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NorthWestern Corp (NYSE:NWE)
Q4 2020 Earnings Call
Feb 12, 2021, 3:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Good afternoon and thank you for joining NorthWestern Corporation's Financial Results Webcast for the year ending December 31, 2020. My name is Travis Meyer. I'm the Director of Corporate Finance and Investor Relations for NorthWestern Energy. Joining us on the call today to walk you through the results are Bob Rowe, President and Chief Executive Officer; and Brian Bird, Chief Financial Officer. As most of you are aware, on Tuesday of this week, we announced several key leadership changes. So, we also have incoming CFO, Crystal Lail, currently our Vice President and Chief Accounting Officer for NorthWestern joining the fun today.

Crystal has been with NorthWestern for over 18 years and has played a huge role in shaping the company into the great organization it is today. Brian is handing out some big shoes to fill, but those of us who know Crystal, have no doubt she'll bust the toes out of those low offers. Just to be clear, that was a testament to our abnormal talent, not her very normal shoe size. [Operator Instructions] With that, I'll turn it over to the formalities. NorthWestern's results have been released and the release is available on our website at northwesternenergy.com. We also released our 10-K pre-market this morning.

Please note that this company's press release, this presentation, comments by presenters, and responses to your questions may contain forward-looking statements. As such, I will direct you to the disclosures contained within our SEC filings and the Safe Harbor provisions included on the second slide of this presentation. Please also note this presentation includes non-GAAP financial measures. Please see the non-GAAP disclosures, definitions and reconciliations included in the materials. This webcast is being recorded. The archived replay of today's webcast will be available for one year, beginning at 6:00 PM Eastern today, and can be found on our website at northwesternenergy.com under the Our Company, Investor Relations, Presentations and Webcast link.

With that, I'll hand the presentation over to NorthWestern's CEO, Bob Rowe.

Robert C. Rowe -- President and Chief Executive Officer

Thank you very much, Travis. Well, everyone, thank you for joining us. Wherever you are, I hope it's a lot warmer than it is in South Dakota or Montana, where the temperatures have been well below zero and we're pretty well locked into a multi-day cold period. But it's February, so what do you expect? I do want to start by thanking and congratulating both Brian and Crystal. Brian and I have been working together. In fact he gave me this factoid, the executive co-morbidity index, if you add up his tenure and my tenure, we are at a total of 30 years, the industry average for CFO and CEO is closer to eight. So Crystal, and I will be starting over and resetting the clock. As you already know, Brian is a tremendous leader of the company.

Several of you know Crystal, and she will do a great job. Brian is moving into a new position, that we haven't previously had and that's an important position. I would think about both these changes, as well as some others, as an indication of a healthy company that is good succession planning and looks out long-term, as to its people just as we do to our infrastructure. So this is a change that the entire executive team and the board is really very enthusiastic about. Crystal, my advice to you following up on Travis' comments is when Brian hands you that pair of kits, handle them delicately and wash them, before you even think about putting them on.

With that, let me turn to the highlights. Net income for 2020 was $155.2 million; it's almost $47 million or 23% less as compared to the same period in 2019. Diluted EPS was $3.06 and that's $0.92 or 23% worse than 2019. On the other hand, non-GAAP adjusted EPS was $3.35, which is within our guidance range of $3.30 to $3.45, and this is $0.07 or 2% lower than in 2019. The Board of Directors declared a quarterly dividend of $0.62 per share, which is a 3.3% increase, payable on March 31st to shareholders of record, as of March 15th. I'm very proud that despite COVID, despite all the challenges that were thrown at us working in very, very different ways last year, we had the best safety record ever and that was while having the busiest year on the capital fronts ever.

We've talked about our capital plans, of course, every quarter and had a very successful year in terms of investing back in the system and doing it safely and doing it, while keeping our employees healthy, specifically our recordable incident rate was down from 1.86 in 2019 to only 1.36 in 2020. And our lost time rate went from 0.58 in '19 to 0.39 in 2020. And obviously that translates into more people doing more work, but fundamentally, it translates into more people going home safely every day. So we're very proud of that and we had a great year in terms of customer satisfaction to our customers saw what our employees were doing in the community, saw what the company was doing in the community. That was really recognized and appreciated.

We've been talking about the competitive solicitation process in Montana for -- it seems like a very long time. We are reviewing the independent administrators analyses and we expect to announce the selection of multiple projects during the first quarter. And we do anticipate that at least one of our projects will be among those selected resulting in owned-capacity generation investment in Montana, in excess of $200 million over the next three years, assuming we do receive approval from the Montana Public Service Commission -- we'll be coming back and talking about some of these in much more detail.

Now Brian, off to you for your victory lap.

Brian B. Bird -- Chief Financial Officer

Thanks Bob. I wish it wasn't a COVID year for my victory lap. But with that, Bob talked about the financial outcomes in 2020. And net income was down on a GAAP basis, down $46.9 million or approximately 23%. You can look to that, approximately $47 million negative variance all on the gross margin line. Up at the top of page 4, you see gross margins down about $47 million or 5%. And when you think below on the P&L, we did a nice job in terms of managing expenses, matter of fact, operating expenses are down and that combined with favorable AFUDC in the Other income line were offset pretty much entirely by increased interest expense and a lower tax benefit in 2020. So we had a lot to do to overcome a difficult gross margin year.

And on page 5, we speak to that; gross margin down $47 million, as I mentioned -- about 5%. That was pretty consistent, down 5%, both for electric and gas. And as we describe to the -- bottom of that page, it was really a -- I'd break it down and really into five buckets, if you will. Electric and gas were certainly impacted by unfavorable weather; and then secondly, I'd say COVID impacted that. Those two of course were partly offset by customer growth. We also had a poor outcome or a disallowance on our PCAM, that's approximately $9 million. The first two I talked about were approximately $22 million in total. Below that, I really loved together the three things. We had a -- we did have a QF gain in 2020, but it was lower than the prior year.

We did have -- in 2019 we had a decent supply cost recovery primarily as a result of dealing with the deadband. So on a year-over-year basis that was a negative item. And then we had lower transmission revenues this year primarily from Units 1 and 2 being down this year. Those three things combine together for approximately $9 million. And then lastly, we did have a big Other here. And as we've mentioned on previous calls, we had some favorable items in Other in '19 and unfavorable in '20, these are primarily dealing with closed out trackers. But on a year-over-year basis, that was a $9 million swing. The total of all of those things is approximately $48.5 million. We did get a $1 million back, I guess in terms of gross margin. When you net it out, those items that impact gross margin that are offset elsewhere in the P&L for a net decrease in gross margin of $47.4 million.

Weather on page 6, it was a big driver. We estimate overall unfavorable weather in 2020 resulted in $9.8 million pre-tax detriment as compared to normal and a $17.1 million detriment as compared to 2019. And when you look at heating degree days, for instance, at the top of the page, it was certainly warmer than normal and again, the historic average and quite a bit warmer than last year. We did get some help from a cooling degree day, primarily in South Dakota, but I think you all know that's a smaller part of our business, and so we think there's much bang for our buck, if you will in the third quarter for that. And lastly, on this page, in the first quarter and the fourth quarter, we like to see a lot of blue.

Unfortunately in 2020, we saw a lot of red or orange color, if you will, is much, much warmer. Just to give you a bit a hint for 2021, you're going to see -- quite a bit of orange, I think in January, and you're going to see quite a bit of blue in February. So far in February it's been very, very cold as Bob pointed out earlier on the call. Moving forward on page 7, in terms of operating expenses this company and we talked about this on earlier calls, whatever we did see in a shortfall in margin, we would be managing our expenses to make sure that we did hit our revised guidance and did a nice job. Operating expenses were down $6.8 million or down 1%.

The biggest driver was a reduction in OG&A of -- over $20 million or down 6.6%. And we saw about -- still saw 4% increase in property taxes and depreciation and depletion. On the OG&A, the biggest driver is employee benefits -- think medical, but a good portion of that were certainly lower incentive for the company during 2020. Had lower labor costs, of about $4 million, think of -- just Bob talked about, our biggest year from a capital investment standpoint, certainly allocating more labor to capital. Hazard tree removal, we did such a great job in '19, really getting after that, we had less dollars in 2020. And then, as you know just less travel and other cost that you'd expect to see during a COVID year. We certainly took advantage of that, as well.

One area where we did see increased cost was on the uncollectible accounts. Even though we did get COVID Relief, if you will from the South Dakota Commission, we did not from the Montana Commission and that cost us a $3 million increase in that particular item. Net-net, the change was down $22.7 million in OG&A for those items impacting net income. Again, we had some things that impact OG&A, but are offset elsewhere in the P&L. Those totaled $1.6 million for again a net decrease in OG&A of $21.1 million. Mentioned the increases in property taxes, depreciation, obviously the biggest driver there -- on property taxes, changes in property valuations, as well. Moving forward to slide 8, just operating income down $40.7 million, about 15%; interest expense, slightly up from higher borrowings.

Other income, up from higher -- net-net, really from higher AFUDC and think of the build-out and you're seeing in South Dakota from a generation perspective driving that to a great degree that nets to pre-tax being down about $38 million or nearly 21%. And then below that, we had a lower tax benefit than the prior year and I'll speak to that in a minute. And again as we pointed out earlier in the call, net income, down $46.9 million. So, moving on to taxes on slide 9, at the bottom of the page, you see the income tax benefit in 2020 was $11 million, compared to $19.9 million benefit in 2019. So, a reduction in benefit of $8.9 million, that was driven and you can see as you move up the page, about halfway of the page, the biggest driver there was in 2019, the release of unrecognized tax benefit of $22.8 million. That was partially offset by really three items, think of lower pre-tax income resulting in lower federal income taxes, the $8 million you see there and lower state income taxes, the $2.7 million.

And then I'd argue just with the increased capital work, we also had higher capital that qualify for tax repairs, that increase of $4.1 million helped offset last year's big benefit, again a net reduction in benefit of $8.9 million. Moving on to the balance sheet, I think all I'd say I really focused on the capitalization rate at the -- really at the bottom of the page. We were definitely up in short-term and long-term debt. In 2020, we did delay equity needs that we had in 2020. And we'll talk about that and kind of 2021 moving forward. And as a result of that delay, really our debt to cap did go up from 52% up to 53.5%, but still certainly within our targeted range of 50% to 55%. Moving onto the cash flow statement on page 11, cash flow from operations are up about $55 million, that's primarily due to better supply collections this year.

And then also in 2019, you may recall, we had TCJA refunds. We also had some generation interconnection refunds, that big improvement. But that was over $100 million. Those three changes, that's reduced by the reduction in net income we talked about earlier, resulting in a net increase if you will, on cash from operating activity is about $55 million. Bob talked about a big year from cash and investing activities, you can see that approximately a $90 million increase there and just higher investment and we expect it to be at this higher level investment and hopefully, even higher when we speak to generation in '21. And then at the bottom of the page, cash provided by financing activities, certainly higher debt was a driver there.

Moving forward on page 12, we had a slide in here just on taxes. Just wanted to point out, we are using up NOLs. And we do expect those NOLs to carry over into 2021 and -- but because of PTCs and other tax credits that we have, we don't expect to be cash taxpayer until 2024 and also want to point out and as we'll say elsewhere that we expect the effective tax rate to kind of hover around 0% either minus 2.5% to up to 2.5% range, ETR on pre-tax income. And then over time, we expect that ETR to gradually increase until the time we get to 2025 somewhere in that 10% to 12%. Moving forward on adjusted non-GAAP earnings on slide 13, first of all, I should point out, what were the things that were non-GAAP, if you will. We did add back unfavorable weather this year and we did add back the PCAM disallowance.

In '19s results, we added -- we actually removed favorable weather and we removed the unrecognized tax benefit. As a result of that in 2020, our $3.06 diluted EPS increased by $0.29 to $3.35. And we compared that to $3.42. That's again adjusting the 2019 GAAP of $3.98 for those items I mentioned, it's down to $3.42. The difference between $3.35 and $3.42, $0.07 or down 2% on a year-over-year basis non-GAAP. If you look at kind of how we compare those non-GAAP items through the P&L itself, gross margin at the top of the page, down about $21 million, and we look at it on a non-GAAP basis, think half of that really being COVID. You could also see though that from an OG&A perspective, we offset that gross margin detriment, really an OG&A reduction of $22.8 million.

But we certainly couldn't do enough to cover the increase in property taxes and depreciation. We did manage to do as we point a good job in terms of increasing other income and a decent tax benefit, again, when you look on a non-GAAP basis year-over-year, but net-net, we got back to still falling short about $3.9 million, or again 2% detriment on a year-over-year basis. Slide 14, in terms of forecasting load itself we did all right on the residential side, but we're still seeing commercial and industrial lag a bit. They seem like quite a bit of difference if you will, from a volumetric perspective, I'll grab that to you. But if you move on to the next page, page 15, and focus on the impact of the fourth quarter from a COVID perspective, it was rather flat for us. We saw a similar detriment in gross margin that we saw in the second and third quarter -- in the fourth quarter, but the recovery that we did see on uncollectible accounts we were able to collect from customers for a period of time before we entered into winter rules.

And again, continued reduction in labor and travel and others. Net-net, we really just kind of flattened out to really a minimal loss to reflective, I'd just say, zero, if you will for the fourth quarter. But for the full-year basis, see a total $8 million to $11 million detriment in gross margin. Total operating expenses were down $2.4 million, but in that number was again an increase in uncollectible accounts that had we got an accounting order, we would have actually reduced that to zero as well. But even with that as a backdrop, little bit different interest expense and better taxes just to calculate what we would have seen on a GAAP basis. On an after-tax, we saw a loss about, I would argue, $5 million to $7 million or $0.09 to $0.14 is associated with COVID.

Back to the $3 million uncollectible accounts, I think we've been saying all along, if we didn't get an accounting order from the Montana Commission, it would be about $0.05. That $3 million is approximately $0.05. And instead of being in the bottom half of our earnings guidance, on our revised guidance, we would have been in the top half and we have been able to achieve that. Last thing I'd say, Bob referenced this upfront, I think when you consider the -- a lot of concerns about COVID and how it can impact our capital spend, impact our supply chain, the company operated extremely well. Bob mentioned safety, but to deliver on the biggest capital spend we had and really pull that off this year, it gives us a lot of confidence going into 2021 with even an increased level of capital spend.

So, feel good about the operations of the company at this point in time. Moving on to 16, the 2020 non-GAAP to the 2021 EPS bridge starting with the $3.35. We range it low to high up to $3.40 to $3.60. I'd acknowledge that that's a pretty wide range and some of you have picked up. We'd like to tighten that, but we want to follow how things are going on COVID. In 2021, one thing I should point out in the bridge itself, there is a big, big leap in gross margin there, $0.39 to $0.54. I'd really kind of put that in the three different buckets. And I'd argue that they're about a third of -- a third of third. And first, take organic growth as being that first third. I think second third would be a partial COVID recovery. I think commercial, industrial, and I would argue some transmission get back as well during the year and the last third is trackers.

You guys know property taxes are going to be ongoing up and we're going to get recovery of those property tax, a portion of those property tax increases in margin. And I think also, there is -- was a drag, if you will, on other in 2020 that we don't expect in '21 and that would be part of that last third, if you will, along with the increases from property tax trackers. We do have our assumptions that go into our 2021 guidance in the bottom of the page. Of course, you know these well, normal weather. We do expect COVID is going to be with us till the second quarter and expect to see more normalized look in the second half of the year. We have a consolidated income tax rate, as I mentioned earlier, minus $2.5 million to positive $2.5 million and then diluted average shares ranging 51.5 million to 51.8 million.

I'd focus on that last one for a second, I think there is maybe been some concerns about announcing $200 million of three-year ATM program, obviously going from our share count where we sit today to this range. We're not planning on issuing $200 million of equity in 2021, that is a three-year look. I'd also remind folks that we did not issue equity in 2020, and we had discussions with the rating agencies in light of where our price was, and we have seen some rebound in our price. We do expect to be issuing equity in 2021 and some of that snow block from '20 and some, of course, with our needs. But -- I want to reiterate the $200 million is over a three-year period. Last thing I'd just say on equity, and I know Bob will see it in the slide here coming up, as well. If in fact we are fortunate up to win in the RFP, and make an investment there after a pre-approval, we're going to need to raise equity for that, as well.

Anything associated with that, Montana generation is not built into our numbers either our capital or our equity and debt needs at this point in time. So with that, I'll go to my last slide, slide 17. We have diluted EPS at the top of the page, and an even with obviously 2020 had a reduction in GAAP and non-GAAP earnings, even with that the average growth rate over this time period was 4.3%. I'd also point out that the midpoint of our 2021 guidance versus our year-end '20 on a non-GAAP is a 4.5% increase. So that's in line, if you will, with kind of the average we've seen over this time period. I'd also say that regarding the dividend itself, I'd say, the projected $0.08 increase for a full year in dividend is a 3.3% increase.

I would grant you that that's quite a bit less than the 6.7% you've seen on an average growth rate. But I'd also tell you that it's our expectation that we're going to grow that dividend in line with our earnings growth rate on a going forward basis. And I guess that would lead me to the red box at the bottom of this page. We do expect to see a 4% to 5% growth in rate base, a 3% to 6% EPS growth over the long term. And one thing I'd say about that, as we've said before at this higher level of capital spend that we're currently seeing, we expect to -- as we get recovery of that investment through rates, we expect to see ourselves in the middle of that range.

And again, if we're so fortunate to see some success in the Montana RFP, we'd expect to be in the high-end again, upon getting recovery or a pre-approval, if you will, as we make those investments. Last thing, I'd say on this page is, we want to maintain that 60% to 70% dividend payout and I think that's one of the reasons you saw us assert -- it's a huge reason is why you saw a lower increase in the dividend, than you have in the past, but still a strong dividend, up $0.08. I want to make sure that we stay within that range on a going forward basis and expect that we will, as we continue to grow the earnings of the company.

And with that, I hand it back over to Bob.

Robert C. Rowe -- President and Chief Executive Officer

Picture Brian dropping the mic right there. Brian, it's been great working with you as CFO over these last 12.5 years or so, and I'm looking forward very much to working with you as COO. Just to show you how seriously Brian is taking his new role is --he's now driving a large pickup appropriate to his new position. And as you get to know Crystal, you will find out that she is much more inclined toward jeeps and classic pickup trucks then she is toward those exotic German sports cars that most CFOs drive. I think the last quarter, I talked about how much we we're all looking forward to 2021 in terms of the opportunities ahead of us. I would say that speaking for myself, but I think really for the whole executive team and the Board, we are more enthusiastic, optimistic about our ability to do good work for our customers that has been the case in quite some time.

And that is reflected among other things in the amount of capital work that we have planned for this year. We told you in our last call that our total capital forecast five years is $2.1 billion. And as Brian mentioned, we expect to finance this with a combination of cash from operations first mortgage bonds, equity issuances through a three-year, as Brian said ATM program; financing obviously subject to change, depending on capital expenditures, regulatory outcomes, internal cash generation and other factors. The plan that we depict does include some significant and important generation projects in South Dakota, as we've talked about, there -- we were really able to move from idling our plan to consulting with the Commission to making the investments very efficiently. And we have project under way at Aberdeen.

And even further along at Heron -- the capital forecast here is really spread across all aspects of our business. Just as an example, we successfully commenced operation of our AMI system in South Dakota, this week, we had a great kick off of the AMI team in Montana, that's going to be a substantial investment and operational opportunity over the next 3.5 or so years. And again, we're looking forward to moving ahead on that. The five-year plan does not include incremental generation in Montana that might come out of the RFP. We do have ongoing investments in the hydro system, as we continue to optimize the -- that great asset for Montana. So just to press rewind for a minute on the Montana RFP, last February going into COVID, we did undertake a competitive solicitation for up to 280 megawatts.

And as I've described, the solicitation was in three tiers, long duration 20 hours, intermediate 10 and short 5, bids were submitted on behalf of a wide variety of generating facilities in excess of 200 megawatts. We do expect that at least one of our projects will be among those selected and that should result in additional own generation capacity in excess of an additional $200 million. Again, that is not included in the plan that would be an investment over a three-year period, assuming what we do, we receive approval from the Montana Commission through the statutory pre-approval process, that's available in Montana. And then again, we've continued on cost-effective upgrades to the hydro facility, including generate rewind turbine upgrades, and other improvements.

It was impressive that a lot of that work was able to go forward during the COVID year, as well. And we tend to enter into the Western Energy Imbalance Market this spring. There are challenges certainly around recruiting and training during COVID, but we do expect that -- we're quite confident that we'll be able to move ahead this year on that project this spring, I should say. And there will be advantages in terms of efficient operation and lower costs. We've talked before about, we had a very good experience and seen real customer benefits moving into SPP, out of South Dakota. Now, this is not -- the EIM obviously, is not a full market. So we don't expect to see benefits of that magnitude. But we are looking forward to seeing real benefits there.

In South Dakota, just a little more detail, we do have -- we're well under way on the 60-megawatt project in Heron, and those are the so-called rice units. We expect those to be online late in 2021. That's been a very smooth project, and that's about $80 million, $40 million in 2020 and the rest going forward. That is, again, reflected in the capital budget that I shared. And in addition to that, we're well ahead in planning an additional 30 megawatts to 40 megawatts of flexible generation at Aberdeen. Expect that to be online in 2023, and that's approximately $60 million. Again, these South Dakota investments are identified or under way and are included in the capital budget.

Other regulatory items, to provide a bit of an update. As you recall, the Montana Commission did approve a fixed cost recovery mechanism, aka decoupling originally to be effective in July of 2020. Because of COVID and the asymmetric patterns we were seeing between customer classes, we did ask the Commission to delay that until July of this year, and the Commission agreed. So we will -- we expect the FCRM to take effect next summer. At the same time, we were wrapping up our Montana rate case successfully. We did file a FERC Transmission Rate Case, and real thanks to everyone who worked on that through all series of settlement meetings, most of which had to be conducted online because of COVID. We did reach a settlement agreement that was filed in November.

And as of end of December, we did have cumulative deferred revenues of about $31 million and the refunds have been executed on that. We refunded about $20 million to our wholesale and choice customers in January. And then we expect to submit a compliance filing with the Montana PSC adjusting for credit in our retail rates upon receipt of a final order. Notable out of the FERC case, we're moving to, call it, a modified forward test year, and there will be much better harmonization between prices in -- or costs recovered in Montana and recovered at the federal level, which will address a potential gap that we did see there. And then finally, in this category, each year, of course, we submit tracker request for recovery of purchased power, particularly our purchased power in natural gas and then also property taxes in Montana.

The Commission review these. Often, they are relatively straightforward filings. In Montana, unfortunately, in October, the Commission voted to disallow $9.4 million in purchased power costs over the prior period. And we've issued refunds associated with that also in January of this year. And we have -- as we've discussed on previous calls, we are extremely concerned about the implications of that order and do not agree with it. But it is for a past period, and we're certainly looking forward to working with the new Commission going forward. We've been doing a lot of work around ESG. Brian heads our internal ESG committee, and actually, everyone on this call is very active contributing to that. We think we've got a great story to tell on all three letters of that particular half of it.

And among the key initiatives, we have a new landing page, consolidating all of the existing ESG information. That includes disclosures of '19, in some cases, new, in some cases, existing policies and standards that are associated with best ESG practices. We've also included a new easy reference sustainability statistics report to disclose the 5-year trend of operational and financial ESG data and statistics. So do encourage you to go to the link -- to the webpage at the bottom of the page you're looking at right now. So we really do continue to make very good progress, most notably, the substantial improvement you'll see in the MSCI rating from BB to an A.

A couple of other notable things here, along with the investment in systemwide electric vehicle charging, and we've got good projects under way in South Dakota. And we're hopeful in Montana as well. We've also committed to a thoughtful transition in our own fleet starting in 2021. Initially, we'll be targeting about 30% of light-duty and bucket trucks and 20% of medium and heavy-duty to be electrified by 2030. So again, in summary, a great year despite the challenges from an operational, safety, customer satisfaction perspective in 2020 and laid the foundation, we believe, for a particularly good year in 2021.

And with that, we'll take your questions.

Questions and Answers:

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Thank you, Bob. [Operator Instructions] We'll take our first question from Andrew Levi [Phonetic]. Andrew, your line is open.

Andrew Levi -- Analyst

Hey, I did it right?

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Good job Andy.

Andrew Levi -- Analyst

How are you guys doing?

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Good. Thank you.

Andrew Levi -- Analyst

So I have a couple of things. Firstly, I just have to say, it's Friday and a long weekend, and it's 4:10. So you guys remind me of Hawaiian Electric if that's a joke between -- portfolio management.

Robert C. Rowe -- President and Chief Executive Officer

We don't get Monday off, shame on us.

Andrew Levi -- Analyst

Okay. But maybe you want to rethink things at. But I know it's like around your Board meeting and all that stuff. So anyway, that's my complaint. As far -- I guess, I had nothing to do anyway about those schemes. So as far as you guys are concerned, just a couple of things I've been thinking about. Just first, on a very high level, just looking at COVID and your guidance, how much have you kind of put into your '21 guidance as a -- I don't know if I want to call it a dip, but kind of negative effects of COVID?

Robert C. Rowe -- President and Chief Executive Officer

Ongoing COVID, yeah. Brian, you're ready for that one?

Brian B. Bird -- Chief Financial Officer

Yeah, I would just say this, Andy, is we kind of backed off our thoughts for the first half of the year expect to receive COVID linger to really through the first two quarters. The first quarter certainly is a big quarter; second, our lightest quarter, typically. And we do expect by the summertime, things are going to be in much better spot. So that's our expectations.

Andrew Levi -- Analyst

No, I understand that, but I'm just saying like financially. I guess how much of a?

Brian B. Bird -- Chief Financial Officer

Financially, that's how we're looking at margin. That's how we're looking at expenses.

Andrew Levi -- Analyst

But is it like $10 million? I'm just trying to figure out like if you were in a more normalized environment, let's say 12 months from now, what would we be adding back?

Brian B. Bird -- Chief Financial Officer

Maybe one thing would be helpful, Andy, is we did give quite a bit of detail, if you will, for quarters two through four this year in terms of how it impacted our P&L. And if there's an expectation, we're going to see some of that impact us for the -- certainly, for the first half of this year. That's how I think about it. And then obviously, if COVID's not here and think about organic growth on top of that, that's how things should start unwinding, if you will, out of COVID.

Andrew Levi -- Analyst

Okay. And then on the IRP process where you talk about potentially $200-plus-million that you feel very comfortable with. So I get that part. Can you just talk about like the part that is kind of unknown at this point and if there is the possibility for more than that stated capex?

Robert C. Rowe -- President and Chief Executive Officer

What I would say is that in the current RFP, we're actively involved right now in finalizing what we'll take forward to the Commission, and we're comfortable that we will have a project as part of that, that will take us over the $200 million threshold. That takes down a part of our customers' exposure to the market, but we didn't include it in this deck. But as you recall, we are -- our customers in Montana are over 45% exposed to the regional market. So we expect that there will be a subsequent RFP. We haven't made decisions about timing, but this is real stuff. This isn't just a policy debate. And I'll say just a little bit about how the system is operating today. Fortunately, we own gas transmission and storage as well as electric transmission and generation.

And our folks are doing a fantastic job coordinating with one another but we are on the market, and we don't want to be on the market nearly as much as we are. It's a price risk, and it's even a supply risk. And this is something that can happen in Montana, pretty much any time of the winter, but it can also happen in August. So we're very pleased to be moving ahead with the RFP right now, but we do expect we're going to be going out relatively soon over the next several years with a subsequent RFP to continue to take down our customers' exposure to a market that you just really do not want to be in.

Andrew Levi -- Analyst

Okay. I understand. So the way I had read it was that you had a lease to -- whether it's a project or two projects, whatever it may be through the RFP, but there were still like unknown relative to this RFP, but you're really talking about future RFPs where there could be continued upside. So I get that.

Robert C. Rowe -- President and Chief Executive Officer

Yeah, we believe there's well -- there has to be upside in the current, but again, the future RFP is going to be very important, too.

Andrew Levi -- Analyst

I understand. And then, I guess, I don't know if I want to say whether this RFP or future RFPs, what are you guys thinking as far as like solar/storage as an opportunity and whether that makes sense within your service territory as a way to get some of the shortfall?

Robert C. Rowe -- President and Chief Executive Officer

Yeah. They have a rule. And one of the reasons that the RFP was structured as it was 5 hour, 10 hour, 20 hour was so that resources of different kinds could participate, and in fact, that has occurred. A great place, if you want to dig a little bit deeper into how these things behave on our system, is a filing our supply planner has made with the Montana Commission in December. And there's a really robust discussion of different kinds of resources and their effective load-carrying capacity, or ELCC, contributions of resources and -- but actually, it's one of the best things I read last year. So there is a place, but you've got to be, I think, practical about what that place is. And remember, on our Montana system right now, we are pushing -- we're not quite there, but we're pushing 70% carbon-free. And we've got about 450 megawatts of wind on our system right now. And unfortunately, today, when we need it most desperately, the production is negligible. So it's a long answer, but I think that's the best way to think about it. And I really would encourage you to take a look at the this December supply supplement?

Brian B. Bird -- Chief Financial Officer

Hey, Bob, Bob, I'd like to just add one thing, too. I think, obviously, we wanted to participate in this RFP for build that's going to take place in the 2022-2023 time period. There'll be, as Bob pointed out earlier in the call, another RFP maybe late this year, early next year, and that would be for builds in the '24-'25 time period. And we'd like to think we're going to have an opportunity to participate in that as well. So I just want to make sure that people understand there's really going to be two of these coming.

Robert C. Rowe -- President and Chief Executive Officer

Okay. And just one more comment there. If you look at, again, at the 5-year capital forecast and think about how any kind of future project might be layered in there, I think that's quite positive as well.

Andrew Levi -- Analyst

Okay. And then this question's for Brian. I should have said at the beginning, congratulations, Brian.

Brian B. Bird -- Chief Financial Officer

Thanks, Andy.

Andrew Levi -- Analyst

Very proud of you. You're almost there. You're almost in the Executive suite. We're actually here in the Executive suite, but the CEO office. You're almost there. So let's see. As far as the financing plan, it's very straightforward, OK? So I understand it. The one thing I just don't really understand, though, is why are you doing an ATM versus just issuing. Because look, you give us your shares outstanding. So it looks like you need about 75 million of equity this year, give or take, right, which is like 1.3 million shares why not like just issue it to us? Because your stock trades traded 271,000 shares today. And in general and that was all on the close really by like 3:00, and it traded like 160,000 shares. It's going to take you like all year I'm exaggerating, to do it. But like whether it's me or some other people like me, we could easily take down your shares at a small discount, and then you wouldn't have this affecting the performance of the stock because, truly, I believe it can because the stock unfortunately trades so thinly, as do a lot of utilities at the current moment because of the way the market is.

Brian B. Bird -- Chief Financial Officer

I appreciate your view, Andy. I would tell you this we've had great success with ATM in the past. And in fact, we have quite a bit of build, as you know, both from the generation side in South Dakota and our current plan in terms of capital needs. I would tell you this that the ATM, like I said, served us well. We're bullish on our share price that it's going to be going up over this time period. There's another reason we like what we're doing here. But I'd also tell you nothing precludes us from doing anything else. If something better comes along, it makes sense for us to issue shares. We could possibly do that as well. But right now, the plan is to -- over a three year period is to raise that $200 million to meet our current needs.

Andrew Levi -- Analyst

And just to understand, through your ATM, I mean, I guess from what you're saying is if someone wanted to come and make a bid, I guess, for no better way to put it, I don't know that's not the right term, if you take down a block -- a small block of your stock, I guess that is -- that could be part of the ATM as well.

Robert C. Rowe -- President and Chief Executive Officer

I'm just saying we have flexibility to either use the ATM or something else, if something else better comes along.

Andrew Levi -- Analyst

Got it. Thank you.

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Thanks Andy. [Operator Instructions] We'll take the next question from Michael Weinstein at Credit Suisse.

Michael Weinstein -- Credit Suisse -- Analyst

Hey, guys.

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Hey, Mike.

Michael Weinstein -- Credit Suisse -- Analyst

So to follow up on Andy's questions, in terms of what you're thinking about rate cases in Montana going forward, considering 2020 as a test year, I guess, if you were going to do it this year? And 2020 is a funny year, right? So I don't know if that's really -- yeah, I'm just wondering what your timing is looking like. I think, normally, you provide an update in April, right, but?

Robert C. Rowe -- President and Chief Executive Officer

Yeah, and I can confidently say that we eventually will file a rate case in Montana. This year, I think our focus will -- it will be an all hands on deck focus. It will be on the preapproval filing associated with the supply plan implementation.

Michael Weinstein -- Credit Suisse -- Analyst

Right. So that would be the primary focus of this year will be the preapproval. That's going to take most of the year?

Robert C. Rowe -- President and Chief Executive Officer

I think realistically, they're -- once they determine the filing to be sufficient, they're on basically a 9-month shot clock.

Michael Weinstein -- Credit Suisse -- Analyst

Right. And then I wanted to see about the -- about the transmission rates, do you have the ability -- let me see here, not the transmission, but the disallowance on Colstrip. Is that final at this point, I mean, the $9.4 million? I mean, I guess it's been a couple of years in the making.

Robert C. Rowe -- President and Chief Executive Officer

It is final. Yes.

Michael Weinstein -- Credit Suisse -- Analyst

Yeah, and is there a reason why Montana is just a final analysis just thought that you didn't deserve recovery of that? I mean, it sounded like -- the explanation you provided sounded pretty reasonable. It's not your fault.

Robert C. Rowe -- President and Chief Executive Officer

We certainly thought so. And Crystal was one of the key witnesses in that proceeding. There were basically two questions. One had to do with whether the outage associated with taking the plant down partially for environmental compliance was in some way imprudent when we went to the market to procure replacement power; and then, secondly, the timing of elimination of the deadband under a statute that was passed. We were very concerned, disappointed and strongly disagreed with what the Commission decided. But it is now a past period, and we are not appealing. We are, on the other hand, really focused on working with the new Commissioners, the new tariff, the Commission to continue to improve things.

Michael Weinstein -- Credit Suisse -- Analyst

In fact, on that subject, the new Commission makeup of it looks like there might be some chance or some room for improvement in terms of regulatory treatment going forward. Do you have any comment on what kind of -- I guess what the new priorities might look like going forward? In the past, there's always been sort of this legislative focus on making sure cold jobs are maintained in the state. Is that -- has any of that changed going forward, do you think?

Robert C. Rowe -- President and Chief Executive Officer

What I would -- first, a comment about the Commission. We -- obviously, you've got a fantastic relationship with the South Dakota Commission that translated into being able to invest to serve our customers there very efficiently in Montana, and we want to have the same kind of relationship with the commissioners with the staff and then, ultimately, of course, with the consumer council as well. Most of the Commission's decisions that we're concerned about are driven by advocacy from the consumer council. I'm impressed by the new -- the two new Commissioners, very impressed, and believe that they're going to be strong additions to the Commissioners who are returning. Chairman Brown is a lawyer. He's got a graduate degree in tax. He's spending a lot of time, my impression is, on really managing the Commission and the process, and that's something that's extremely important to him.

At the same time, our legal and regulatory folks are reciprocating, working with their counterparts at the Commission. That's all very positive. We've had a number of good informational meetings. Even in COVID land, had a very substantive overview of the company with the two new Commissioners going back to December. We had, in January, we had, I think, an excellent presentation by our supply leaders to the full Commission really focusing on the peak deficit, the exposure to the regional market and what we hope to bring out of the RFP. They were very, very engaged. They understand the concerns and are, I think, committed to addressing them in a couple of weeks. We've got an overview of our financial operations. And the two areas where I think state Commissioners really need to focus to be successful in their jobs as far as I'm concerned are operations and finance. So I understand how their decisions affect our ability to do our job. So very encouraged by all of that.

The other thing I would say on a larger scale in Montana is that for the first time in many, many years, there's a political alignment between the governor, the legislature and the Commission. Governor Gianforte, he is a very successful entrepreneur. He founded right now -- technology is ultimately sold back to Oracle. Oracle has continued to invest in Montana. And I've made the point, he would not have been able to create so much wealth and value in Montana if that company had been subject to the kind of challenges that we've been subject to at time. He is committed to investment in the state's essential infrastructure. He certainly is committed to maintaining the viability at Colstrip as a key asset for its useful life. In the legislature, the Republican majority has actually increased. They work very closely with the governor. And then at the Commission, we talked about, I think, very strong additions that the two new Commissioners will be for the Commission is important to work.

Michael Weinstein -- Credit Suisse -- Analyst

Yeah, I guess it's just striking to me that the write-off, you have to write off purchase power cost for an outage at Colstrip that, that would be a perfect illustration of why reliance on the western market for purchases is a problem. It's sort of inconsistent, I guess, with the view, the prevailing view that has been in the state about ownership of generation at the utility. And I'm just wondering if that is -- if that's changing going forward.

Robert C. Rowe -- President and Chief Executive Officer

I would say that, if anything, there is a greater appreciation of the value of owned generation as part of the portfolio. And we don't -- for perspective, we own less of our generation than do many companies, particularly in the non-organized market. And we talked about how vastly more exposed we are to the regional market at peak than any of our peers. And again, looking out the window, it's beautiful, but it is snowing and it is below zero. And I would be much, much more comfortable if we had control of more of our own resources to serve our customers.

Michael Weinstein -- Credit Suisse -- Analyst

Makes sense. Congratulations, Brian and Crystal. And thanks and I'll leave it there.

Robert C. Rowe -- President and Chief Executive Officer

Thanks, Mike.

Brian B. Bird -- Chief Financial Officer

Thanks, Mike.

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Thanks, Mike. We'll take our next call from Jonathan Reeder of Wells Fargo.

Jonathan Reeder -- Wells Fargo -- Analyst

Can you hear me now?

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Yup. Sure can, Jonathan.

Jonathan Reeder -- Wells Fargo -- Analyst

Don't want to torch you up. Actually, it's Aster you called on.

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Okay, I didn't know. Thank you.

Jonathan Reeder -- Wells Fargo -- Analyst

Yeah, no, we're all in the new system today, right? So, appreciate all the color so far on the call. You were kind of almost getting into it, I thought, with the last color there, Bob. But what are your thoughts on some of the bills that have been introduced in Montana this year? I think there's one that we get rid of the preapproval process, while another would expedite the time that the MPSC has to authorize preapproval. Where do you think those head this year? And how does that impact the current RFP and the future RFP plans?

Robert C. Rowe -- President and Chief Executive Officer

Yes. Very directly, I think that the bills, quite honestly, the bill sponsored by the majority are much more likely to go forward than the bill sponsored by the minority. And the bill clarifying the current preapproval process is much more likely to go forward. I believe actually the bill eliminating preapproval either has been or soon will be tabled, which is appropriate. And a number of other bills we're paying attention to are ones, for example, that were passed in previous legislation -- previous legislators and then unfortunately, were vetoed. And in fact, the preapproval bill, the preapproval repeal bill has already been tabled, and we feel very good about that. So it's -- I think there's an opportunity to do some things in this legislative session that will allow us to better serve our customers. And that's very important.

Jonathan Reeder -- Wells Fargo -- Analyst

That's interesting to make the comment about ones that have passed but then or vetoed. Are there any that fall in that bucket that we should be particularly aware of? I'm trying to think back to past legislative sessions what they might have been.

Robert C. Rowe -- President and Chief Executive Officer

Two that come to mind immediately. One of the legislature prohibited subsidies in that metering. It didn't prohibit the metering. It's simply prohibited cross subsidies from one group of customers to another. And unfortunately, the previous governor vetoed that bill. I'm certainly hoping that there will be progress to make net metering a fair and sustainable program, something that we can support and, in fact, make available to our customers without harming other customers.

The second bill that was approved in the previous session and vetoed was the community renewable energy portfolio standard. And that we had found to be really unworkable. The challenge is projects to qualify as preps has to be both below a certain size and not -- and meet the cost threshold to serve our customers. It's very, very difficult to meet both thresholds. So it's been a big distraction for us. We have managed to get most of the way to our -- requirement, but we certainly believe that modifying or eliminating that requirement would be a substantial step forward.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay. And then the only other question I had was on the Montana decoupling pilot that goes into effect in mid-'21. Remind us, will we see the true-up to normal flow through the P&L in the second half of 2021 or does it not occur until the end of the 12-month period?

Robert C. Rowe -- President and Chief Executive Officer

I'm going to put Crystal Lail on the spot to answer the first question in her new role. She was close to that.

Crystal D. Lail -- Vice President and Chief Accounting Officer

Thanks, Bib, throwing one my way. Yes, the FCRM, we expect at this point still to implement that pilot beginning in July, and we will report that. You'll see it in our earnings on a quarterly basis.

Jonathan Reeder -- Wells Fargo -- Analyst

Okay, great. Alright. Thanks. That's all I had. Appreciate you taking my questions.

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Thanks Jonathan. We will take our next call from the line of Ryan Greenwald at Bank of America. Go ahead Ryan.

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

Good afternoon guys. Can you hear me

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

We sure can.

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

Congratulations to both Brian and Crystal.

Brian B. Bird -- Chief Financial Officer

Thank you, sir.

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

So assuming you guys are successful with some of the generation projects in Montana and you guys get the preapproval, how would you kind of frame equity needs on the dollar of additional spend from here?

Robert C. Rowe -- President and Chief Executive Officer

Brian?

Brian B. Bird -- Chief Financial Officer

Yeah, I'll grab that one. I think I would just assume for practical purposes, it's a 50-50 capital structure associated with that.

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

Got you. And then just -- maybe just lastly, given the discrepancies in valuation across the space and where you guys are currently trading, how are you kind of framing consideration for anything strategic from here?

Robert C. Rowe -- President and Chief Executive Officer

That was an artful way to put the question. What I would say is we are really focused on the opportunities right in front of us. Brian, do you want to take that one this time?

Brian B. Bird -- Chief Financial Officer

I'll grab this one, Bob. I think from my perspective, we certainly think we are undervalued. We're certainly not three turns worse than our peer average, as some people have us today. And I think our the best thing we can do is increase the value of our company, and that creates strategic opportunities down the road, and we'd be better positioned either way in a stronger position. And right now, our share price, certainly relative to our peers, isn't where it should be.

Robert C. Rowe -- President and Chief Executive Officer

And again, going back to focusing on what's in front of us, if we're able to invest and if the financial community is more comfortable with Montana, ultimately, that's good for the company and very good for the customers.

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

Great. Thank you guys. Have a great weekend.

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Thanks Ryan. It appears as though Andy Levi decided this was more fun than skiing after all and looks like he raised his hand again. Andy, do you have another question?

Andrew Levi -- Analyst

No, just on the last question, like the strategic question, like, just like very logically, like looking at where your stock price is, where your P/E ratio is, I mean there's nothing you can do. I mean you could. You could do like some like crazy dilutive deal. But I mean, I guess I would view you as something that somebody would be kind of looking at. I understand you guys aren't looking to do that and you want to get your value. But there's really -- based on your stock price, there's really nothing strategically you can do. Is there?

Robert C. Rowe -- President and Chief Executive Officer

And I would answer that by saying, where are you going skiing this weekend?

Andrew Levi -- Analyst

Okay, that's fine.

Brian B. Bird -- Chief Financial Officer

Yeah, Andy, great commentary, but we're just going to take that as no question. So I appreciate your opinion.

Robert C. Rowe -- President and Chief Executive Officer

I will tell you as soon as [Indecipherable], I'm going to go out and play that.

Andrew Levi -- Analyst

Well, you start look, if you look at kind of the latest 13-F, I want your stock price to do well, but absolutely. And I think it's super, super cheap here, but I don't want people to think that you guys are out shopping for something.

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

All right. With that, it looks like we've exhausted our Friday afternoon queue. And so I will hand it over to Bob and/or Brian to close out the call.

Robert C. Rowe -- President and Chief Executive Officer

Just to finish the way we started, it's been fantastic to work with Brian as CFO for many, many years. He's going to do a great job as COO. All of the operational needs are looking forward to working with him in that capacity. And Crystal, based on her career, is stepping into her new role just about as well prepared as can be. So thank you for spending your Friday with us before what is for everyone other than us a three day weekend. And as I said, I'm going to go outside and play in the snow. Have a good weekend.

Brian B. Bird -- Chief Financial Officer

Bob, if I could, I'd like to say just a couple of things.

Robert C. Rowe -- President and Chief Executive Officer

Absolutely. My gosh. Yes.

Brian B. Bird -- Chief Financial Officer

Well, first of all, likewise, Bob, I know our combined 30 years actually continues just with different roles. And so I enjoy -- continue to enjoy our relationship and look forward to adding on to those years. I'm also excited for Crystal. I started this job 17 years ago in my early 40s, and that's where Crystal sits. I expect similar great things from her, probably even better than certainly my performance over that time period. And lastly, I I'd like to thank Travis. Everybody knows Travis Meyer. He does a fantastic job. And you may not know Tory Payne, who works with Tory. The two of them make a fantastic team and I think one of the best IR department is in this space. And so I want to thank those guys for their help as well. So -- and thank all of you who support the company. Really appreciate not only the support of the company, but support that you've given me as CFO. So thank you very much.

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Travis E. Meyer -- Director of Corporate Finance & Investor Relations Officer

Robert C. Rowe -- President and Chief Executive Officer

Brian B. Bird -- Chief Financial Officer

Crystal D. Lail -- Vice President and Chief Accounting Officer

Andrew Levi -- Analyst

Michael Weinstein -- Credit Suisse -- Analyst

Jonathan Reeder -- Wells Fargo -- Analyst

Ryan Greenwald -- Bank of America Merrill Lynch -- Analyst

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