NorthWestern Energy Group Inc (NWE) 2016 Q3 法說會逐字稿

Good day, and welcome to the NorthWestern Corporation third quarter 2016 financial results conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Travis Meyer, Director of Investor Relations. Please go ahead.

Thank you, Ruth. Good afternoon and thank you for joining NorthWestern Corporation's financial results conference call and webcast for the quarter ended September 30, 2016. NorthWestern's results have been released and the release is available on our website at www.NorthWesternEnergy.com. We also released our 10-Q premarket this morning.

On the call today with us are Bob Rowe, our President and Chief Executive Officer, Brian Bird, Vice President and Chief Financial Officer, as well as several other members of the Management team with us today to address your questions.

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'll remind you of our 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 will contain words such as expects, anticipates, intends, plans, believes, seeks or will.

The information in this presentation is based upon our current expectations of the date hereof unless otherwise noted. 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 on reasonable assumptions, actual results may differ materially. The factors that may affect our results are listed in certain of our press releases and disclose in the companies form 10K and 10-Q had along with other public filings with the SEC.

Following our presentation those who are joining us by teleconference will be able to ask questions. The archived replay of today's webcast will be available beginning at 6 PM Eastern Time today and can be found on our website, again, at northwesternenergy.com under the Our Company, Investor Relations, Presentations and Webcast link. To access the audio replay of the call dial 888-203-1112 and access code 1371505. I'll now turn it over to President and CEO, Bob Rowe.

Good afternoon, everyone, and thank you for joining us. We're hosting this call today from the ballroom in our Billings, Montana service center. Our Board met today and yesterday and is always the case when we meet in the service territory, I had a great community reception last night and then an employee breakfast out in the service bay this morning. And last night our Board got really great exposure to the exciting and solid growth in this area, and we heard how much local civic and economic leaders really do appreciate the partnership that we have, that they have with NorthWestern and we with them.

Billings is where the Rocky Mountains meet the Great Plains and the, what Charles Kuralt called the most beautiful drive in the lower 48 is just an hour away from here. And the Chamber of Commerce thanks me for sharing that information with you, so we hope you come out and visit.

Turning to recent significant activities, net income for the quarter was $44.6 million, or $0.92 per diluted share, and that is as compared with net income of $23.8 million, or $0.51 per diluted share for the same period last year. This is at $20.8 million increase in net income and is primarily due to the $15.5 million tax benefit as part of a tax accounting change related to costs to repair electric generation property, that's along with improved gross margin which is driven, again, by the South Dakota Electric rate increase.

Non-GAAP adjusted earnings per share increased to -- $0.17 to $0.68 as compared with $0.51 for the same period in 2015, and the Board approved a quarterly dividend of $0.50 per share payable on December 30 of this year. On September 30, we filed a Montana natural gas rate case requesting an annual increase in base rates of approximately $10.9 million, and we'll come back and discuss that in more detail.

Another highlight for the quarter is our continued success reducing interest costs. In August, we redeemed $170 million in pollution control revenue bonds, with the $144.7 million issuance of PCRBs plus other available funds. And the coupon was reduced from 4.65% to 2%, and then in September we issued $45 million of South Dakota first mortgage bonds with a 2.66% coupon.

And with that, I will turn it over to Brian Bird to give the financial results. Brian?

Thanks, Bob. As Bob pointed out, on page 5, the summary of financial results for the third quarter, we had a very good quarter. Net income was up $20.8 million and our diluted per share up $0.41 was an 80% improvement on a year-over-year basis for the quarter.

Starting at the top of the P&L, we did see an improvement in gross margin, up $5.7 million, primarily driven by a rate increase in South Dakota. We did see our overall operating expenses down $1.9 million with improvements in operating general administrative costs offsetting the increases in property and taxes and depreciation. The net benefit of those drove operating income to a $7.6 million improvement and ultimately drove the $20.8 million improvement in net income.

And one of the primary drivers that helped in that regard was a $16.1 million improvement in income tax benefit. Of that, $15.5 million was associated with an accounting change association with generation repairs, and we'll talk more about that in a moment.

Regarding gross margin on page 6. As I mentioned, gross margin's up $5.7 million primarily driven by improvements in our electric business and that, as I mentioned earlier, was primarily associated with the $9.2 million improvement in South Dakota Electric rate increase. And if you'll remember, we're also able to include the Beethoven project with that rate increase. On the electric side, we did continue to see as a result of elimination of lost revenue adjustment mechanism an impact on a year-over-year basis to our gross margin. Also electric retail volumes and our electric transmission think OASIS revenues were also down a bit for the quarter.

On the gas side, we did see an improvement in natural gas retail volumes being up $1.4 million, slightly offset by some reduced margin on our natural gas production business. Those changes netted to $7.5 million improvement in gross margin that ultimately impacts our net income.

We do have some other items that impact gross margin, but do not impact net income because they are offset elsewhere within the P&L. For instance, we have less hydro revenues this year associated with the Kerr conveyance. As [you] will point out in a minute, we also have lower Kerr expense. On property taxes, you're aware we have a recovery of property taxes portion 60% of that in our property tax trackers, we show $4.7 million increase in gross margin associated with that, but again, offset down in expenses.

Lastly of the major items there, production tax credits, we had a $2.1 million reduction in property -- or production tax credits for the quarter. That's offset in our income tax expense line. So net-net, the increase in consolidated gross margin of $5.7 million for the quarter.

Turning to page 7, we talked about weather, typically the third quarter for us is a cooling quarter, and typically that would be summer for most places. But in our third quarter in Montana we were a bit colder, colder versus 2015 and colder on a historic basis. And so that impacted both cooling degree days and heating degree days. Matter of fact, we did get some heating load and it helped our gas business, but that was more than offset by the impact of the colder weather on our electric business. And net-net, we saw about a $1.4 million detriment to our margins associated with weather.

Moving forward, on operating expenses, I mentioned the reduction in the OG&A expenses of $11 million, more than offset the increases in property, tax and appreciation and depletion expenses. The primary drivers of that reduction in operating expenses though were, for instance, the Kerr conveyance reduced hydro operations expenses, and I think you're aware that a reduction in non-employee directors deferred compensation is also offset in other income on our P&L.

The other remaining items though that make up that $11 million, we're pleased to say, is there's been good cost control at the Company. We talk about a reduction in our [DSIF] expenses as we near the completion of that program in the upcoming years. That's starting to taper off. But overall cost control you can see the other category, the other large item here that really shows cost control throughout the Company helping to keep our costs down.

The other two items, property taxes were up $5 million for the quarter, primarily from higher estimated property valuations in Montana and also a $4 million increase in depreciation depletion, a large part of that was associated with the Beethoven project on a year-over-year basis.

Turning to page 9. The top of the page, operating income up $7.6 million. We did see a decrease in interest expense, Bob mentioned the refinancings, that certainly helped in the quarter and that was partially offset by lower AFUDC. We did see a decrease in other income, again, primarily driven by the non-employer directors deferred compensation program and lower capitalization of AFUDC.

And finally a $16.1 million improvement in income tax expense, due primarily to a tax accounting method change related to cost to repair a generation property. And one thing I'd point out there, that change is approximately $15.5 million associated with that change we recorded in the quarter. And of that $15.5 million, $12.5 million is associated with prior year periods and $3 million is for the full three quarters in 2016, again for a total of $15.5 million.

Moving on to the balance sheet on page 10. Not a lot to talk about there other than some seasonal differences between the end of September and the end of December, but one thing that's good to see is ratio of debt-to-capital at the bottom of the page, back inside our 50% to 55% debt-to-cap, that's where we would like to see that to remain on a going forward basis.

Moving to the cash flow statement on page 11, our nine months ending cash flow from operations is $46 million less than the prior nine month period of 2015. Primary drivers for that, as we talked about in the past, is the nearly $31 million of refunds on the DGGS FERC ruling that we received and also giving back about $7 million in revenues to our customers in the South Dakota rate case based upon our original filing and what was ultimately determined there.

On the investing activities, you can see the PP&E additions in 2016 were nearly $150 million less than the prior year, and the reason for that is it was in September of 2015 that we acquired the Beethoven project last year and was approximately the difference between those two amounts. So other than that, our PP&E additions are about the same.

Moving forward, page 12 is the income tax reconciliation for the third quarter. As you see at the bottom of that page, the $16.1 million improvement associated with income taxes on a year-over-year basis is almost equivalent to the line up there associated with the flow through repairs deductions, the $16.2 million improvement. And effectively what that is, is the $15.5 million I talked about associated with the new generation repairs and an additional amount associated with T&D repairs for the quarter.

Moving forward to page 13, is our adjusted earnings. What we tried to do here is take our GAAP earnings and then with the adjustments that we have for the quarter, come up with a non-GAAP number and try to match that on a year-over-year basis. By the way, in 2015, we did not have any changes for the quarter in 2015 that impacted non-GAAP, it was the same as the GAAP number for 2015. But in 2016, we did have two items for the quarter that we did back out, if you will, from our GAAP numbers to get to non-GAAP.

First and foremost is $1.4 million of unfavorable weather I mentioned earlier and also, we did back out the $12.5 million of prior year benefit associated with our accounting method changes associated with generation repairs. After doing that, we come up with a non-GAAP diluted EPS of $0.58 -- or excuse me, $0.68 for the quarter compared to $0.51 from the prior year quarter, still a $0.17 improvement or 33% on a year-over-year basis.

As we do from a disclosure standpoint, we not only show you that at a EPS or net income, we show that certainly throughout the whole P&L. And obviously on a year-over-year basis good to see gross margin improving nearly 6%, operating income improving nearly 12%, and then also on the pretax side, an improvement of about 20%. You will see here on the income tax line that the increase in a year-over-year basis is about $3 million for the quarter, $3.1 million, and that is almost equivalent to the $3 million of current year benefit associated with the generation repairs. After that adjustment a $9.2 million improvement quarter-over-quarter or nearly 39%.

Moving on to page 14. This is our year-to-date results through third quarter of 2016. You'll see a $9.6 million improvement for the nine months versus the prior year. I think at a very high level I'd tell you that's primarily driven by the South Dakota rate increase, offset by the reduction in the Kerr revenues that we certainly did not see in 2016.

On the expense side, total operating expenses are up $21.3 million, almost all driven by the increase in property taxes and depreciation and depletion. You will note still a small decrease in the operating general administrative expenses, that's particularly impressive if you remember back in 2015 we had a $21 million insurance recovery. I would argue that this year, we've had -- obviously we don't have the Kerr operations, that's about $15 million of expenses we didn't incur in 2016, I should point that out, and I'd say that the remaining difference between those two numbers is the reduction in [DCIP] expenses I mentioned earlier and other cost controls.

Net-net then for the operating income, down $11.6 million on a year-to-date basis through September, income before taxes down $16.8 million but here is where the income tax benefit comes into play again. Obviously I talked about the flow through benefits associated with generation repairs, but we also did have lower pretax and we have the benefit of higher PTCs through the nine months of this year associated with the Beethoven project. After that, it is considered our net income for the first nine months is up $12 million or nearly 11.3% on a year-to-date basis.

Moving on to page 15, do want to remind folks that we did experience in the first two quarters some significant impact associated with weather. You can see that on heating degree days those are certainly two quarters. First and second quarter were heating degree days matter to us and on a historic average basis, we were 10% to13% warmer than historic averages. And from our perspective for the first nine months of the year we now have a total of $14.2 million impact on our margins associated with the milder weather in 2016.

On page 16 is our non-GAAP adjusted earnings for the year-to-date basis, and from a 2015 perspective we did have, going from GAAP to non-GAAP, we did have unfavorable weather in 2015, we did have a QF adjustment we did remove and we did remove the insurance settlement. After those adjustments we show a diluted EPS of $2.17 versus the adjustments we've had in 2016 thus far of unfavorable weather. We did have the tracker disallowance we've talked about in prior quarters. We also removed the LRAM revenue that we recognized in the prior period that we released in the prior quarter, and then also this quarter we removed the generation repairs.

After doing all of that, our $2.44 EPS was reduced to $2.34 versus the $2.17 I mentioned earlier for an 8% improvement on a year-to-date basis. Again, when you look through the P&L, even when you consider from a margin perspective still a 3% improvement, operating income of 3% improvement, it's not until we get down into net income. And again, this is where the generation repairs and the other benefits I talked about on the tax side we do see a $10.8 million net income improvement, which was about a 10% improvement on a year-over-year basis year-to-date.

Going to page 17, another comment in terms of non-GAAP adjusted EPS. This is really the same information I showed you in the previous slide summarized at the EPS level and also indicates that from a fourth quarter perspective, in order to achieve the $3.20 to $3.35 our guidance for the remainder of this year, we'd need a range of about $0.86 to $1.01 versus the $0.98 we saw in the fourth quarter of 2015.

I do want to point out as we talked about at upcoming fourth quarter, we continue to have concerns regarding margins, and remember the LRAM is no longer with us, and other things that can impact our margins. We're also forecasting some higher costs in the fourth quarter, including increased pension expense on a year-over-year basis in 2016.

So we feel good about where our guidance is and feel comfortable we will certainly be within the $3.20 to $3.35. And with that, I certainly summarized that on page 18. One thing I'd also point out on this page, the only thing we really changed on that is we did update our GAAP range of income tax expense, we do think that will be a range between minus 3% to positive 1%, but certainly not the non-GAAP that we had recently provided of 6% to 10% income tax rate. And with that, I'll pass it back over to Bob.

Thank you, Brian. I'll start with a quick regulatory update, and this is an attempt to give you a snapshot of key regulatory activity just on one page. First, as you'll all recall, in April of 2014, we received what we consider to be a negative cost allocation order on the federal side from FERC concerning the [AVX] generating station in terms of allocation between retail and wholesale. We filed a request for rehearing, which just this year was denied. We made refunds in June of this year and at the same time we filed a petition for review with the US Circuit Court of Appeals for the District of Columbia.

A briefing schedule has not been established yet -- or has been established with final briefs are due by the end of the first quarter of 2017. And we don't expect a decision until the second half of 2017 at the earliest, and that would be in italics, concerning the lost revenue adjustment mechanism that Brian mentioned. We did receive an order in October of 2015 eliminating the lost revenue adjustment mechanism.

That has a number of impacts, but on a going forward basis, rate filings will be set to recover test year costs and return. And we're evaluating what other revenue based regulatory mechanisms is such as decoupling should be pursued. And very significantly, the Montana Public Service Commission has set a workshop to address the subject of decoupling for a week from tomorrow, and we consider that very positive and are looking forward to an ending and participating.

On the natural gas side in October, we have -- of 2015, we received a natural gas tracker order revising our interim rates for our two of three major gas production asset acquisitions and then requiring a filing prior to this October to formerly put them into rate base. And then also, as you know, on an annual basis we do a first look at each of the jurisdictions to decide whether or not a general rate case should be filed.

So pursuant to the Commission's order in the gas tracker case, and consistent with the first look, we have filed a Montana natural gas rate case based on a 2015 test year requesting about $10.9 [billion] in increased revenue, 7.33% return on $432.1 million of rate, and I'll come had back and say a little bit more about that.

Concerning coal strip, in May the Montana Commission issued an order disallowing a recovery of replacement power and portfolio modeling costs which had been included in the electric supply tracker and the replacement power costs were related to a 2013 outage at coal strip unit 4. We filed two appeals concerning that Commission decision.

The first one was filed in Lewis and Clark County in June, and that one concerned the -- really concerned the procedure that the Montana Commission used to reach its decision disallowing modeling costs. And then in September, we filed an had appeal in Yellowstone County concerning the denial of recovery for replacement power costs, but also addressing the modeling costs. And although obviously we can't guarantee, we think it's reasonable to expect to receive orders from both courts within somewhere between 9 and 20 months.

Finally we did submit a hydro compliance filing in December of 2015, and that filing was associated with what you could think of as our bridge ownership of the Kerr Dam, which came to us as part of the hydro acquisition, but with the understanding that it would be conveyed pursuant to a FERC license requirement to the Confederated Salish and Kootenai Tribes at the end of that year.

So as a result of a lot of moving pieces associated with Kerr plus tax implications, the Commission did require a compliance filing which we made again last December. In January of this year, the Commission had approved an interim adjustment that then opened a separate contested docket requesting additional detail. A hearing was held just in September, and at the hearing only contested issue was the level of administrative and general expenses that should be deducted due to the transfer of Kerr to the Confederated tribes. The briefing is underway right now, we'll conclude in early November and then the case will be considered submitted to the Commission and we would hope to get an order during the fourth quarter of this year.

And then finally I'll just give you a little bit more detail on the Montana natural gas general rate filing. If you turn to page 20 and look at the table in the upper left corner, keeping the focus on the substantial investment we've made in just in the transmission and distribution and storage system from the 2011 test year to 2015, and that's essentially $51 million of investments in providing our customers safe and reliable and adequate service. And then the bar to the right also brings in, again, pursuant to the Commission's tracker order, the gas production assets.

Then upper right is the tail of the tape what's included in the case, and it's a basic cost of service of $7.4 billion and then the costs associated with Bear Paw and South Bear Paw, also known as NFR and Devon. And these are costs that are being recovered through trackers, but would be then formally brought into rate base. Actually also important to note that what's really going on here is the signing A&G costs to these assets that would otherwise be recovered in the general rate case.

Something that's impressive in the cost of capital slide, to my mind, we're requesting an ROE of 10.35%. And a footnote there is more and more jurisdictions have successfully adopted decoupling, that's essentially the norm now, and the absence of decoupling is certainly a factor in the cost of equity that we're using.

But what's particularly impressing, if you look at the overall rate of return 7.33%, it's actually lower than the rate of return that the Commission approved in our most recent natural gas general rate case, which was only in June of 2013, and that was at 7.48% overall return. And as is reflected at the bottom of the page, I think we've done a very, very good job of providing first rate stability, but over time natural gas bills significantly and consistently below the national average and trending down.

So even if our requests were granted in full, as you'll see in the lower right corner of the chart, the typical Montana natural gas bill would actually even be lower than it was really only a year or so ago. So we think we're doing a good job of providing our customers safe and reliable service at affordable prices, and we think that we put forward a very reasonable proposal to the Commission.

One other thing I should say is the case has been bifurcated, and this is a revenue requirements filing and then by April, we will be expected to make an allocated cost of service and rate design case that potentially could address any other issues as well. And with that, I will be silent and turn it over for questions.

(Operator Instructions)

We'll go first to Brian Russo, with Ladenburg Thalmann.

Hi. Good afternoon.

Hi Brian.

I may have missed this, but it doesn't seem like there was a CapEx slide in the presentation?

Well, yes Brian. We've got some feedback, sometimes, that we don't allow enough time for questions, and we have a lot of remarks to make, and we are going to see you in two weeks at EEI. So we figured we could leave those two slides, or those several slides out, that's the only reason they are not included. Plus we wanted Bob to have adequate time to talk about the rate case filing, which was the most important thing during the quarter.

But Brian, I think that was a tease for the EEI meeting, is that right? (laughter)

I've got you. So, as of now, we should just rely on your latest CapEx disclosures?

Don't expect those slides to change.

Okay. Great. And then, is the SG&A cost cuts, are those permanent or just temporary?

I think that I'd say this; we're going to always experience increasing cost pressures at the Company. But we also have to also try and find a way to be more efficient and effective in our costs. So, I don't expect that our costs are going to keep coming down, from a cost-control perspective. We're going to try and maintain our cost structure, as best we can. And on a percentage of margin, if you will, try and improve that. But I think there's going to be continued focus on cost control, but I do not expect to see costs to keep coming down. I expect us to try and maintain. We owe that to our customers, to try and keep our costs as low as we possibly can.

Okay and then lastly, just to clarify. On one slide, it shows the repairs tax reduction benefit of $19 million. And then you guys have mentioned a $15.5 million adjustment to GAAP earnings. And then on Slide 13, it shows $12.5 million. Just wondering if you could reconcile all of that.

Well, in addition to -- on the flow-through repairs deductions, remember, this generation repairs is Phase II. We've been doing repairs deductions, associated with our T&D business, as well. Now inclusive in that number, which is historically just been T&D, is going to be generations repairs, as well. So the incremental amount above the $15.5 million I talked about, is the T&D component.

Okay, so that's included in your adjusted EPS?

No. In the adjustment that we took out, the $12.5 million, that's the prior year component associated with just the generation repairs.

Okay, so included in adjusted EPS is $3 million of deductions?

Absolutely. That's the current year component of the generation repairs, and everything else that would be included in our adjusted, would be all of the exiting T&D repairs expense we've had, and will have on an ongoing basis.

Just repeat that, what's ongoing?

On an ongoing basis, we're going to see both T&D and generation repairs. What we just excluded, for guidance, is things from year 2015 and prior, that we are able to capture in this particular quarter. We're excluding any prior year adjustments, much like we've done in any other adjustments we've done from a GAAP to non-GAAP basis.

Okay, thanks for the clarification.

Yes,

(Operator Instructions)

We'll go next to Paul Ridzon, with KeyBanc.

Just on the generation repairs talk, is that benefit -- could we just assume that's about a milliion and a quarter?

Yes, and I'm glad you asked that Paul, because the $3 million that you've seen this year, we do see that as about a $1 million per quarter, okay? But, the amount of repairs that you have in any particular year, could be different from one year to the next, so I don't want to get you situated. It's always going to be a $1 million per quarter. But our expectations from a repairs perspective, and how things are laid out, we don't expect them to be materially different on a year-over-year basis.

Thank you. That was my only question.

We'll go next to Jonathan Reeder, with Wells Fargo.

Hey. Just a follow-up on the repairs for the guidance that you issued this year. Did you contemplate that generation incremental benefit?

It's a great question, Jonathan. Initially, in the beginning of the year we did not. But you may recall, after the first quarter, when we revised our income tax range downward, we had an idea about generation repairs on early stages. But I will tell you that where we ended up, at the time that we had completed our review, we came in with a little bit higher generation repairs than we expected.

Okay, so when you initially set the range, it wasn't thought of? When you adjusted in Q1, you knew it was coming down the pike, and it ended up being a little higher than you were thinking?

You might recall, we also as an overall basis, reduced the top end of our range at the first quarter. So that was one pleasant thing that we saw for the remainder of the year. Certainly, more than offset by some negative things we saw for the remainder of the year.

Okay well thank you and I look forward to seeing you all at EEI.

Thanks, John.

We'll go next, to Joe Zoo, with Avon Capital Advisors. Looks like he might have disconnected.

We'll go next, to Michael Weinstein, with Credit Suisse.

Hi guys.

Hi Michael.

Just to follow-up on Brian's questions. For the cost cutting, I think he was trying to say, how much of the $11 million of G&A that's been cut, is ongoing, rather than just one-time for 2016?

Yes, and just want to be clear. Maybe that didn't come across very well. That $11 million decrease in OG&A, about $7 million of that is really associated with the fact we don't have hydro-operations costs on a going-forward basis. And that's $4 million. $3 million of it's associated with the non-employee Director's deferred comp that's offset in other income. So you'd argue, then, of what remains is about $4 million, right? To get to your $11 million? And I think it's a fair question.

We'd like to think that we'll be able to maintain cost control, but I'd expect that some of that certainly will remain. But I think we'll see continued cost pressure in the fourth quarter, as well. So, I don't necessarily want to say that is a sustainable $4 million, each and every quarter.

Right. And of the repairs deductions; is there any ongoing impact to rate-based growth going forward as a result of taking higher deduction?

No. That's one thing, that from a repairs deduction standpoint, we have -- it does not impact rate base like it does in other jurisdictions.

And, are you saying that the -- what can you say about the expected tax rate in 2017, and beyond?

I'm glad you asked that question, because there's probably two questions there that some other folks might have asked. As a result of generation repairs, what's going to happen to your effective tax rate? And what's going to happen to the NOL usage? And so if I could Michael, I'll answer both of those to your question.

An effective tax rate, we do think it helps a little bit. But we still also see that we're going to be around that 20% by 2020. We still see a tax rate creeping up. And remember, think of it this way, if you have a constant level of generation repairs on a dollars perspective, but your earnings continue to go up on a pre-tax basis, your overall effective tax rate is going to start creeping up. And we expect, based upon our forecasting, that we'd see tax rates creep up towards 20% by 2020. So, no change from that regard, even though we'd argue that it could have somewhat of a positive benefit, but not material enough to change our thoughts there.

Regarding NOLs, I'd say the same thing. Our expectation is that, even though this helps a little bit, we do expect to run through NOLs probably by 2020.

Got you. And just one last question. Did I hear you right, that you're contemplating Montana Electric rate case April next year?

Wow. What Bob--

No, no, what I said (laughter) -- that was a great question by the way. But what I said was the gas case is bifurcated. And we filed the revenue requirement case this fall. And then we will be filing a natural gas allocated cost-of-service and rate design by April.

Oh, the rate design for the gas case. Okay, got you. Do you have any comments on timing of a electric rate case, at this point?

No.

No? Okay, thank you.

Mike, you'll recall, just real quickly there. Every April, we give our thoughts on our next rate filing. That would be the earliest we would talk about it.

Oh, okay I got you. Thank you.

Thank you.

We'll go next, to Chris Ellinghaus, with Williams Capital.

Hey, guys. How are you?

Hi, Chris.

This benefit for the deferred comp, the non-employee comp, is that just a timing issue, where did that come from?

No, it's an accounting issue that any increase or decrease in your stock price has an impact, in terms of your carrying costs, associated with those assets. So any increase you'd have in your operating expenses, you'd have a decrease in other income, and vice versa. So, it is from a P&L perspective, no impact, whatsoever.

Got you. Bob, as far as the gas case goes, have you gotten any feedback, thus far, from either Montanans, or commissioners, or politicians?

We've had some initial discovery, which has been just very straightforward, looking at the data underlying the case. And there's been really, almost no public discussion about the case. We are, obviously, communicating what we're doing, and why. But there really has not been much conversation about it. I would like to think, that in part, that's simply a result of the fact that gas bills have been trending down so consistently for the last 10 years, and we've done a very good job managing those costs for customers.

Okay. I assume that you guys did a review of recent ROE results from cases in Montana. Can you just share with us what some of the most recent ROEs approved might be?

I think we'll speak from our perspective, the most recent ROE from our perspective, is from the hydro case, was 9.8% ROE.

Okay. Were you trying to insinuate, Brian, that you weren't going to change CapEx? Or that was just referring to, don't worry about it until EEI?

No, what I wanted to be very, very clear on that, is, just because we didn't include the slides this time, that they are going to change. They're not going to change. We didn't really have anything, incrementally, to tell you on this call associated with that. So that's why they weren't included. And now that I'd known there's been this many questions, I would have had Travis keep them in. (laughter)

Okay, great. Thanks a bunch.

Thank you.

(Operator Instructions)

We'll go next, to Paul Ridzon, with KeyBanc.

Just to follow-up, we should expect from you, continued tradition of giving guidance at EEI?

Oh, its been a tradition everyone loves every year now (laughter). And yes, we will give you -- we call them the drivers. We will give you the drivers at EEI.

Thanks again.

Way to sell tickets Brian. (laughter)

There are no other questions at this time.

Okay. Well thank you all, again, for your interest here at the end of the quarter. We certainly are pleased with where we are right now. And it sounds like we'll be seeing many of you in just a couple of weeks. Take care.

Thank you.

Thanks.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.