking for our peeking facility that we will own in its entirety Aberdeen, South Dakota of about 60 megawatts. That would replace a power purchase agreement that expires on December 30th of this year and this facility will provide peeking reserve margin necessary to comply with our capacity reserve requirements.

With respect to the peeker, we have incurred capital expenditures of about $25 million year to date. We expect additional capital expenditures of about $30 million during this year and we expect to achieve commercial operation before next year's summer season.

As we have been discussing for some time now, we do need to address and are addressing emission reduction requirements at the Big Stone power plant in Northeast South Dakota and at the Neil plant in Northwest Iowa. We have no significant second quarter updates to provide, other than to say that both emission reductions projects are proceeding very much as planned. We continue to expect our portion of the CapEx to be about $125 million for Big Stone and about $25 million for Neil. And we expect both projects to be completed around 2015.

We plan to file a 2013 electric rate case with the South Dakota Commission with a 2012 test year and would include costs associated with both of these emission reduction projects that have been incurred up to that point. And then in addition, as part of that rate filing, we at this point, would propose to file environmental riders from 2013 to the end of the installation of the equipment on both of these projects.

Turning to the transmission side of the business in Montana, you are for the most part familiar with the three transmission projects that we have proposed. The upgrade to our existing 500 KV Colstrip Transmission System, the Mountain States Transmission Intertie and the Montana Collector System.

I will start with the upgrade -- proposed upgrade to the Colstrip 500 KV. In 2011, the Bonneville Power Administration, or BPA, issued a statement proposing two transmission lineup grades, one in Washington State and the other the Colstrip upgrade project in Montana. BPA began its public comment period on its upgrades to the 500 KV system in Montana, which they have named the Montana to Washington upgrade. The Colstrip 500 KV and the BPA Montana to Washington upgrade are complimentary projects as they are both required for the success -- one is required for the success of the other. The Colstrip transmission owners made their compliance filing on March 28th of this year with the Federal Energy Regulatory Commission.

The next major contract to be modified is the Montana Intertie agreement between the Colstrip transmission owners and the Bonneville Power Administration. The upgrade to the system could be completed by the end of 2016. However, the timing will need to be coordinated with BPA's portion of the upgrade further west, and of course is dependent on customer requests for transmission service.

Next, with respect to the Mountain States Transmission Intertie, or MISTI, in the collector systems. We have he several items we would like to highlight related to MISTI and Collector.

First as we said last quarter, in January of this year we signed a memorandum of understanding with the BPA, whereby BPA has indicated a potential interest in significant capacity on the MISTI line as an alternative source for serving its Idaho loads. BPA is analyzing three option that have been identified for more detailed analysis that could meet their potential -- or could potentially meet their needs. MISTI is one of those three options the BPA is considering. We understand that the BPA is hoping to complete its study results by the end of July. And the BPA will then make a decision this fall on the alternative or on the alternatives that meet their needs.

And then moving to the second matter to update you on concerning MSTI -- on May 30th of this year, the Idaho Bureau of Land Management issued a decision which led to a June letter from BLM requiring additional MISTI route alternatives be developed and studied in detail to avoid core sage grouse habitat. This ruling is expected to delay the IS timeline that we've described on previous earning calls as most likely being the end of the third quarter, by a minimum of six to nine months.

However, very importantly the BLM and the Montana DEQ, the Department of Environmental Quality, have not provided us with a fully updated schedule at this time. This delay in the timeline will result in increased costs and delay the anticipated construction timeline, again potentially, significantly.

In addition, this will likely impact the ability of MSTI to be available for potential market participants, and does provide further uncertainty for market participants relying on production tax credits as a part of their own development strategies. Due to the uncertainty surrounding the projects, we are evaluating our alternatives closely.

Through June of this year, we have capitalized approximately $23.5 million of preliminary survey and investigative costs associated with the MSTI project. And based on these developments, we currently estimate that the project could now be completed at the earliest in late 2018. Due to the lack of clarity around the key market participants and the permitting issues I just described, we have indefinitely extended the open season process for MISTI. And due to the continued market uncertainty and permitting issues now related to the sage grouse issue causing a delay in the EIS timeline, we're currently evaluating our decision to continue pursuing MSTI.

If we determine that an agreement with BPA is unlikely or can't be completed on a timely basis, we may abandon the project. If we abandon our efforts to pursue MSTI, we may have to write-off all or a portion of these costs, which could have a material adverse effect on our results of operations.

Now I will provide you a quick update on the operation of the Dave Gates Generating Station. As you may recall, wereported that DGGS was shutdown on January 31st of this year after problems were discovered in the power turbines of two of the three generation units.

There are two power turbines per unit, and as of June 30th, we are pleased to report that five of the total of six turbines have in fact been returned to service. And this is through a combination of our own turbines after servicing by Pratt and Whitney and other turbines on loan from Pratt and Whitney.

So now the DGGS is operating and providing the regulating services as intended, we expect the turbine repair costs will be covered under the manufacturer's warranty. Between February and April, we acquired regulation service from third parties, which resulted in incremental costs of approximately $1.4 million as compared to fully operating service from DGGS.

As of May 1st, we have not incurred any additional costs associated with third-party regulation service contracts. We believe the incremental contracted cost for regulation service should be recovered through our normal course of business. However, there can be no assurance that the commission of course would allow us a full recovery of such costs.

So in summary, despite the significantly mild spring weather, we reached our expected earnings for the quarter. During the quarter we were able to return the DGGS to full service, we continued the construction of the Spion Kop Wind Project in Montana,we continued construction in the 60-megawatt peeking facility in Aberdeen, and have invested about $12 million in that plant during the first quarter, and we continue to make progress with the Montana Commission moving towards placing our interest in the Battle Creek natural gas field production and gathering system into our regulated natural gas rates in Montana.

And with that, I would now like to conclude our prepared remarks and open it up for your questions. Thank you.

Thank you. (Operator Instructions). And we'll hear first from Paul Ridzon with KeyBanc Capital Markets.

Good afternoon.

Hey Paul.

I had a quick question on the ins and out on the property taxes. You had a $0.04 benefit from a tracker and then you had a $0.09 to bad, just wondering how to think about these two, and how do they interact through the rest of the year?

Yes. As property taxes go up, you would expect that -- and our property tax tracker that show up in our revenue and ultimately our margin, it also goes up. And remember, we are able to collect $0.60 on every property tax dollar that flows through the tracker. And so that's pretty equivalent in terms of that change there. And there can be some ins and outs done at that particular quarter right at 60%, but those are the primary drivers for both margin and property tax expense.

So the $0.09 and the $0.04 are roughly equivalent period impacts?

Roughly for the second quarter, yes.

A little bit of delay, I would imagine. Okay. Thank you very much.

And we'll take our next question from Brian Russo with Landenburg Thalmann.

Hi. Good afternoon.

Hey, Brian.

Just I'm not sure if I missed this, but when are you going to decide on whether you will abandon the MISTI project after the BPA makes a decision?

Sure. We can't control exactly when BPA does make a decision, but that would be the next key step. We hope for a decision by fall. At that point, BPA could decide on one -- several objections or could decide to keep several options in play.

If BPA decides to move ahead with MISTI, that would be sufficient to ensure the project's viability. If BPA decides to pursue an option other than MSTI, then we would have to evaluate the project in terms of the significant ongoing monthly expenditures coupled with the delay and the effect that the delay would have on the market for the project. So this is something we're -- again, as you know, you follow the company, we try to be very transparent about for a number of years, and we will continue to do so.

Okay. And the Battle Creek reserve acquisition, I believe the MCC testified that the acquisition was prudent about a month ago, so are all we waiting for now is a Commission decision? Will they hold a hearing? Or are we just looking for the filing?

No. We certainly expect that the Commission will look at the matter closely and would expect a hearing.

Okay. And that would likely conclude by the end of the year?

We hope so, yes.

Okay. And I think you mentioned earlier that your total equity needs for this year is $50 million. Can you give us a sense given your current capital budget of projects that are defined, approved and that you're spending on, are you going to need additional equity above that $50 million to manage the 50% to 55% target debt to cap?

No our expectation for 2012 is up to a total of $50 million, or approximately $25 million more than what we have done to date. That's our current expectation.

Okay. So no insight whether you're going it need all $100 million to satisfy -- to support the capital budget, as is?

Again, for 2012 our expectation is that in order to meet our targets from a total debt-to-cap perspective, we would only need $50 million in total for 2012.

Okay. Understood. And the South Dakota peeker, if it comes online in mid 2013, will you be earning a return on that when it becomes commercially available?

Well, there isn't a pre-approval process in South Dakota, but we would expect that it would be included in our next rate case and subsequently would earn a return there.

So it will earn a return at the time it goes in service, meaning you're not going to experience regulatory lag with that plant expenses before that's recovered in rates?

Well, there would be lag until we get a rate case outcome, yes.

When would you expect a rate case outcome?

We'll be filing again sometime next year. South Dakota Commission tends to be pretty efficient in processing cases. But it would be premature to estimate a date at this point.

Okay. Thank you.

Our next question comes from Chris Ellinghaus with Williams Capital.

Hey, guys. How are you?

Good, thanks.

Can you give us any feeling for how DSM will be recorded in the future?

Yes, Chris. I think what I would say that you noticed that there is an adjustment that we recorded. We have recorded it in 2012. $3.3 million of that was associated with the 2010 to 2011 tracker. And then we did record a portion of the 2011 to 2012 tracker in this year.

So on a going forward basis, relative to the $6.6 million that we recorded in the second quarter, our expectation is that we would record at least that amount. And an expectation is if we continue to see increased management revenues go up, it could be higher than that. But it's too early to tell.

And also I would point out, as we noted in our disclosure, there's been a study that's been conducted on that and we will evaluate based upon that study, our needs in terms of -- or our thoughts in terms of revenues on a going forward basis, based upon that study.

And the time of year -- the timing, you expect this to continue to be sort of a second quarter kind of event?

Yes. I would say we would expect -- if there is any -- based upon that study, we could have some additional thoughts by the end of this year even. But our expectation is we would expect to see this every second quarter each and every year going forward.

Okay. As far as gas reserve -- gas assets go, I'm a little perplexed at why the Commission has been so slow on this one. Particularly since you have a very ripe opportunity with gas prices being where they are to do something for customers here. Can you give us a little feeling for what's taking the Commission so long? And are they aware that this is a pretty good environment for you to be doing things, but you need an answer?

Oh, I have no criticisms of the Commission's handling in this matter at all. They have nine months within which to make a decision. It is a matter of first impression.

But, again, to your point, I think they understand -- the Consumer Counsel understands and we obviously agree that this is a great time to be in the market acquiring long-term resources. Obviously, there is a relatively slight downside risk that prices could hedge down a little bit compared to a tremendous opportunity on the upside to protect our customers from where prices could go. And I think we -- there's actually in this case, pretty good alignment between all of our views. And we do continue to actively look for attractive investments.

Okay. Bob, is MISTI the decision to be made there, is BPA the big trigger on what they decide?

BPA is a critical gating factor. And again, if BPA decides to go with MISTI, depending on how specific they are in their decision, that could well be enough for the project to move ahead. If BPA elects another alternative or doesn't take a clear action, then we will have to reevaluate the project in terms of the ongoing costs and uncertainties and the idea that the goalpost -- you know we've continued to make tremendous amount of progress on multiple fronts with MISTI, but the goalpost seems to keep receding.

Right. Can you give us a little bit of flavor for what's going on with the collector system right now?

Sure. The collector really depends on MISTI. What we've talked about before is that we have had an awful lot of activity with large generator interconnection agreements in our transmission department and so to some extent, these LGIAs are building increments of a collector system. But in terms of a true collector -- a full collector system, that would depend on MISTI and would depend on much further development of resources in Montana.

Right. And isn't that a little bit of a chicken and the egg problem, in terms of generators and the transmission, too?

It won't surprise you to hear I've used that analogy myself. And yes, that's a classic challenge within the non-organized western market, where there isn't a mechanism to allocate these projects and to provide all of the market participants. That's just simply the market that we work in. Whenever -- probably most of you have heard me do this. Wherever we talk about our transmission projects for export, I have to come back and emphasize that the core of what our transmission department does is build, maintain and operate truly extensive natural gas and electric transmission systems that serve our customers. And we continue to focus on investments in safety and reliability of our gas and electric transmission systems.

In fact, over the next several days, our transmission Vice President, Mike Cashell and I, will be meeting one of our major customers who has some significant transmission needs here in our Montana service territory.

Okay. One last question. In terms of the base-load options for Montana, which is 2014-- is coming up pretty soon, at this rate. What's your thinking there? And included in that, have you had many decisions with PPL about the buy option?

In terms of actually buying their facilities?

Yes.

I wouldn't comment on any specific possible transaction. But, again, we evaluate -- continue to evaluate a range of options, including buying facilities, building facilities, and to the extent which we would remain on the market. As you know, we have had an awful lot of activity on the supply side, both in South Dakota and in Montana. And I have to say that our supply and generation operation does a tremendous job with project management. So we have got a lot of good things going on in that area too.

Okay thanks a bunch, guys.

Thanks, Chris.

Our next question comes from Michael Klein with Sidoti & Company.

Hey. Good afternoon.

Hi, Michael.

Did I hear you correctly that the Spion Kop is expected to go into rates in October? Or is that just when you expect to transfer control?

No. In that case, we did get advanced approval from the Montana Commission.

Okay. So as soon as you take control of it, its going to go into rates?

Yes.

Okay. And just general trends -- I know commercial and industrial is a small part of your business, but what's that outlook looking like? Can you give some color, just about the local economy and expectations for the rest of the year there?

Generally, relatively flat. Again, there are areas within our service territory where there is some significant activity. I mentioned we are in Billings, Montana today and we are seeing an awful lot of activity in Billings. Much of that associated with development in the Bakken to the North. So there are certainly are individual firms across the service territory that are growing. And most of the larger communities we serve are really quite healthy. But in terms of the kind of much more dynamic growth that we would have been seeing a number of years ago, overall things are relatively flat.

Okay. And have your expectations for just overall load growth -- has there been any change to that over the past six to nine months or so? Or does it still remain what it was?

There really haven't been. And what we have seen that's been the most disruptive over that period of time has been the weather.

Okay. Thanks a lot.

Thank you.

Our next question comes from Jonathan Reeder with Wells Fargo.

Good afternoon, gentlemen. Can you hear me?

Hey, Jonathan.

Bob, did I hear you correctly regarding the collector system's viability, that if you guys abandon MISTI, is that project is essentially dead?

Well, the collector has been a project that has been more at a segment by segment. So we have again, built what are effectively collector segments in response to large generation connection agreement requests. So the LGIAs come in, we build parts of the line. But on a large scale that a collector system would normally be conceived, you could build collector, you require MSTI, if MISTI is built, it would be in response to demand of some sort. Depending on what demand looks like, that would support collector.

So the full build-out of the collector isn't really possible, obviously because you can't gets the power essentially out of the region? Is that how to look at it?

In terms of access to the Southwest, yes. In terms of access to the Pacific Northwest, the key would be the upgrade to the 500 -- to the Colstrip 500 KV. And we do expect to see -- have seen LGIA requests to support moving power into the Pacific Northwest.

Okay. And then can you just talk a little bit on the future natural gas acquisitions? What's kind of the timing and magnitude of potential future deals there?

We actively examine the market. We don't have anything to announce today certainly, but we are out in the market. The -- a goal might be to get -- well, I should say Montana Power had about 50% of its own natural gas needs met by its own supply. And it would be probably up to a figure of around $200 million or so, over time. The market we're looking at is one that obviously where the ability to do a transaction depends on properties being for sale that match up with, not just price but with the characteristics that we're looking for, in terms of proven reserves with reasonably long asset lives.

Okay. So $200 million is still kind of the upper end of the range where you're seeing current prices and everything?

I think that's fair, yes.

Okay. And then do you interpret the NCV's testimony as a green light to pursue more deals, given the commentary of the low natural gas price environment?

We've had very positive discussions with the Consumer Counsel around this area, and they do recognize the value of continuing to acquire gas --again, at appropriate prices.

Okay. And then did you mention when you would be filing the next Montana rate case? And if not, are you thinking about a 2013 filing as well, kind of like South Dakota?

Yes. We're evaluating for basically all five jurisdictions, Gas and Electric Montana, Gas and Electric South Dakota, Gas Nebraska, and do that on an annual basis. And clearly, we are, as I discussed because of the environmental compliance expenses, are looking at an electric filing in South Dakota next year.

But Montana, you haven't come to the conclusion yet?

We haven't made that decision yet.

Okay. And then just last question, Brian, for the guidance range you're talking about Q2 ongoing EPS being right at $0.31 when you net the two items. Does your guidance range reflect normal weather for the first half of the year? Or is it the actually observed weather?

Yes. It's from our perspective on guidance, we're talking about in the disclaimer, if you are talking about a going forward basis, the assumption of normal weather. I think you have seen what we've talked about today and for the first quarter, weather has impacted our business and we do exclude that, if you will, from the guidance that we share.

Okay. So the $2.35 to $2.50 would be adding back the adverse first half weather?

That's correct.

Okay. That's all I got today. Gentlemen, appreciate the questions.

Thank you.

Thank you, Jonathan.

(Operator Instructions). We'll hear next from James Bellessa with D.A. Davidson.

Good morning, guys. It's actually Mike here with Jim. I wanted to ask a coupleI didn't hear an answer to yet. It's my understanding that in South Dakota, when you want to replace the Aberdeen plant into rate base, you will be able to make a request for interim rates. Is there a rule of thumb in that state that would give us an idea of how -- or what size that interim rate increase could be?

No. And we haven't had that -- there hasn't been enough activity in South Dakota to really answer that. Again, our expectation is we'll be having discussions with the Commission staff and come up with an approach to the filing that makes sense for the Commission and for us.

Okay. And then one last one is, with this potential write-down from MISTI, assuming that the stars don't align, would any portion of that amount that you've accumulated so far be recoverable? Or would the full weight of that be borne by shareholders?

To be very clear, we have not made a decision one way or the other concerning a write-down. And were we to make that decision, then we would have to look at options to mitigate that cost. So we -- what we have done at this point is tried to be as transparent as possible about the challenges we're facing, the decisions that may be ahead of us. But those decisions have not been taken. And very importantly, as we have been clear all along, this -- whatever decisions we make there will be no impact on our Montana retail customers.

Thank you.

Thank you.

We'll take a question from Paul Ridzon with KeyBanc Capital Markets.

How many megawatts are rolling off in 2014 of BPAs?

Right around 200 peak.

So is that kind of what you look to backfill with, as far as any capacity additions?

Potentially, although an actual decision is likely to have more elements to it than that. Again, it's certainly possible to enter into bridge contracts, for example. So it's not at all a binary choice between market and [known] resource.

And given the way things are unfolding on the Battle Creek front, if the Commission were to act and issue a positive order, I would image you would be kicking tires. Do you think you could be in a position to do something really quickly?

That depends on what's available in the market, but you're right. We have been certainly out on the car lots on Sunday afternoon kicking tires, yes.

Okay thank you. And happy birthday, Bob.

Thank you very much. Still waiting for the song.

You don't want too hear me sing.

That's what everybody is saying.

And we'll move on to Jonathan Reeder with Wells Fargo.

Hey. I thought I withdrew the question, but happy birthday, Bob. And I guess as a follow-up quickly to that last one, did you indicate prior that you're waiting for the Montana Public Service Commission to rule on Battle Creek before doing any other deals? Or did you say you would actually strike a deal if you found one that was the right size and the right price?

No. We are not waiting for a Commission decision, and as I said we are actively out on the lots kicking the tires.

Okay. And I'm going to defer to somebody else for the birthday song.

Okay. Thank you.

Thanks.

We'll hear now from Brian Russo with Landenburg Thalmann.

Hi. Thanks for the follow-up. I'm just curious and I may have missed this, but what was the year-to-date impact of weather that's being excluded from your guidance?

Yes. I think it's -- again this is versus normal weather. We said $0.05 for this quarter. And if you remember in the first quarter it was -- and again first quarter being a pretty heavy month for us, particularly for gas loads, we forecasted about $0.09 in the first quarter --milder versus normal.

Okay. So just to be clear -- the guidance range excludes $0.14 of negative weather impact.

Correct.

Okay. Thanks.

There appear to be no further questions or comments at this time.

Okay. Well, thank you very much. The one key number that we didn't disclose in our filing or on this call is how old I am, and that's how it will remain. But thank you all for joining us. And talk to you all next quarter, if not before.

Thank you, ladies and gentlemen. That will conclude today's presentation.