NorthWestern Corporation
Q4 2014 Earnings Call Transcript

Published: 13 Feb 2015

[Operator:]

Good day, and welcome to the NorthWestern Corporation Year End 2014 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. Please go ahead.

[Travis Meyer:]

Thank you, Kevin. Good afternoon and thank you for joining NorthWestern Corporation’s financial results conference call and webcast for the year ended December 31, 2014. NorthWestern’s results have been released and the release is available on our website at www.northwesternenergy.com. We also released our 10-K pre-market this morning for any of logging in, in the webcast has a few reports of troubled logging into the webcast. We know that some of you’re logged in but we do have a [default] slide deck as always loaded out on our website as well under the presentation and webcast at westernenergy.com. Presenting today are Bob Rowe, President and Chief Executive Officer; and Brian Bird, Vice President and Chief Financial Officer. We also we have several members of the executive team with us in the room today that are available to ask questions as they come up. 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 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 often contain words such as expects, anticipates, intends, plans, believes, seeks or will. The information in this presentation is based upon our current expectations as of this 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 upon reasonable assumptions, actual results may differ materially. The factors that may affect our results are listed in certain of our press releases and disclosed in the Company’s 10-K, which again we filed with the SEC this morning, and 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

[Bob Rowe:]

Thank you Travis and Happy Birthday. And we're calling in today from [Sioux Falls] office. I'll start with some recent activities and turn it over to Brian. In November I'm sure all of you know we've completed the purchase of the 11 hydroelectric facilities in Montana with the total of 633 megawatts of capacity and one storage reservoir for an adjusted purchase price of 904 million. And to finance the transaction we accessed the capital market and issued $400 million of common equity, 7.77 million shares of 51.50 share and then $450 million of 30 year Montana first mortgage bonds that have fixed rate of 4.176. Just a word more on Hydro you'll see the photo on the cover of the deck is our Thompson Fall dam and I have the pleasure of visiting [Clark Fork River] in Thompson Falls just a couple weeks ago along with our dam foramen and our account manager on the distribution site. I had a great conversation about how important NorthWestern was for the community and Thompson Falls and reminded me of the long standing community roles that we play in larger city and smaller towns and also I think a really exciting environmental role that we're taking on with the acquisition of the dams and 600 to 700 miles of river front. So it’s been a positive transaction from that perspective as well. Back to the significant activities we have $26.7 million of net income improvement in 2014 as compared with ‘13 and gross margin improvement from energy supply acquisition and income tax benefits that were recognized which was partially offset by higher operating cost. And higher growth transaction expense, we'll come back and discuss that. We have non-GAAP adjusted EPS of $2.68, that’s a 1 -- 7.2% improvement over 2013 adjusted EPS of 250. Our 2014 adjusted EPS with a midpoint of 260 of our guidance range of $2.60 to $2.75. We had an upgrade of our senior secured and unsecured credit rating by Fitch in November and notably a 20% increase in our quarterly stock dividend was announced by Board of Directors and that’s $0.48 per share payable on March 31 of this year. And with that I will pass to Brian Bird.

[Brian Bird:]

Thanks, Bob. On Page 5 I show the summary of financial results for the 12 months ended December 31, 2014. In 2014 our net income was 120.7 million or 26.7 million increase over the prior year. On a diluted earnings per share that was in '14 $2.99 which was a $0.53 increase over the prior year. Moving ahead to page 6, I will get into greater detail on the P&L itself. From a gross margin perspective, gross margin was 722.3 million in 2014 which was an increase of 47.4 million or 7% increase over the prior year. We had nice increases in both our electric and gas businesses. Of that 47.4 million, three primary drivers were the 21.4 million increase in natural gas production, 20.5 million in hydro operations and 5.9 million from our electric transmission or OASIS revenues during the year. We did have an improvement in retail volumes and a full year impact of our Montana natural gas rate increase, those were offset by reduced tracker revenues and DSM lost revenues during the year. Moving on to operating expenses on page 7. We had total operating expenses of 544.3 million which was a 40.4 million increase or 8% increase overall versus full year 2013. On the operating, general and administrative expenses they were up about 20.3 million or 7%, the three primary drivers for that increase; 8.9 million increase in natural gas production costs, 5.5 million increase in hydro operating costs and 5.1 million in hydro transaction legal and professional fees. Other operating expenses include a 9.1 million increase in property in other taxes. But a third of that increase during the year was associated with gas production assets and the hydro assets, the other remaining two-thirds primary just increase in methodology from property tax perspective and additional capital additions as well. We also had 11 million increase in depreciation, depletion expense during the year at about two-thirds of that increases was associated with our gas production and hydro assets during the year. Moving on to operating income as a whole was a 178 million which was 7 million higher than the prior year. The items below operating income for instance interest expense was up 7.3 million in '14 versus 2013, the primary drivers for that were associated with the hydro transaction we had 3.9 million from a bridge credit facility associated with the hydro transaction and we had 2.4 million interest expense associated with the 450 million hydro debt deal. We had other incremental debt costs from an issue that we did in late 2013 that were offset by other interest expense favorable variances for the year. From an other income perspective, other income was up 2.5 million that was primarily driven by the $1.7 million gain on deferred shares held in trust for our non-employee directors deferred comp programs. I think as many of you who follow the business are aware when we have an increase in that category in our operating expenses we also have an offsetting increase in other income and that was certainly the case again this year. So our pretax earnings were 110.4 million which was a 2.1 million increase over the prior year. And then from an income tax perspective we actually had an income tax benefit of 10.3 million which was a 24.6 million improvement over the prior year. The three primary drivers of that large improvement was 12.6 million on release of unrecognized tax benefits that occurred in the third quarter, we have also had a higher level 7.5 million of flow through repairs deductions this year versus the prior year and 5.7 million return to accrual adjustment associated with Safe Harbor election. Those again were the three primary reasons for the improvement in taxes for the year. Moving on to the balance sheet on page 9. Our balance sheet today at the end of 2014 we have nearly 5 billion on assets just a quick note that's about double of what we had back in 2005 or slightly after we came out of bankruptcy. It's a nice improvement in assets and particularly our PP&E. As it notes on the top right of that slide that's a 34% increase in total assets in 2014 versus 2013 and primarily driven by the hydro transaction and continued investment in our system. From a shareholder’s equity standpoint that also has increase of course not only with the share issuance, but continued earnings from our business that's upwards close to 1.5 billion at this point of time. At the bottom of the page we do show our debt to cap, we show that as a year-end number at 56.3% that is slightly above our targeted 50% to 55% primarily due to seasonality of cash flows and not an average for 2014 we were at 54.6%, we do anticipate that to remain near 55% and on average within our 50% to 55% range during 2015. Moving onto our cash flow statement on Page 10, we’re happy to report in 2014 did have a recovery in our cash flow from operations as we noted we should. We did have a 56.3 million improvement in cash flow and driven primarily from higher net income and the improved collection of customers receivables and then we’re happy to say that we feel very, very good in terms of recovery we’ve shown there. We’ve taken that cash flow and with some financing activities invested over approximately 1.2 billion in PP&E additions through in the year of course 900 million of that is associated with the hydro transaction. Moving onto Page 11, talk about our non-GAAP adjusted EPS, at the top of that to the far right that page it would note that our non-GAAP adjusted EPS of $2.68 is $0.18 or 7% improvement over our 2013 non-GAAP earnings and to kind on our way to our $2.68 I take you to the top of the page, we started to reported GAAP diluted EPS of $2.99. We did back out $0.02 of favorable weather. We did add back $0.24 associated with hydro transaction costs that we incurred during the year. We did back out $0.14 the net benefit of operating our hydro facilities for the last 45 days [approximately] of the year. We did add in $0.08 per the hydro equity dilution that resulted from our share issuance that wasn’t in our original guidance. And lastly we did back out $0.47 associated with the income tax adjustments to get us to our $2.68 and again a $0.18 improvement over 2013’s $2.50 a share. On Page 12, I’ll very quickly point out this what I just shared with you in terms of our non-GAAP adjusted numbers. This shows how those flow through a full P&L perspective. The one thing I’ve highlighted obviously at the bottom of the page again you see the highlighted yellow the 2.68 versus 2.50 and you see the components that make up those changes. I would note at the pretax income line even with all -- after all the adjustments, we did see a nice 6 million improvement in pretax income on an adjusted basis with a 5.4% improvement there. Moving forward to Page 13, one of the significant items that did adjust -- adjusted earnings were on the tax side. This page tries to capture the non-GAAP effective rate you highlighted in yellow the three items that add up 18.5 million impacted on the net income that we did remove from our GAAP results to get to our non-GAAP results. Those items were 12.6 million release of unrecognized tax benefit that occurred in third quarter, 4.3 million cumulative adjustment for election of safe harbor method related to the deductibility of repair costs for years prior 2014, we had 1.3 million adjustment for benefits related to 2014 bonus depreciation that we did not contemplate in our guidance and approximately 300,000 other prior year adjustments. One think we would want to point out as we talk about tax rate, effective tax rate, we do anticipate that our tax overtime will move up to be approximately 20% through 2017 and through the years we expect like I said that to range up to above that level by then and additionally we expect the NOLs to be available to us into 2017 to reduce our cash tax. Moving forward on Page 14, discussing our 2015 earnings guidance, to the far right at the top of you see our $3.10 to $3.30 a share that of course is to the right of nice trend line if you will from both not only the GAAP earnings with results shown in the blue bars, but also our adjusted GAAP earnings based upon the red line that shows those. So in 2014, we had $2.99 again of GAAP earnings shown there with 2.68 shows up within our guidance range for 2014. Back to the 2015 earnings guidance of 3.10 to 3.30, we do show general assumptions there associated with normal weather. We do it to exclude any impact associated with the FERC decision on the Dave Gates Generating Station. We do show a 15% and 19% tax rate and then we do have diluted average shares of approximately 47.1 million. Lastly I would point out, we believe as we continue to move forward into ‘15 and beyond, we do expect to have a targeted 7%-10% total return for our investors in a combination of earnings growth and a strong dividend yield. Moving to Page 15, just this breaks out really how we come from our $2.68, 2014 non-GAAP adjusted diluted EPS up to our $3.20, I won’t get into each of those measures but I know a lot of you will want to dig into those and potentially ask questions about the information here that increased by the way from 268 to 320, was approximately a 20% increase and thus gave the company the comfort to offer as we did today a 20% increase in our dividend of $1.92 a share on annualized basis of course we announced $0.48 per quarter this year but on annualized basis to give a $1.92 per share. With that I will put it back to Bob.

[Bob Rowe:]

Thank you Brian I appreciate you highlighting 2014, but also taking this back, reminding just how far we came from emergence this is great success obviously for our shareholders but our customers as well. Up continues to more detail around some highlights starting first with the hydro act position which is now complete in late September after a year-long very, very through process, Montana commission issued a final order of proving our application to purchase the hydro facilities and a 633 megawatts from BPL Montana and subject to certain conditions that I'll run through. We've included 878 million of the $900 million purchase price in rate base with a 50 year asset life return on equity of 9.8%, cost of debt of 4.25% and the capital structure 50% debt and 48% equity. That was all to the first year annual retail revenue requirement of approximately 117 million. Commission authorized issuance in an aggregate of $900 million of securities necessary to complete the purchase with the debt portion of the financing to have a term of 30 years and not to exceed 4.25%. A final compliance filing is due in December of this year to reflect post-closing adjustments in the convenience of the Kerr project to the Confederated Salish and Kootenai tribes and that’s to be accomplished with no financial risk to customers and then the actual property tax expenses for the hydroelectric facilities would be including finance filing. We are tracking revenue credits on a portfolio basis to our electric supply cost trackers. We successfully completed equity and debt financing $400 million of equity that’s 7.767 million shares we're issued at $51.50 a share and then $450 million of 30 year first mortgage bonds with a 4.176% coupon. 4.353% if made all in cost of debt including the upfront cost and hedge amortization and again a 4.250% cost of debt as well as recoverable under these Montana commission’s approval order, the transaction closed on November 18. Slide 17 includes some detail [revolving] around shareholder incurred Hydro related cost and this is broken down first of all by year starting with first -- the last two quarter of '13, all four quarter of '14 and then specific detail around the loss on the interest rate hedge and the equity issuance fee and then broke down again by legal and professional fees, bridge financing the loss on the hedge and the equity issuance fees. So the total detected here just under $50 million, certainly think that is a very defensible contribution by shareholders to obtain this great bit of assets. Second notable development towards the end of last year was the South Dakota rate filings. This is something we've discussed for a number of years huge response to the question, when you are going to file on South Dakota and we finally have. And this is again no one likes to file rate cases and customers certainly don’t like to have them filed. But I think the stories that’s depicted on Slide 18 is extremely positive and what you see in the upper left is extraordinary stability in the fixed charge and energy portion of the bill going back well into the 1980s. And then even fairly modest adjustments in the tracker related portion to the bill, fuel transmission and the loan on tax and that’s a nominal numbers and then you drop down to look at the nominal rate in real terms and at extraordinary value for customers. We're in the left side upper left is a great account of what we have requested in the filing equity at 10% and 53.61% equity and debt at 518 for an overall rate of return of 7.76%. I think that’s very, very attractive from the customer perspective and that’s going to rate base of $447.4 million. And down at the bottom you see allowed revenue and rate base in 1981 as compared to 2014 and you see the revenue deficient fee and the justification for the requested increase. Case has been filed, invention closed last Friday a number of industrial customers have filed within a [indiscernible] in South Dakota we are of course vertically integrated. It isn’t a procedural schedule issue yet by the South Dakota commission. But we do look forward to working through this case with and in front of the commission. Other activities summarized on page 19. The Big Stone Air Quality project and this is subject to our Regional Haze Rule requirements. Our 23.4% portion of the total project is now projected to cost between 95 million and 105 million, we capitalized almost 72 million through the end of 2014 and we do expect this project to be completed in operations by the second half of the year. Our distribution and transmission system investment we talked about our [DITA] project over the years which is gas and electric distribution in Montana very successful project, great project management on that and we're taking the same approach now to our transmission, infrastructure and we intend to essentially broaden the programmatic approach to improve transmission as well as distribution including substations that would be our entire system rather than the specific Montana focus that we had under this, so significant capital expenditures over the next five years of about $340 million, we will come back and give you little more detail on that. Natural gas reserves we do currently own about 25% of our Montana natural gas needs that's factoring in both retail and power gen that's our investment so far have been dedicated to serve our just our retails customers and we have invested about a couple of 100 million through the end of last year. Our target to meet at least 50% of our overall need over the coming years, we expect to come back and talk about that little bit in the discussion as well. Dave Gates Generating Station our perennial subject is most of you know in April of 2014 the Federal Energy Regulatory Commission issued a decision to allocate only a fraction of the costs for jurisdictional customers. In May of last year we filed a request for rehearing, which remains pending and we -- as far as we know not on the procedural calendar for next month at FERC. Consistent with the FERC's decision we have deferred 27.3 million of revenue through the end of 2014 and if unsuccessful on rehearing we certainly will think of course to appeal in to the U.S. Court of Appeals. We evaluate for impairment on a quarterly basis I don't believe an impairment is probable at this time, however we will continue to evaluate facts and circumstances. There are a couple of things that I am really very, very proud of in 2014. We have the best ever year for safety at NorthWestern across the company and that’s a big deal, it reflects so well on our abilities and approach to safety and is notable because we haven't had a busier year in terms of work being done in the field and across the company. And high quality work, high levels of work and very high levels of safety. We also received the best ever customer satisfaction scores on the JD Powers overall satisfaction survey and I am very pleased with that. We cost effectively brought two separate legacy customer information systems, one which had supported South Dakota and Nebraska and one which supported Montana onto a new combined platform. And compared to our peers we're particularly pleased with the functionality now that we finally have a stable system and the overall cost, so we took a good approach, did a lot in-house high level of attention from senior management for hand on approach and we like the platform that we have now. I’m every bit as proud of our recognition in 2014 as Corporate Governance Award Winner. We were recognized for our best proxy statement for small to mid-cap company by Corporate Secretary Magazine as I said before that's the Oscars or the Emmys or whatever for corporate governance. And our Corporate Secretary Tim Olson was on hand to accept that award. And we were recognized -- we had been recognized as a finalist in this category in both 2012 and 2013. And then finally we were recognized as a Top Trusted Utility Brand by Cogent Reports and we were one of 53 companies nationwide to earn that honor but even more significantly we were recognized as the top regional in the Western region of the United States combined electric and natural gas facility in terms of earning the trust of our customers, so that's meant a lot to all of us. Turning to our capital spending forecast and as you know we tend to be very [wizzy wig] in terms of what we actually project and include on tables like this. So this does not include any future natural gas reserves that we might acquire, this does not include future [indiscernible] generation or other acquisitions. This is based on we know and what you see is maintenance CapEx continuing out through 2019, ongoing recent expenses, you see Big Stone as I mentioned being completed this year. Then our Transmission System Infrastructure Project which ultimately really roles into overall infrastructure project and then I’ll identify hydro related capital on all of that so it’s a significant and now capital of 1.45 billion for 2015 through 2019 and we do -- and it’s a big funding this with the combination of cash flows aided by our NOLs and by long-term debt. So I talked more than you wanted to hear me talk and with that, we’ll open it for questions.

[Operator:]

Thank you. [Operator Instructions] We’ll take our first question from Paul Ridzon with KeyBanc. Please go ahead.

[Paul Ridzon:]

Just latest thoughts on potential timing of more net gas reserves and any progress that’s been made with MCC around the test?

[Bob Rowe:]

Good question, good place to share it. I don’t want to talk about specific project. I know you’re tired of hearing me use the metaphor kicking tires and my toes are getting sore. But there has been actually a significant change since we discussed this last call, and I described the test which essentially requires a showing of net customer benefit over a period of years and higher the price the more immediate have to show that benefit. And the challenge that I’ve described on the last call was essentially, the prices were very low but the curve was very flat, what’s happened since then prices are obviously still extremely attractive but the curve now does show pretty clear customer benefits. So we think this is a much better environment in which to pursue transaction and we’re still kicking tires, but kicking tire with more optimism that we could find transaction at the past webcast.

[Paul Ridzon:]

Thank you and any sense of the timing of when you’re going to need the increment peaking capacity?

[Bob Rowe:]

I’d say couple of since there we’ve filed our South Dakota electric plan it’s couple of weeks ago and that’s available online and that identified a need for online capacity in 2019 and there is a couple of year options that but we do have start some -- more serious planning well in advance and that might be around at 15 megawatt, in a number ways you can meet that need. Our folks did meet with the South Dakota commission staff and began decision of the plan. It’s a very positive process working with the South Dakota staff and we’ll expect to get a new [fresh] terms of answers. On the Montana side, we’ll be filing our plan at the end of this year and we expect we will be talking about needs there and as you’ve all probably seen our Montana light load, heavy load chart and our hydro acquisition does help us meet light load for the next several years. But we do have an unmet need for peak and even super peak assets. That’s something that we will be describing to the Montana commission and the plan when we filed that.

[Paul Ridzon:]

On the South Dakota side did you see in-service in 19?

[Bob Rowe:]

Yes.

[Operator:]

We’ll go next to Dan Eggers with Credit Suisse. Please go ahead.

[Dan Eggers:]

Just kind of from an economy perspective and with slowing and exactly you guys but in the region slowing, new kind of activity oil and gas drilling and ancillary jobs in activity, are you seeing that having an impact on load outlook or what we should be watching externally to see if it has any bring through FX to your folks?

[Bob Rowe:]

I think I’ll start and hand it off to Brian. We with good news bad news two years, we were pretty envious that we did not directly serve the Bakken and we kind of rent in South Dakota and certainly in Montana, now we’re not feeling maybe quite so badly about that. We do serve staging area really for the Bakken probably out of those states, but certainly out of Montana in places like billing. And there have been a lot of economic benefits in our service territory as a result of that, that I would say that generally the local economies are little more diverse. And one of the things I actually enjoy doing in January to travel around with the University of Montana Bureau of Business and Economic Research attending local economic events. Business, there is a lot diversity and energy in most of our local economies. There certainly are concerns about slowdown in the Bakken and that’s probably translates into not a lot of new activity but what we’re hearing is generally investing projects are much less likely to be effective. And as you get further away from the immediate impact areas again we've got -- we've been saying this for years we’re not flashy but it's steady and there are areas where there is really pretty tremendous growth, Bozeman is starting to look a lot more like both of the Bozeman, Big Sky area looking at a lot more like it did back in ‘06, ‘07 and actually one further comments there we started our DSIP project -- there was the right thing to do. But we started it at a time when we were not racing quite as hard as hard to keep with growth and now all the process and structure associated with their infrastructure program are in place they're working well and it seems that we're much better able to work to accommodate growth for receiving it.

[Brian Bird:]

I just add that we are seeing certainly upward pressure on new connects pretty much throughout the system. But as Bob pointed definitely in pockets and places like Bozeman and I don’t want to get people too excited that translate into a lot more growth because this is a utility that has pretty steady growth pretty much broader our economic cycle that we've seen. But certainly encouraged by the new connection information we're seeing in '14 and continued in '15.

[Bob Rowe:]

And any of you want to build or bisecting homes now it’s the time do and we guarantee you high quality affordable service.

[Dan Eggers:]

I guess your next question on bonus deprecation, what should we think about as far as the effective bonus this year both in the cash flow and then from an effect on the tax rate maybe this year out as you expect that cash were turning higher.

[Brian Bird:]

I think we see from a bonus perspective obviously is such [indiscernible] back to '14 and we saw the pick up there and since we didn’t consider that our guidance, we excluded as we discussed. We're doing anticipate much of a benefit of course as any bonus on a going forward basis. And quite honestly Dan I kind a wish government will quit doing bonus on going forward basis.

[Dan Eggers:]

Is it affecting the rate base and where we should be pay attention to or is it kind of small enough giving you tax position, we don’t need to think about it?

[Bob Rowe:]

I don’t think you need to think about on an ongoing base.

[Dan Eggers:]

And then just going back to the gas reserve conversation as you get them more comfortable with the test [indiscernible] line is to process when we could see kind of an agreement on a new map behind benefit. And then progression to perceptively announced projects and when those go to into rate based?

[Bob Rowe:]

I don’t think we need any new map with the curve if it is right now; this is a significant change from last fall. We think we are going to be able to do transactions that pass the test as it is. So that past challenge now is just moving forward and identifying projects and closing on it and then we bring those that initially through the existing gas frackter mechanism.

[Dan Eggers:]

Would you really mind if you didn’t get that $100 million committed this year that will be a disappointment now.

[Bob Rowe:]

Not the per unit prices for gap per share are much lower. But we view this is an ongoing process and we would certainly would expect that there would be a number of different transactions over a period of time.

[Brian Bird:]

I'd to add to that Dan is obviously there is an expectation that gas prices stay low. But from our perspective we've seen changes and how the curve works obviously the stop pointing out this would be an attractive. So I have to say that we'd be disappointed and not be one thing and we disappointed of things change with gas prices going up or they curve changing at us, I guess that’s great answer to that.

[Dan Eggers:]

So the shape of the curve was where you guys get the confidence relative to where you're seeing reserves for sales factor lease after difference.

[Brian Bird:]

Yes what I think in fairness Bob commentary on kicking tyres and always have to have a willing buyer and a willing seller at a reasonable price and that’s still something we need to consider.

[Dan Eggers:]

Are you finding people with this downturn and some cash insurance in the [MP] will be finding more interest in folk cutting deals and they were say six months ago or is that climate similar?

[Bob Rowe:]

Probably don’t want to comment on that.

[Operator:]

Over next to Brian Russo with Ladenburg Thalmann. Please go ahead.

[Brian Russo:]

Most lot of my questions have been asked and answered. But I was just curious since you stress in regional economy. What should we kind of assume in whether normalize low growth or customer growth?

[Brian Bird:]

At this point in time until we see that translate to any changes I'd continue to expect to see kind of 1% customer and lower growth as overall metric Brian.

[Brian Russo:]

Okay great and then you mentioned some keeping capacity that you might need in Montana. Can you quantify the amount of capacity?

[Bob Rowe:]

That should probably wait until after until we have worked through the plan. What I would say in addition to that I think I have mentioned our intent to do this before but we are undertaking kind of an optimization study of our Montana fleet and I think that's the first project to complete. So we understand what the fleet looks like operating together, what the opportunities are there and then that's quite point of several inputs into a Montana electric plant.

[Brian Russo:]

Would the unrecovered portion of David Gates as it stands now, did that feel the need for peaking capacity and are you going to include that in this optimization study?

[Bob Rowe:]

I can't answer the question about outcomes from this study but yes Dave Gates is along with the other Montana facilities is included in the study, yes.

[Brian Russo:]

And then when will that be filed and made public?

[Bob Rowe:]

Well the optimization study is something that we're doing internally because we even want to know what the total set of values is that we can achieve through the fleet. The Montana resource plan will be filed before the end of this year.

[Brian Russo:]

Okay. And do you mind commenting on any capital markets or external capital lease for this year?

[Brian Bird:]

Yes Brian I think it's -- in fairness we talked about our capital slide that we've shown in the past and on that slide pretty much talked about what we can finance this plan without any equity needs obviously if we were to do something with gas reserve standpoint that can make things a bit lumpier and we may need to have some equity to help finance that. I guess I would go on to say from our perspective always there is an opportunity for us to do some things on the debt side to kind of balance out our capital structure and we typically look at refinancing opportunities and things like that. So from a total capital markets perspective that runs the gamut.

[Brian Russo:]

Okay. And then lastly on the impairment that you are doing on the David Gates on a quarterly basis. Hypothetically if FERC chooses not to rehear the case, would that trigger an impairment or would it not because you will likely appeal in the Court of Appeals and then therefore?

[Brian Bird:]

I would say that Brian if they didn't hear it or if there was a negative outcome from the rehearing that doesn't help, so that doesn't necessarily result in impairment at that time as we continue to evaluate this on a going forward basis and obviously the optimization Bob’s talking about, something that we believe should help us mange to do that.

[Operator:]

[Operator Instructions] We go next to Brian Shin with Merrill Lynch. Please go ahead.

[Brian Shin:]

I am sorry if I missed this in the earlier prepared comments as I missed a part of the call. But is there a schedule out for the South Dakota rate case or can we get a sense of key dates coming up between now and interim mid '15?

[Bob Rowe:]

Just to recap that a bit and there is some information in the deck on the South Dakota filing. Interventions were due last Friday there were I think four interventions from industrial customers there is no procedural schedule yet.

[Brian Shin:]

Okay. Great. And then on Montana I know that there was some though of -- thinking about going in for rate case sometime in '15 or late '15 maybe '16 any better sense of timing as to how you are thinking about the timing of that process?

[Brian Shin:]

We really can't comment on that right now, no.

[Brian Shin:]

Understood.

[Brian Shin:]

Brian here, I would add on that is, we have said on earlier calls you might not have participated on those but we do typically view at the end of each year as we evaluate and where we have come out as we don't anticipate based on what this year's come up based on 2014 test year, we will be filing -- we will not be filing in Montana this year where we're obviously in the South Dakota case. We won't know when we would file next in any jurisdictions probably until this time period it maybe even up through into April of 2016.

[Operator:]

[Operator Instructions]. And there are no further questions at this time.

[Bob Rowe:]

Okay. Thank you all for your interest; look forward to seeing some of you at conferences over the next couple of months. And we will be speaking again next in April.

[Operator:]

Ladies and gentlemen this does conclude today’s conference. We thank you for your participation.